===== PAGE 1 ===== May 1998 oo 3 CL Ee. ~ VohdBNo.5 J IDEAS ON LIBERTY | FEATURES 260 The Free Market and Scientific Research by Aaron Steelman The private sector does produce important scientific breakthroughs. 263 On That Day Began Lies by Leonard E. Read Individuals must resolve to act and speak for themselves. 274 “Let ’Em Skate!”: Defeating Local Socialism by George C. Leef A special-interest project is put on ice. 278 Human Ignorance and Social Engineering by Wendy McElroy How institutions of society naturally evolve. 285 Unrestrained Appetites, Unlimited Government by Jeffrey R. Snyder What we can learn from Wickard v. Filburn. 290 We Can Do Better than Government Inspection of Meat by E.C. Pasour, Jr. How market incentives provide consumers with valuable safeguards. 298 A Number, Not a Name: Big Brother by Stealth by Claire Wolfe The move toward national identification cards. 307 Herbert Dow and Predatory Pricing by Burton Folsom How a pioneering chemist successfully fought a German cartel. Center NOTES from FEE—Cursed by Economic Knowledge and Ignorance by Donald J. Boudreaux 272 IDEAS and CONSEQUENCES—The Freedom Not to Pay for Other People’s Politics by Lawrence W. Reed 283 POTOMAC PRINCIPLES—Deficits Are Good by Doug Bandow 296 PERIPATETICS—Drawing the Line by Sheldon Richman 304 ECONOMIC NOTIONS—Social Cooperation, Good Intentions, and Incentives by Dwight R. Lee 313 ECONOMICS on TRIAL—Today’s Most Influential Economist? by Mark Skousen 319 THE PURSUIT of HAPPINESS—Salt Without Savor by Charles W. Baird DEPARTMENTS 258 Perspective—Mr. Spencer Versus the State by Sheldon Richman 315 Book Reviews Fair Play: What Your Child Can Teach You About Economics, Values, and the Meaning of Life by Steven E. Landsburg, reviewed by Donald J. Boudreaux; Rediscovering American Values by Dick DeVos, reviewed by George C. Leef, In Restraint of Trade: The Business Campaign Against Competition, 1918-1938 by Butler Shaffer, reviewed by Burton Folsom. ===== PAGE 2 ===== I THEFREEMAN ER ee PERSPECTIVE Mr. Spencer Versus the State Published by The Foundation for Economic Education pvingtoteon-Fludson, NY 10533 Herbert Spencer, who would have been 178 Phone (314) Garg. AX (914) 591-8910 years old in April, is a hero of mine. Spencer FEE Home Page: http://www.fee.org made himself the very symbol of laissez-faire President: Donald J. Boudreaux liberalism in late nineteenth-century England Editor: Sheldon Richman and the United States. He was so much the Managing Editor: Beth A. Hoffman symbol that he was regularly attacked by the Editor Emeritus intellectuals who wanted to replace laissez Paul L. Poirot faire—imperfectly as it had developed—with Book Review Editor collectivism. This was when the term liberal- George C. Leef . . oC . ism began to become the label for interven- Editorial Assistant Lo. . Mary Ann Murphy tionism. Spencer watched events with horror. Columnists It wasn’t just that the label was changing. Lib- Charles W. Baird erals were changing. In “The New Toryism” Doug Bandow (in The Man Versus the State), Spencer Dwight R. Lee Lawrence W. Reed observed that “Most of those who now pass as Mark Skousen Liberals, are Tories of a new type.” The New Walter Williams Tories, Spencer said, were former classical Contributing Editors liberals who confused rectifying state-gener- Peter J. Boettke ated evil, which was the liberal legacy, with Clarence B. Carson achieving good. The mixed-up liberals came Thomas J. DiLorenzo . . oo. . to think that their mission was to use coercive Burton W. Folsom, Jr. Joseph S. Fulda methods to bring about the good directly, Bettina Bien Greaves rather than leaving people free to achieve their Robert Higgs own good. He catalogued the interventions of Join Hospers Prime Minister Gladstone, whom history paved J Keating treats as one of the great liberal leaders of aniel B. Klein Great Britain. The phenomenon of statists in Wendy McElroy . . . . Tibor R. Machen liberal clothing is not unknown in contempo- Ronald Nash rary American politics. Edmund A. Opitz A despairing Spencer, witnessing “The James L. Payne Coming Slavery” (also in The Man Versus the William H. Peterson State), said in 1885 that he would no longer Jane S. Shaw write about politics: “The wave of opinion car- rying us toward socialism and utter subordina- tion of the individual is becoming irresistible.” How difficult it must have been for the Richard H. Timberlake Lawrence H. White The Freeman is the monthly publication of The Foundation for Eco- nomic Education, Inc., Irvington-on-Hudson, NY 10533. FEE, established in 1946 by Leonard E. Read, is a non-political, educational grand old liberal to watch the world move champion of private property, the free market, and limited government. . . . . FEE is classified as a 26 USC 501(c)(3) tax-exempt organization. from the edge of liberty, laissez faire, and uni- Copyright © 1998 by The Foundation for Economic Education. Per- f 11 mission is granted to reprint any article in this issue except “A Number, ver sal progr ess towar d the abyss oI collec- Nota Name, . provided credit is given and two copies of the reprinted tivism. He di ed in 1903, spared the agony of _ The costs of Foundation projects and services are met through dona- witnessing that triumph of statism, World War tions, which are invited in any amount. Donors of $30.00 or more . . receive a subscription to The Freeman. For foreign delivery, a donation I. When the freedom philosophy 1S fully of $45.00 a year is suggested to cover mailing costs. Student subscrip- : . : : tions are $10.00 for the nine-month academic year; $5.00 per semester. I estored to 1ts rightful place m the public s Additional copies of this issue of The Freeman are $3.00 each. i 1 4 : Bound volumes of The Freeman are available from The Foundation thinking, Mr. Spencer will assuredly regan for calendar years 1972 to date. The Freeman is available in microform the respect he deserves. from University Microfilms, 300 N. Zeeb Rd., Ann Arbor, MI 48106. * %k 3k Cover photo: Dr. Maurice Hileman, one of the developers of Pneumovax. Courtesy of Corporate Archives, Merck & Company, Inc. 258 ===== PAGE 3 ===== lo ___________ PERSPECTIVE The free market cannot support basic med- to have federally approved photo identifica- ical and scientific research. There’s a common tion cards complete with personal informa- refrain. Aaron Steelman, however, demon- tion. Of course, it’s for our own protection. Is strates that, like so much that we “know,” it it, asks Claire Wolfe? ain’t so. We introduce a new column this month: In our continuing observance of the centen- Dwight Lee’s “Economic Notions.” In each nial of the birth of FEE founding president issue, Lee will discuss a concept key to eco- Leonard E. Read, we reprint his classic “On nomics. He begins, appropriately enough, by That Day Began Lies,” in which Mr. Read explaining what interests economists. exposes the dangers of all kinds of collectivist Herbert Dow wanted to sell bromine in thinking. Europe. The powerful bromine cartel said no. What's the harm in a town building an ice- Guess who won? Burton Folsom tells the skating rink? George Leef offers an instruc- story of courage and ingenuity. tive lesson in the ways of local interest-group In this month’s “Pursuit of Happiness,” politics. Charles Baird decries the law that permits There are two kinds of people in the world: union agents to infiltrate and sabotage private those who believe society must be designed companies. and those who grasp the idea of undesigned Lawrence Reed revisits the landmark Beck order. The distinction is crucial, as Wendy decision. Doug Bandow looks at the positive McElroy shows us. side of deficits. And Mark Skousen has good “He who pays the piper calls the tune.” So news for devotees of Austrian economics. said the Supreme Court, more or less, in a Book reviews this month take up such mat- 1942 landmark case about a farmer who want- ters as children’s economic sense, the values ed to grow wheat for his own consumption. of decent people, and free trade. Jeffrey Snyder points out that the case is usu- Enjoy. ally misinterpreted by freedom’s advocates. Its —SHELDON RICHMAN real lesson makes it even more important. After decades of federal meat inspection, Note: In my February article, “Reading the consumers still need to worry about bacteria Second Amendment,” I neglected to credit J. in their steaks and chops. How could that be? Neil Schulman for my knowledge of the letter E.C.Pasour puts government inspection under on punctuation from the American Law Divi- a microscope and finds it tainted. sion of the Library of Congress. It is repro- If all goes as planned, we will be required duced in his book Stopping Power. The Freeman—A Tool for Teachers and Homeschoolers Beginning with this issue, The Freeman will become an even better teaching tool. We will use an apple icon to identify articles that are particularly appropriate for teaching high-school students four major subjects: economics, history, govern- ment/civics, and philosophy. Additionally, we will provide sample lesson plans for these articles on our web- site www.fee.org and in written form. Teachers and homeschooling parents need only to visit our website or request written lesson plans to take advantage of this unique service. 259 ===== PAGE 4 ===== THEFREEMAN ® Economics IDEAS ON UBERTY — The Free Market and Scientific Research by Aaron Steelman pponents of classical liberalism fre- hoping that the government-sponsored group quently argue that if scientific research is would publish the results of his work. He was to be done, it must be done by the state. Pri- turned down, told that the concept was too vate organizations, it is claimed, are too revolutionary and the evidence weak.! So he myopic to conduct research that frequently decided to publish the work himself. Appear- has no immediate value. ing in 1798, An Inquiry into the Causes and That attitude has manifested itself recently Effects of Variolae Vaccinae quickly became in discussion over AIDS research. President one of the most important books of its kind. Clinton has called the development of a vac- In addition to helping slow the spread of cine for AIDS “a new national goal for sci- smallpox, the book sparked research into vac- ence,” one comparable to John F. Kennedy’s cinations for a number of other ills. call for the United States to put a man on the * In the late 1880s Henry Mulford pur- moon. And AIDS activist Wayne Turner has chased the “Old Simes” drugstore in Philadel- urged the president to do even more, arguing phia. Shortly after he acquired the business, that “great American presidents have mobi- he became bored and decided to enter phar- lized resources in times of national crisis.” maceutical development, as did more than But is such rhetoric reasonable? Is it true 140 other firms in Philadelphia during that that the private sector is incapable of funding period. Although H.K. Mulford Company, as scientific research? The historical evidence it came to be called, was not initially prof- suggests that the answer is no. In fact, the pri- itable, Mulford and his investors carried on, vate sector has been responsible for some of and in 1894 they asked Dr. Joseph McFarland mankind’s most important scientific break- of the University of Pennsylvania to join the throughs. company. McFarland required a monthly salary of $100. Although money was tight and * In the 1780s Edward Jenner, an English the company needed to sell 100 shares of country doctor, began work on a vaccination stock to finance McFarland’ research, the for smallpox. After more than a dozen years board of directors agreed. McFarland’s first of experiments funded entirely out of his own project was to develop a diphtheria antitoxin. pocket, he found one. Jubilant, Jenner wanted He accomplished his goal within a year; in the to share his discovery with a public that had early summer of 1895 Mulford was able to been terrorized by the dreaded disease. He offer for sale the first commercial diphtheria approached the Royal Society of London, antitoxin produced in the United States. The breakthrough was, as historians Louis Galam- bos and Jane Eliot Sewell have written, “a Aaron Steelman is staff writer at the Cato Institute. credit to an entrepreneurial firm.”? 260 ===== PAGE 5 ===== 261 » The discovery of the structure of DNA real problem—the production, purification was largely a product of private action. As and testing of penicillin—from every avail- Terence Kealey reports in his outstanding able angle.””s Less than two years later, Chain book, The Economic Laws of Scientific and Florey had completed their work, and Research, O.T. Avery, while working on a cure Merck was producing penicillin for both the for pneumonia at the privately funded Rocke- English and American markets. Chain and feller Institute in the 1940s, became the first Florey shared the Nobel Prize with Fleming person to learn that DNA was the molecule of in 1945. inheritance. “Once Avery had discovered the * While polio has nearly been eradicated in importance of DNA,” Kealey writes, “the sub- the United States, it once was a very serious sequent development of molecular biology problem. In the early 1950s, on average, more was inevitable—thus the discovery of the than 300 new cases were reported each week; structure of DNA in 1953 became a race for some weeks, the figure rose to more than between three teams, Linus Pauling’s in Cal 2,500. And in a poll during that period, more Tech, Watson and Crick in Cambridge, and than 60 percent of Americans said that they Franklin and Wilkins in London.” knew someone afflicted with the disease.6 » Max Delbriick also considered the finan- Thanks to private organizations like the cial assistance he received from the Rocke- National Foundation for Infantile Paralysis, feller Foundation to be critical. He began his however, victims of polio received medical career as a physicist but switched to genetics care, and beginning in the mid-1950s nearly in the mid-1930s, eventually earning the all Americans were protected from the disease Nobel Prize in medicine for his work on the by vaccine. In her book Patenting the Sun: genetic structure of viruses. “Without the Polio and the Salk Vaccine, Jane S. Smith encouragement of the Rockefeller Foundation reports: “Operating without an endowment or in 1937 and their continuing support through a wealthy patron, the National Foundation the mid-forties,” Delbriick said, “I believe I raised enough money every year to pay for the would hardly have been able to make my con- hospital and rehabilitation costs of any polio tributions to biology.” patient who needed help.” Moreover, she * The Rockefeller Foundation was instru- states, “In its heyday in the early 1950s the mental in bringing penicillin to the market as privately supported and administered Founda- well. Penicillin had been discovered in 1928 tion spent ten times as much on polio research by English scientist Alexander Fleming, but as the tax-supported National Institutes of most scientists—including Fleming—believed Health.” that it was an unstable substance and doubted In 1954 such funding led to the develop- its medicinal value. Nevertheless, Oxford ment of a vaccine effective against all three researchers Howard Florey and Ernst Chain varieties of the polio virus. Galambos and continued to explore its practical applications, Sewell write: “Much in the style of the large and in early 1939 they applied to the govern- wartime projects, the undertaking sponsored ment-run Medical Research Council in Eng- in the early 1950s by the Technical Committee land for funding. Their request was rejected, of the National Foundation for Infantile Paral- so they turned to the Rockefeller Foundation. ysis had the goal of developing a killed-virus Florey, writes Gwyn Macfarlane, “decided to vaccine for polio.” They add that the “primary appeal to them for a grant that would support difference between the polio campaign and the his penicillin research for three years. He wartime ventures was that the polio effort was asked, in November 1939, for £1,670 per coordinated by a private foundation and not by annum for salaries and recurrent expenses and the federal government.”8 £1,000 for the initial cost of equipment, and Particularly notable is that the National he got even more than he asked for, since the Foundation was not atypical; in the first quar- Foundation gave him grants for five years. ter of this century more than 75 groups were Chain and Florey were naturally elated. With established to raise money to combat specific financial worries allayed they could attack the diseases. For example, the National Tubercu- ===== PAGE 6 ===== 262 THE FREEMAN e MAY 1998 Merck introduced its vaccine for pneumonia in 1977. losis Association, the American Cancer Soci- expresses the honest conviction that the Feder- ety, the National Society for Crippled Chil- al Government should assume the entire dren (now the Easter Seal Society), and the responsibility in such fields as cardiovascular American Heart Association all emerged diseases, cancer, tuberculosis and mental between 1904 and 1924, years before the fed- health? We must face realistically the fact that eral government became heavily involved in people with small, moderate, or large incomes health issues and medical research.? are so variously and heavily taxed today that * As late as the mid-1960s, few scientists most of them are not only willing but eager to thought that an effective vaccine for pneumo- have the government pay for all possible activ- na could be developed, and as a result, the ities out of those taxes.”12 Such a statement is U.S. government spent essentially no fundson even more true today than when Marvin the disease.!0 Nevertheless, two researchers at penned it nearly 50 years ago. If Americans Merck, Maurice Hilleman and Robert Austri- wish to see a renaissance of scientific discov- an, believed that it was possible to produce a ery and innovation, then they must demand vaccine. In 1970, without government sup- that the state sector retreat and allow the pri- port, they began working on the project, and vate sector to assume its historic role. OJ in 1973 they tested their product, which proved effective in more than 90 percent of b ox (Now York. Putnam. 1690) 130 's Victory over test cases. In 1977 Merck began selling the 2. Louis Galambos and Jane Eliot Sewell, Networks of Innova- 3 um tion: Vaccine Development at Merck, Sharp & Dohme, and Mulford, vaccine, named Pne ovax. The research that 1895-1995 (New York: Cambridge University Press, 1995), p. 17. led to the development of Pneumovax was 3. Terence Kealey, The Economic Laws of Scientific Research fer : : (New York: St. Martin’s Press, 1996), p. 218. also critical mn the development of a vaccine 4. Quoted in Robert Olby, The Path to the Double Helix (Seattle: for bacterial meningitis.!! University of Washington Press, 1974), p. 443. : 5. Gwyn Macfarlane, Alexander Fleming: The Man and the Myth As these examples demonstrate, the private dt Tn niversity Press, 1984), p. 172. sector is more than capable of conducting 6. David L. Sills, The Volunteers: Means and Ends in a National : : : Organization (Glencoe, Il1.: Free Press, 1957), pp. 123-28. important and valuable scientific research. 7. Jane S. Smith, Patenting the Sun (New York: Morrow, 1990), However, today private groups face an impor- p. 64. tant competitor—the federal government— y Naira Sewell, p. 59. that increasingly crowds out investment and 10. At this time, pneumonia was still the fourth leading cause of : : vi S41 : death in the United States. Barbara Gutman Rosenkrantz, From Con- p hilanthrop 1C giving. Writing In 1950, HM. sumption to Tuberculosis: A Documentary History (New York: Gar- Marvin, former president of the American iand, 1994), p. 5. fats NT; 11. Galambos and Sewell, pp. 161-79. Heart Association, argued: ‘What are we to 12. Quoted in Richard Carter, The Gentle Legions (New York: say, for example, to the intelligent citizen who Doubleday, 1961), p. 20. ===== PAGE 7 ===== {DEAS ON UBERTY On That Day Began Lies by Leonard E. Read From the day when the first members of councils placed exterior authority higher than interior, that is to say, recognized the decisions of men united in councils as more important and more sacred than reason and conscience; on that day began lies that caused the loss of millions of human beings and which continue their unhappy work to the present day. —LEo ToLsTOY! his is a striking statement. Is it possible tragic spectacle, even here in America, of any that there is something of a wholly one of many union leaders being able, at will, destructive nature which has its source in to control a strategic part of the complex councilmanic, or in group, or in committee- exchange machinery on which the livelihood type action? Can this sort of thing generate of all depends; these and other perplexities of lies that actually cause the loss of “millions of import combine to raise a tumultuous “why,” human beings”? and to hasten the search for answers. Any reasonable clue to the unhappy state of our affairs merits investigation. Two world wars that settled nothing except adding to the The Search for Answers difficulties of avoiding even worse ones; men Strange how wide and varied the search, as lacking in good character rising to positions though we intuitively knew the cause to lie in of power over millions of other men; freedom ype elusive, hidden, unnoticed error. The to produce, to trade, to travel, disappearing affair is serious. The stake is life itself. And from the earth; everywhere the fretful talk of the error or errors, it is agreed at least by the security as insecurity daily becomes more evi- gerious-minded, may well be found deep in dent; suggested solutions to problems made thoughts and behaviors of men, even of of the stuff that gave rise to the problems; the e]l.intentioned men. Anyway, everything SN and everyone is suspect. And, why not? When Leonard E. Read established FEE in 1946 and served there is known to be a culprit and the culprit as its president until his death in 1983. This article, gr first published in 1949, is excerpted from Essays on IS not mown, what other scientifically sound Liberty, Vol. 1 (1952, pp. 231-252). It is the fifth ina PTOCCCUIC IS there! , monthly series commemorating the 100th anniver- . . . on that day began lies. . . ” That is sary of Mr. Read’s birth. something to think about. Obviously, if every- 263 ===== PAGE 8 ===== 264 THE FREEMAN e MAY 1998 thing said or written were lies, then truth or The Spirit of the Mob right principles would be unknown. Subtract all knowledge of right principles and there ~~ Lhe first has to do with a strange and would not be even chaos among men. Quite What in most instances must be an uncon- likely there would be no men at all. scious behavior of men in association. Con- If half of everything said or written were Sider the mob. It is a loose-type association. lies. . . The mob will tar and feather, burn at the Human life is dependent not only on the Stake, string up by the neck, and otherwise knowledge of right principles but dependent, murder. But dissect this association, pull it also, on actions in accordance with right prin- apart, investigate its individual components. ciples. Admittedly there are wrong principles Each person, very often, is a God-fearing, and right principles. However, the nearest that home-loving, wouldn’t-kill-a-fly type of any person can get to right principles— Individual. truth—is that which his highest personal What happens, then? What makes persons judgment dictates as right. Beyond that one 1 @ mob behave as they do? What accounts cannot go or achieve. Truth, then, as nearly as for the distinction between these persons act- any individual can express it, is in strict ng as responsible individuals and acting in accordance with this inner, personal dictate association? of rightness. Perhaps it is this: These persons, when in The accurate representation of this inner, Mob association, and maybe at the instiga- personal dictate is intellectual integrity. It is tion of a demented leader, remove the self- the expressing, living, acting of such truth as disciplines which guide them in individual any given person iS in possession of. Inaccu- action, thus the evil that is in each person is rate representation of what one believes to be released, for there is some evil in all of us. In right is untruth. It is a lie. this situation, no one of the mobsters con- Attaining knowledge of right principles is Sciously assumes the personal guilt for what an infinite process. It is a development to be 1s thought to be a collective act but, instead, pursued but never completed. Intellectual puts the onus of it on an abstraction which, integrity, the accurate reflection of highest Without persons, is what the mob is. personal judgment, on the other hand, is with- There may be the appearance of unfairness in the reach of all. Thus, the best we can do in relating mob association to association in with ourselves is to represent ourselves at our general. In all but one respect, yes. But in one best. To do otherwise is to tell a lie. To tell lies respect there is a striking similarity. is to destroy such truth as is known. To deny Persons advocate proposals in association truth is to destroy ourselves. that they would in no circumstance practice in It would seem to follow, then, that if we individual action. Honest men, by any of the could isolate any one or numerous origins of common standards of honesty, will, in a board lies we might put the spotlight on the genesis or a committee, sponsor, for instance, legal of our troublous times. This is why it seems thievery—that is, they will urge the use of the appropriate to accept Tolstoy’s statement as a political means to exact the fruits of the labor hypothesis and examine into the idea that lies of others for the purpose of benefiting them- begin with “decisions of men united in coun- selves, their group, or their community. cils as more important and more sacred than These leaders, for they have been elected or reason and conscience.” For, certainly, today, appointed to a board or a committee, do not much of the decision that guides national and think of themselves as having sponsored legal world policy springs from “men united in thievery. They think of the board, the commit- councils.” tee, the council, or the association as having In what manner, then, do “the decisions of taken the action.2 The onus of the act, to their men united in councils” tend to initiate lies? way of thinking, is put on an abstraction Experience with these arrangements suggests which is what a board or an association is that there are several ways. without persons. ===== PAGE 9 ===== ON THAT DAY BEGAN LIES 265 Imagine this: Joe Doakes passed away and state idea and believes that rents should for- floated up to the Pearly Gates. He pounded on ever be controlled by governmental fiat. The the Gates and St. Peter appeared. second member is a devotee of the voluntary “Who are you, may I ask?” society, free-market economy, and a govern- “My name is Joe Doakes, sir.” ment of strictly limited powers and, therefore, “Where are you from?” believes that rent control should be abolished “I am from Updale, U.S.A.” forthwith. The third member believes rent “Why are you here?” controls to be bad but thinks that the decon- “I plead admittance, Mr. St. Peter.” trol should be effected gradually, over a peri- St. Peter scanned his scroll and said, “Yes, od of years. Joe, you are on my list. Sorry I can’t let you This not uncommon situation is composed in. You stole money from others, including of men honestly holding three irreconcilable widows and orphans.” beliefs. Yet, a report is expected and under the “Mr. St. Peter, I had the reputation of being customary committee theory and practice is an honest man. What do you mean, I stole usually forthcoming. What to do? Why not hit money from widows and orphans?” upon something that is not too disagreeable to “Joe, you were a member, a financial sup- any one of the three? For instance, why not porter and once on the Board of Directors of bring in a report recommending that landlords The Updale Do-Good Association. It advocat- be permitted by government to increase rents ed a municipal golf course in Updale which in an amount not to exceed 15 percent? took money from widows and orphans in Agreed! order to benefit you and a hundred other In this hypothetical but common instance golfers.” the recommendation is a fabrication, pure and “Mr. St. Peter, that was The Updale Do- simple. Truth, as understood by any one of the Good Association that took that action, not three, has no spokesman. By any reasonable your humble applicant, Joe Doakes.” definition a lie has been told. St. Peter scanned his scroll again, slowly raised his head, and said somewhat sadly, The Lowest Common “Joe, The Updale Do-Good Association is not : : Denominator on my list, nor any foundation, nor any cham- ber of commerce, nor any trade association, Another example. Three men having no nor any labor union, nor any PT.A. All I have preconceived ideas are appointed to bring in listed here are persons, just persons.” a report. What will they agree to? Only that It ought to be obvious that we as individuals which they are willing to say in concert stand responsible for our actions regardless of which, logically, can be only the lowest any wishes to the contrary, or irrespective of common-denominator opinion of the majori- the devices we try to arrange to avoid person- ty! The lowest common-denominator opinion al responsibility. Actions of the group charac- of two persons cannot be an accurate reflec- ter heretofore referred to are lies for in no tion of the highest judgment of each of the sense are they accurate responses to the high- two. The lowest common-denominator opin- est judgments of the individuals concerned. ion of a set of men is at variance with truth as here defined. Again, it is a fabrication. Truth The Spirit of the Committee has no spokesman. A lie has been told. These examples (numberless variations The second way that lies are initiated by could be cited) suggest only the nature of the “the decisions of men united in councils” lie in embryo. It is interesting to see what inheres in commonly accepted committee becomes of it. practices. For example: A committee of three Not all bodies called committees are true has been assigned the task of preparing a committees, a phase of the discussion that report on what should be done about rent con- will be dealt with later. However, the true trol. The first member is devoted to the welfare- committee, the arrangement which calls for ===== PAGE 10 ===== 266 THE FREEMAN ee MAY 1998 resolution in accordance with what a majority enough of them. The quantitative theory of of the members are willing to say in concert, wisdom, so to speak? is but the instigator of fabrications yet more pronounced. The committee, for the most A Lie C ompoun ded part, presupposes another larger body to which its recommendations are made. If one will concede that the aforementioned These larger bodies have a vast, almost an committee characteristics and council behav- all-inclusive, range in present-day American iors are perversions of truth, it becomes inter- life. The neighborhood development associa- esting to observe the manner of their exten- tions; the small town and big city chambers of sion—to observe how the lie is compounded. commerce; the regional and national trade Analyzed, it is something like this: An asso- associations; the PT.A.’s; labor unions orga- ciation takes a stand on a certain issue and nized vertically to encompass crafts and hori- claims or implies it speaks for its one million zontally to embrace industries; farmers’ members. It is possible, of course, that each of granges and co-ops; medical and other kinds the one million members agrees with the of professional societies; ward, precinct, stand taken by the organization. But, in all county, state, and national organizations of probability, this is an untruthful statement, for political parties; governmental councils from the following possible reasons: the local police department board to the Con- gress of the United States; the United 1. If every member were actually polled on Nations; thousands and tens of thousands of the issue, and the majority vote was accepted as them, every citizen embraced by several of the organization’s position, there is no certainty them and millions of citizens embraced by that more than 500,001 persons agreed with scores of them; most of them “resoluting” as the position stated as that of the one million. groups, deciding as “men united in councils.” 2. If not all members were polled, or not all These associational arrangements divide were at the meeting where the voting took quite naturally into two broad classes: place, there is only the certainty that a major- (1) those that are of the voluntary type, the ity of those voting favored the position of the kind to which we pay dues if we want to, and organization—still claimed to be the belief of (2) those that are a part of government, the one million persons. If the quorum should be kind to which we pay taxes whether we want 100, there is no certainty that more than 51 to or not. persons agreed with that position. For the purposes of this critique, emphasis 3. It is still more likely that the opinion of will be placed on the voluntary type. In many the members was not tested at all. The offi- respects criticisms applying to the former are cers, or some committee, or some one person valid when applied to the latter3; nonetheless, may have determined the stand of the organi- there are distinctions between the way one zation. Then there is no certainty that more should relate oneself to a voluntary associa- than one person (or a majority of the commit- tion and the way one, for the sake of self- tee) favored that position. protection, is almost compelled to relate him- 4. And, finally, if that person should be dis- self to a coercive agency. honest—that is, untrue to that which he per- Now, it is not true, nor is it here pretended, sonally believed to be right, either by reason that every associational resolution originates of ulterior motives, or by reason of anticipat- in distortions of personal conceptions of what ing what the others will like or approve— is right. But any one of the millions of citizens then, it is pretty certain that the resolution did who participates in these associations has, by not even originate in honest opinion. experience, learned how extensive these fabri- cations are. As a matter of fact, there has An example will assist in making the point. developed a rather large acceptance of the The economist of a national association and a notion that wisdom can be derived from the friend were breakfasting one morning, just averaging of opinions, providing there are after the end of World War II. Wage and price ===== PAGE 11 ===== ON THAT DAY BEGAN LIES 267 controls were still in effect. The conversation is warped into a misleading distortion. It is went something as follows: obliterated by this process of the majority speaking for the minority, more often by the “I have just written a report on wage and minority speaking for the majority, sometimes price controls which I think you will like.” by one dishonest opportunist speaking for “Why do you say you think I will like it? thousands. Truth, such as is known—the best Why don’t you say you know I will like it?” judgments of individuals—for the most part, “Well, I——er—hedged a little on rent con- goes unrepresented, unspoken. trols.” This, then, is the stuff out of which much of “You don’t believe in rent controls. Why local, national, and world policy is being did you hedge?” woven. Is it any wonder that many citizens are “Because the report is as strong as I think confused? our Board of Directors will adopt.” Three questions are in order, and deserve “As the economist, isn’t it your business to suggested answers: state that which you believe to be right? If the Board Members want to take a wrong action, 1. What is the reason for having all these let them do so and bear the responsibility troubles with truth? for it” 2. What should we do about these associa- tional difficulties? . . . 3. Is there a proper place for associational Paying for Misrepresentation activity as relating to important issues? Actually, what happened? The Board did adopt that report. It was represented to the “And now remains Congress as the considered opinion of the That we find out the cause of this effect; constituency of that association. Many of the Or, rather say, the cause of this defect, members believed in the immediate abolish- For this effect, defective, comes by cause.” ment of rent control. Yet, they were reported as believing otherwise—and paying dues to Pointing out causes is a hazardous venture be thus misrepresented. By supporting this for, as one ancient sage put it, “Even from the procedure with their membership and their beginnings of the world descends a chain of money they were as responsible as though causes.” Thus, for the purpose of this cri- they had gone before the Congress and told tique, it would be folly to attempt more than the lie themselves. casual reference to some of our own recent To remove the twofold dishonesty from experiences. such a situation, the spokesman of that asso- First, there doesn’t appear to be any wide- ciation would have to say something like this spread, lively recognition of the fact that con- to the Congress: science, reason, knowledge, integrity, fidelity, understanding, judgment, and other virtues are the distinctive and exclusive properties of individual persons. Somehow, there follows from this lack of recognition the notion that wisdom can be derived by pooling the conclusions of a suf- ficient number of persons, even though no Such honesty or exactness is more the one of them has applied his faculties to the exception than the rule as everyone who has problems in question. With this as a notion had experience in associational work can the imagination begins to ascribe personal attest. What really happens is a misrepresen- characteristics to a collective—the commit- tation of concurrence, a program of lying tee, the group, the association—as though about how many of who stands for what. the collective could think, judge, know, or Truth, such as is known, is seldom spoken. It assume responsibility. With this as a notion, “This report was adopted by our Board of Directors, 35 of the 100 being present. The vote was 18 to 12 in favor of the report, 5 not voting. The report itself was prepared by our economist, but it is not an accurate reflection of his views.”* ===== PAGE 12 ===== 268 THE FREEMAN ee MAY 1998 there is the inclination to substitute the For reasons stated and implied throughout “decisions of men united in councils” for this critique the majority-decision system is reason and conscience. With this as a notion, considered to be most inexpert. However, it the responsibility for personal thought is proves to be a virtue rather than a fault as relieved and, thus relieved, fails to material- applied to the exceedingly dangerous coercive ize to its fullest. power, providing the coercive power is limited to its sphere of policing. This inexpertness in A Blind Faith such a circumstance tends to keep the coer- cive power from becoming too aggressive. Second, there is an almost blind faith in the Conceding the limitation of the coercive efficacy and rightness of majority decision as power, which was implicit in the American though the mere preponderance of opinion design, the really important matters of life, all were the device for determining what is right. of the creative aspects, are outside this coer- This thinking is consistent with and a part of cive sphere and are left to the attentions of the “might makes right” doctrine. This think- men in voluntary effort and free association. ing, no doubt, is an outgrowth of the Ameri- The idea of citizens left free to their home can political pattern, lacking, it seems, an life, their business life, their religious life, observance of the essential distinctions with the coercive power limited to protecting between voluntary and coercive agencies. Itis citizens in these pursuits presents, roughly, necessary that these distinctions be under- the duality of the American pattern. On the stood unless the whole associational error is one hand is the really important part of life, to continue. The following is, at least, a sug- the creative part. On the other hand is the gested explanation: minor part, the part having to do with con- Government—organized police force— straint. Constraining and creating call for dis- which according to best American theory tinctly different arrangements. Constraint can should have a monopoly of coercive power, stop the trains but it is not the force we use to must contain a final authority. Such authority build a railroad. was not planned to be in the person of a Out of this pattern has developed a high monarch, in an oligarchy, or even in a set of appreciation for our form of government, par- elected representatives. The ultimate, final ticularly as we have compared it with the authority was designed to derive from and to coercive agencies of the Old World. Here is reside with the people. Erected as safeguards the point: The majority-decision system, an against the despotism that such a democratic effect rather than a cause of our form of gov- arrangement is almost certain to inflict on its ernment, has been erroneously credited as members were (1) the Constitution and (2) the responsible for the superiority of our form of legislative, executive, and judicial functions government. It has been thought of as its dis- so divided and diffused that each might serve tinctive characteristic. Therefore, the majority- as a check on the others. decision system is regarded as the essence of When the concession is made that govern- rightness. Without raising questions as to the ment is necessary to assure justice and maxi- distinctions between creating and constrain- mum freedom, and when the decision is made ing we have taken a coercive-agency device that the ultimate authority of that government and attempted its application in free associa- shall rest with the people, it follows that tion. Something is not quite right. Perhaps this majority vote is not a matter of choice but a is one of the causes. necessity whenever this ultimate authority expresses itself. No alternative exists with this situation as a premise. To change from major- ity vote as a manner of expression would Third, we have in this country carried the involve changing the premise, changing to a division-of-labor practice to such a high point situation in which the ultimate authority rests and with such good effect in standard-of- in one person. living benefits that we seem to have forgotten Loss of Reason ===== PAGE 13 ===== ON THAT DAY BEGAN LIES 269 that the practice has any limitations. Many of self, and if to stop such evil in others one has us, in respect to our voluntary associational to indulge in evil, it seems evident that evil activities, have tried to delegate moral and will soon become unanimous. The alterna- personal responsibilities to mere abstractions, tive? Stop doing evil. This at least has the which is what associations are, without per- virtue of lessening the evildoers by one. sons. In view of (1) this being an impossi- The question, “Is there a proper place for bility, (2) our persistent attempts to do it, associational activity as relating to important nonetheless, and (3) the consequent loss of issues?” is certainly appropriate if the afore- reason and conscience when personal respon- mentioned criticisms be considered valid. sibility is not personally assumed, we have First, the bulk of activities conducted by succeeded in manufacturing little more than many associations is as businesslike, as eco- massive quantities of collective declarations nomical, as appropriate to the division-of- and resolutions. These, lacking in both wit labor process, as is the organization of spe- and reason, have the power to inflict damage cialists to bake bread or to make automobiles. but are generally useless in conferring under- It is not this vast number of useful service standing. So much for causes. activities that is in question. “What should we do about these associa- The phase of activities here in dispute has tional difficulties?” This writer, to be consis- to do with a technic, a method by which rea- tent with his own convictions, finds it neces- son and conscience—such truths as are pos- sary to drop into first person, singular, to sessed—are not only robbed of incentive for answer this question. improvement but are actually turned into In brief, I do not know what our attitude fabrications, and then represented as the should be, but only what mine is. /# is to have convictions of persons who hold no such no part in any association whatever which takes convictions. actions implicating me for which I am not ready It was noted above that not all bodies called and willing to accept personal responsibility. committees are true committees—a true com- Put it this way: If I am opposed, for mittee being an arrangement by which a num- instance, to spoliation—Ilegal plunder—I am ber of persons bring forth a report consistent not going to risk being reported in its favor. with what the majonty is willing to state in This is a matter having to do with morals, and concert. The true committee is part and parcel moral responsibility is strictly a personal of the majority-decision system. affair. In this, and like areas, I prefer to speak for myself. I do not wish to carry the division- CN of-labor idea, the delegation of authority, to Intellectual Leveling Up this untenable extreme. The alternative arrangement, on occasion This determination of mine refers only to referred to as a committee, may include the voluntary associations and does not include same set of men. The distinction is that the reference to membership in or support of a responsibility and the authority for a study is political party. The latter has to do with my vested not in the collective, the group, but in relationship to coercive agencies and these, as one person, preferably the one most skilled I have suggested, are birds of another feather. in the subject at issue. The others serve as One friend who shares these general criti- consultants. The one person exercises his cisms objects to the course I have determined own judgment as to the suggestions to be on. He objects on the ground that he must incorporated or omitted. The report is his remain in associations which persist in mis- and is presented as his, with such acknowl- representing him in order to effect his own edgments of assistance and concurrence as influence in bettering them. If one accepts this the facts warrant. In short, the responsibility view, how can one keep from “holing up” for the study and the authority to conduct it with any evil to be found, anywhere? If lend- are reposed where responsibility and author- ing one’s support to an agency which lies ity are capable of being exercised—in a per- about one’s convictions is as evil as lying one- son. This arrangement takes full advantage ===== PAGE 14 ===== 270 THE FREEMAN ee MAY 1998 Imagine, if you can, Patrick Henry as having said: “I move that this convention go on record as insisting that we prefer death to slavery.” of the skills and specialisms of all parties “I move that this convention go on record concerned. The tendency here is toward an as insisting that we prefer death to slavery.” intellectual leveling-up, whereas with the Now, suppose that the convention had true committee the lowest common-denomi- adopted that motion. What would have been nator opinion results. its force? Certainly almost nothing as com- On occasion, associations are formed for a pared with Patrick Henry's ringing words: particular purpose and supported by those “I know not what course others may take; who are like-minded as to that purpose. As but as for me, give me liberty or give me long as the associational activities are limited death!” to the stated purpose and as long as the mem- No one in this instance concerned himself bers remain like-minded, the danger of mis- with what Patrick Henry was trying to do to representation is removed. him or to someone else. One thought only of It is the multi-purposed association, the one what Patrick Henry had decided for himself that potentially may take a “position” on a and weighed, more favorably, the merits of variety of subjects, particularly subjects relat- emulation. No convention, no association, ing to the rights or the property of others— no “decisions of men united in councils” moral questions—where misrepresentation is could have said such a thing in the first not only possible but almost certain. place, and second, anything the members The remedy here, if a remedy can be put might have said in concert could not have into effect, is for the association to quit taking equaled this. Third, had the convention been “positions” except on such rare occasions as represented in any such sentiments it is like- unanimous concurrence is manifest, or except ly that misrepresentation would have been as the exact and precise degree and extent of involved. concurrence 1s represented. One needs to reflect but a moment on the The alternative step to most associational words of wisdom which have come down to “positions” is for the members to employ the us throughout all history, the words and division-of-labor theory by pooling their works that have had the power to live, the resources to supply services to the mem- words and works around which we have bers—as individuals. Provide headquarters molded much of our lives, and one will rec- and meeting rooms where they may assemble ognize that they are the words and works of in free association, exchange ideas, take persons, not collective resolutions, not what advantage of the availability and knowledge men have uttered in concert, not the “deci- of others, know of each other’s experiences. In sions of men united in councils.” addition to this, statisticians, research experts, libraries, and a general secretariat and other . aids to effective work can be provided. Then, A Waste of Time let the individuals speak or write or act as In short, if effectiveness for what's right is individual persons! Indeed, this is the real, the object then the decision-of-men-united- high purpose of voluntary associations. in-council practice could well be abandoned, The practical as well as the ethical advan- if for nothing else, on the basis of its imprac- tages of this suggested procedure may not at ticality. It is a waste of time in the creative first be apparent to everyone. Imagine, if you areas, that is, for the advancement of truth. It can, Patrick Henry as having said: is a useful and appropriate device only as it ===== PAGE 15 ===== ON THAT DAY BEGAN LIES 271 relates to the coercive, that is to the restrictive, speak in strict accordance with one’s inner, per- suppressive, destructive functions. sonal dictate of what is right. And for each of The reasons for the impracticality of this us to see to it that no other man or set of men device in the creative areas seem clear. Each is given permission to represent us otherwise. of us when seeking perfection, whether of the If such truth as we are in possession of were spirit, of the intellect, or of the body, looks not in no manner inhibited, then life on this earth to our inferiors but to our betters, not to those would be at its highest possible best, short of who self-appoint themselves as our betters, further enlightenment. J but to those who, in our own humble judg- ment, are our betters. Experience has shown 1. The Law of Love and the Law of Violence (New York: Rudolph that such perfection as there is exists in indi- Field), p. 26. idual t in the 1 d . 2. It is acknowledged that most of us acting in association do not viduals, not in the lowest common-denomina- consciously regard any of our acts as bad. Yet, the fact remains that tor expressions of a collection of individuals. we persist in doing things in this circumstance that we would not do : . . on our own responsibility. Actually, involved is a double standard of Perfection Cmerges with the clear expr €ssion morality. Morality is exclusively a personal quality. Any action not of personal faiths—the truth as it is known y good enough to be regarded as attached to one’s person is, ipso facto, : : bad. ht with the coniusing announcement of ver- 3. The common political idea that a member of Congress, for dl amalgams—I1es. instance, must “compromise,” that is, must on some issues vote con- “« : trary to his convictions in order to effect a greater good on some sub- 1 : £ on that = began hes that caused the sequent issue, or to keep himself in office that he may insure the pub- OSS OI millions oO uman ocmmgs and whic lic good, leaves shattered and destroyed any moral basis of action. If : : each member of Congress were to act in strict accordance with his continue their unhappy work to the present inner dictate of what is right, the final outcome of Congressional day.” The evidence, if fully assembled and action would, of course, be a composite of differing convictions. But correctly presented, would, no doubt, convinc- emo ve of this is a composite of inaccurate reflections of ingly affirm this observation. 4. It is evident that any such report as this is worthless. Yet, a How to stop lies? It is simply a matter of per- more pretentious report would be a lie, a thing of positive harm. If a 3 procedure can result only in worthlessness or harm, the procedure sonal determination and a resolve to act and itself should be in question. Xv ® I 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@fee.org. ===== PAGE 16 ===== Ideas and Consequences by Lawrence W. Reed The Freedom Not to Pay for Other People’s Politics amuel Gompers, the founder of the mod- workers, it is usually in the unions best ern American labor union movement, interest to sacrifice other proposals at the bar- once wrote, “there may be here and there a gaining table to secure this lucrative and self- worker who for certain reasons unexplainable perpetuating device. to us does not join a union of labor. . . . It is Workers covered by a security clause must his legal right and no one can or dare question pay dues for the union’s collective-bargaining his exercise of that legal right.” activities, but they are not required to finan- Today, union leaders rarely tell the rank and cially support the union’s political or ideo- file about Gompers’s defense of individual logical causes. In fact, workers are actually rights. Armed with tens of millions of dollars entitled to a refund of their dues used for pur- in forced dues from compulsory union mem- poses unrelated to collective bargaining, con- bership, today’s unions engage in political tract administration, or grievance processing, activity, social causes, and ideological cru- according to the 1988 U.S. Supreme Court sades to which many of the members per- decision in Communication Workers of Amer- sonally object. That may change, if a 1988 cq v. Beck. Supreme Court decision is ever enforced. In that celebrated case, it was determined In 21 “right to work” states, workers are pro- that the union had been using as much as 79 tected from union compulsion by laws that percent of Harry Beck's dues for partisan pol- make union membership voluntary. But in the jtics—and almost all of it on behalf of one other 29 states, a simple majority vote ata work particular political party. In a more recent site is sufficient to dragoon all workers into a case from Ferris State University in Michi- union. With this “exclusive right of represen- gan, a teachers union was found to have been tation,” unions then negotiate security clauses spending over 90 percent of its members’ in contracts with employers that give them the ques money on political and other non- power to coerce their “members” to pay dues. bargaining activities. Employers routinely approve these clauses, Ten years after the landmark decision, Beck even though no law mandates them, in pohes go largely unrealized because workers exchange for concessions at the bargaining simply do not know these rights exist and table. A security clause obligates an employer ciate and federal governments have done to fire a worker who fails to pay these fees at 1most nothing to enforce them. In April 1996 the union’s request. Since this guarantees that [ \;ntz Research revealed that 78 percent of the union will get whatever it demands from 1,000 union members surveyed were unaware —_—— that they had a right to a refund of the portion Lawrence Reed, economist and author, is president of the Mackinac Center for Public Policy, a free-market of their dues that went to political activities. research and educational organization in Midland, Moreover, a whopping 84 percent in the sur- Michigan. vey said that their union leaders should be 272 ===== PAGE 17 ===== 273 required to disclose “exactly how they spend” The state of Washington is virtually alone union dues. in attempting to enforce Beck rights. In 1992, Peer pressure and veiled threats from the 72 percent of that state’s voters approved a top discourage the informed few from even ballot initiative requiring teachers unions to attempting to exercise their Beck rights. When secure written permission from each worker union members have actually challenged their before deducting political-action assessments union leadership to honor the decision—and from his paycheck. For state-government there have been a courageous few—they get workers, the voters approved even stricter lan- the cold shoulder or worse. Union leaders guage: state-employee unions could not behave like the monopolists they are— deduct for political contributions under any stonewalling, falsifying the numbers, and circumstances; an employee’s personal check forcing disgruntled workers to spend large was required. sums of money to litigate the issue. To most What happened after these changes was workers, that expense is hardly worth the nothing short of astonishing. The number of eventual refund. teachers contributing to their unions’ political- In a free society, membership in any orga- action committees plummeted from over nization would be a matter of choice and the 45,000 to just 8,000. And the number of state issue of spending dues money against the workers making such a contribution—over wishes of dues payers would be a rare tempest 40,000 before the change—evaporated to a in a very tiny teapot. Compelling someone to microscopic 82. No wonder unions every- join and pay dues to support collective bar- where are scared stiff that Beck rights might gaining does obvious violence to that princi- become a cause célebre. ple, but the Supreme Court’s Beck ruling was California voters will go to the polls later intended to prevent something even worse— this year to decide on a Beck-inspired referen- forcing a worker to pay for other people’s dum. If it passes, unions in that state could no political agendas. longer collect or use money from employees In April 1992, President George Bush for political purposes without express permis- issued an executive order requiring all firms sion. Millions of dollars will be spent by both doing business with the federal government to sides over the exercise of a right that ought to inform their workers of their Beck rights. be a given in the land of the free and the home Shortly after assuming office in 1993, Presi- of the brave. dent Bill Clinton rescinded that order. It The failure to enforce that right mocks jus- remains a travesty of justice in America that tice and offends a most fundamental principle in spite of a ruling from the highest court in of individual liberty. Freedom lovers every- the land, our so-called public servants with where should yearn for the day when Ameri- few exceptions cannot bring themselves to can workers are no longer compelled to cough enforce every worker’s right to abstain from up cash for the pet political projects of union supporting causes and candidates he opposes. leaders. J ===== PAGE 18 ===== THEFREEMAN @ Government Civics (DEAS ON LIBERTY — “Let ’ Em Skate!”: Defeating Local Socialism by George C. Leef rdinarily, township government is pretty over an existing ice rink in Lansing to make it dull stuff, which is just the way I like it. available year round, these people wanted There are enough battles to be fought over Meridian Township to have “its own” ice proposed federal or state power grabs. If the arena. They set about to get it in the manner township sticks to issues like public safety, that has now become the norm in America. road repairs, and similar functions, I can They turned to government. peacefully coexist with it. With the imprimatur of one member of the Unfortunately, in the summer of 1997 all of township board of trustees, an Ice Arena Task that changed in my township, Meridian Town- Force was formed, composed almost entirely ship in the northeastern suburbs of Lansing, of hockey enthusiasts. The job of the task Michigan. It changed because a group of skat- force was to “study the need” for an ice arena ing (mainly hockey) enthusiasts wanted to in Meridian Township. That was like asking a have the township finance and build an ice group of hogs to study the need for more food arena for them. Special-interest politics had in the trough. reared its ugly head. The following story may The “study” turned out to be a telephone be of interest to those of you who believe in survey costing some $6,000 that asked a long limited government and who have a desire to series of sports and exercise-related questions stop special-interest projects before they take before finally getting to the clincher: “Would a bite out of your wallets. you be in favor of a self-supporting ice arena Like most northern U.S. cities, Lansing has in Meridian Township?” Naturally, most peo- many people who enjoy ice sports. Some of ple said yes. Telephone surveys are notorious- them thought that the facilities for skating and ly self-selecting (people who weren’t interest- ice hockey in the area were inadequate. Par- ed in having their time taken up with a survey ents complained of having to get up early and on sports probably hung up immediately) and drive their sons as far away as Jackson (about this question is extremely leading. Neverthe- 40 miles) for hockey practices. Even though less, the task force concluded and the board plans were afoot to construct a large multi- concurred that there was a great desire for an purpose sports complex on the west side of ice arena. Lansing (privately financed), which would But why have this arena financed by gov- include two ice surfaces, and to put a dome ernment? Why not look for private investors? Another “study” done by the task force pro- George Leef, president of Patrick Henry Associates vided the answer. The task force surveyed ice in Michigan, is book review editor of The Freeman arcNa Managers im Michigan, and one ques- and director of FEE’s network of Freeman Society tion asked: “On a scale of one to five, do you Discussion Clubs. agree or disagree with the statement that pri- 274 ===== PAGE 19 ===== 275 vate enterprise is unable to provide ice facili- do not need to be approved by the voters. Aha! ties needed by the public.” Keep in mind that Limited general-obligation bonds it would be! this is being asked of arena managers, not of In July 1997, the Meridian board of trustees people who might actually consider making voted for the task force’s proposal to have the such an investment. Whatever the answers township sell the bonds and build the ice might be, they shed little light on the feasibil- arena. Even though one trustee argued that the ity of private ice arenas. Nevertheless, the plan ought to be put to a public vote, his median answer was mild disagreement with motion was defeated. Why bother with a the statement. That inconvenient fact did not vote? The people were overwhelmingly in prevent the task force from “concluding” that favor of it. The phone survey said so. the township could not look to private invest- ment. The conclusion was inconsistent with qe the data, but after all, this is government at The Opposition work. But the law did give opponents one last chance. If enough signatures could be collected from voters (at least 10 percent) within 45 days, the bond proposal would have to be sub- Having found exactly what the members of mitted to the people. A small group of citi- the task force wanted to find, they next set zens, including me, immediately got petitions about designing their dream. The board printed and obtained the necessary signatures. approved their request for another $50,000 for Despite editorials and letters in the local further planning. Soon an architectural firm paper telling people not to sign because doing had drawn up plans for a splendid ice arena, so would delay progress, we managed to turn complete with two ice surfaces, numerous in signatures from more than 15 percent of the locker rooms for the anticipated teams, com- voters on the 45th day. A referendum there fortable seating for up to 1,500 spectators, would be. and even press boxes. All of this, including I was chosen to be the communications the land-acquisition costs, could be built, the director for the opponents, so I would get to task force said, for just $8 million. The only discuss the issue with the press and prepare remaining question was how should the gov- the campaign materials. I decided that our ernment borrow the money. best strategy would be to stay with a few argu- Initially, the task force looked into the fea- ments based on individual rights and limited sibility of revenue bonds, the principal and government, specifically that it was wrong for interest payments on which would come out the government to get involved in a project of the arena’s revenues. The task force found that had nothing to do with the proper func- that the township couldn’t sell revenue bonds, tions of government; wrong for the govern- however. Investors, in other words, were ment to force people to bear the risk on a unwilling to finance the project if they bore facility that most would never use; and wrong the risk. Undaunted by this slap in the face by for the government to compete with private reality, the task force went on to Plan B—lim- businesses already providing ice rinks. Some ited general-obligation bonds. of my allies questioned my reliance on liber- Michigan requires that the taxpayers must tarian arguments since many Meridian Town- approve bonds for which they will be obligat- ship residents are employed by the state gov- ed. Interest groups that thrive on government- ernment or Michigan State University and financed projects hate this since the taxpayers the area has a liberal voting tendency. But 1 often vote no. So, in a thus-far successful did not just want to stop the ice arena; I also attempt to circumvent the state constitution, wanted to use the dispute to make some bond attorneys devised “limited” general- important philosophical points. obligation bonds, which become an obligation The campaign to sway opinion ran through- of the taxpayers only if they can’t be paid out September and October. We opponents from revenues. Those bonds, they maintain, had only a small amount of money to spend, The Arena and Its Financing ===== PAGE 20 ===== 276 THE FREEMAN ee MAY 1998 so we used it on two mailings to likely voters overly optimistic; that a new private devel- and relied on as much free media as we could oper had already signed contracts to serve get. As usual in special-interest battles, the much of the skating demand; and that caving proponents were well financed and spent lav- in to this special-interest group would set a ishly on a political-consulting firm, a forest of bad precedent. We set up a debate and invited yard signs, professionally prepared mailings a spokesman from the other side to appear, featuring endorsements from the big-name but he refused to do so. coaches at Michigan State, a push-polling operation (phone calls to voters asking their » Impugned the motives of their opponents. opinions, while plying them with information In politics, having the appearance of pure to push them toward the desired opinion), and motives is extremely important. Therefore, if even television ads. Meridian Township is you can tag your opponents with the “nasty only a small fraction of the Lansing TV mar- people” label, you increase the likelihood of ket, but the supporters had the money and success. The ice arena’s backers played this spent it. card over and over. Those who were against the arena were said to be “antiprogress,’ “antifamily,” and “greedy.” If you didn’t want the ice arena, you were against “wholesome The attempt to get people to vote in favor of recreational opportunities for children.” the bond plan is an object lesson in the ways in which special-interest groups attempt to get * Made indefensible claims. The arena forces something at public expense. They: knew that many voters were concerned about the possibility of a tax increase if the arena * Misstated the issue. The pro-arena forces failed to live up to its rosy projections. In an adopted the slogan “Let em skate” and used effort to allay those fears, their communica- it incessantly in their advertising. But whether tions stated repeatedly, “The arena will be people should be permitted to skate, as this self-supporting.” One flyer even claimed that slogan implies, was not the issue at all. As we the project was “programmed to cover its pointed out at every opportunity, there were costs.” Of course, we said that these claims already indoor and outdoor skating rinks in were absurd. You can no more “program” a Lansing, with more under construction. Peo- government investment in a sports facility to ple could skate. The real issue was whether all cover its costs than a business can “program” township residents should be forced to bear any of its investments to cover its costs. But in the risk—since operating losses could lead to politics you can say anything to get people to tax increases—for a project that would be of side with you, with no fear of any liability for no benefit to most of them. But in politics, a false or misleading statements. cute slogan works much better than serious, honest argumentation. * Hid behind platitudes. American voters have a well-deserved reputation for falling * Ignored opposing arguments. To respond for coercive measures as long as they come to opposing arguments is to get sucked into coated in platitudes. In this instance, the arena playing the game by the wrong set of rules. backers said that their project would be “good Serious debate is to be avoided since it is apt for the community.” It would “bring families to get people thinking about real issues. together.” One letter even said that the arena Therefore, arena proponents did not respond would help to combat global warming! Just when our side pointed out, among other focusing on the first of these, we pointed out things, that the bonds would force people who that communities are just abstractions without had no interest in skating to bear risk for the feelings or desires. Things can only be good project; that the “survey” was bogus; that the (or bad) for individuals. Skaters may think township’s financial adviser had said the task- that their pet activity creates “a better com- force projections on costs and revenues were munity,” but so do many opera lovers, garden The Campaign ===== PAGE 21 ===== “LET "EM SKATE!”: DEFEATING LOCAL SOCIALISM 277 enthusiasts, tennis players, and other assorted well. However, 5,333 residents voted against aficionados. The case for subsidizing skating it, an ignominious defeat: 63 to 37 percent. is no better than the case for subsidizing any- Despite their mendacious, costly campaign, thing else. the arena proponents were humiliated. oo We can only speculate about the reasoning * Peddled non sequiturs. A non sequitur is of the “no” voters. Some, at least, understood an argument where the conclusion does not ht the issue was the proper role of govern- follow from the premises. During the arena ent and agreed with me that government campaign, backers frequently argued that g},4,14 not do for people what they can do for Meridian Township ought to have “its” ice hemgelves. More, probably, were just averse arena because many other Michigan munici- 4, any more government debt. Nevertheless, palities do. But just because something has ,royments rooted in libertarian principles been done elsewhere proves neither that it is were the foundation of our attack on the bond right nor that it will succeed. plan. They helped to block this proposed : 3 expansion of government. The Decision Epilogue: Three months after the defeat The vote was November 4, 1997. The bond of the ice arena, a company in the sports- question was the only one on the ballot. After facilities business announced that it would weeks of being bombarded by the campaign I build an arena in Meridian Township, spend- have described, how would the voters decide? ing less than the task force plan called for and A total of 3,092 votes were cast in favor of creating no risk for the taxpayers. Lesson: the plan, showing that the willingness to use Don’t rush to the government to get what you coercion to achieve one’s ends is alive and want. Own a *15,000* Library on CD-ROM for only 99% BRING A UNIVERSITY-QUALITY AMERICAN HISTORY AND POLITICAL SCIENCE LIBRARY INTO YOUR HOME AMERICAN FREEDOM LIBRARY | o Today's Issnes, Traditional Values WTR % TAP INTO THE FINEST MINDS TO LEARN ABOUT THE FUNDAMENTAL VALUES THAT MAKE AMERICA GREAT # INSTANTLY FIND THE PERFECT TALKING POINTS FOR DISCUSSING TODAY'S TOP ISSUES %* No SINGLE CD-ROM PROVIDES SUCH AN EASY-TO-SEARCH a ; MAMMOTH LIBRARY OF U.S. HiSTORY AND POLITICAL SCIENCE : | a EEXTINTITIRS RY AE I AEA | rat. 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The 12,000 famous quotes, and much more! Add $6.95 SxH WesternStandard ruc Ss RING COMPANY ===== PAGE 22 ===== THEFREEMAN DEAS ON UBERTY — Human Ignorance and Social Engineering by Wendy McElroy hroughout most of intellectual history, the best critiques of the “constructivist” theo- society has been considered to be the ries and policies that have grown in populari- result of someone’s design. In his multi- ty during the twentieth century. volume Law, Legislation, and Liberty, the Both Hayek and Mises had witnessed the social theorist F. A. Hayek referred to this devastation of classical liberalism by two position as “constructivist rationalism” and world wars, but most particularly by World argued vigorously against it. In his 1974 War 1. Wartime governments had clamped Nobel Memorial Lecture, titled “The Pretence centralized control over the private sector to of Knowledge,” Hayek expressed a different ensure a continuing flow of armaments and view of how society developed: the other goods deemed necessary for victory. Governments had inflated their money sup- The recognition of the insuperable limits plies to pay for massive military buildups. to his knowledge ought indeed to teach the And war had strangled the flow of free trade student of society a lesson in humility that classical liberals considered to be a pre- which should guard him against becoming requisite to peace, prosperity, and freedom. In an accomplice in men’s fatal striving to short, both Hayek and Mises had watched control society—a striving which makes twentieth-century statism replacing nine- him not only a tyrant over his fellows, but teenth-century classical liberalism. which may well make him the destroyer of If war is the health of the state, as the a civilization which no brain has designed American individualist Randolph Bourne but which has grown from the free efforts declared, then Hayek and Mises witnessed the of millions of individuals. impact of an obvious corollary: namely, that war 1s the death of individual liberty. And Hayek opposed any attempt to engineer— social engineering was a key mechanism that is, centrally to plan and to coordinate— through which that freedom was destroyed. the structure of society. He believed that such Indeed, one of Mises’s earliest works, Nation, engineering actually destroyed rather than State, and Economy (1919), analyzed the dis- created society, which was the result of astrous consequences of the central planning human action but not of human design. ushered in by World War 1. Alongside the Austrian economist Ludwig But Hayek and Mises did not merely von Mises, Hayek provided what are arguably oppose social engineering on utilitarian grounds. Independently, they each evolved Wendy McElroy is author of The Reasonable complex and sophisticated systems of social Woman: A Guide to Intellectual Survival (Prometheus theory to explain how the institutions of soci- Books, 1998). ety naturally evolved. They maintained that 278 ===== PAGE 23 ===== 279 the institutions of a healthy society were the to decide, say, whether to ask for a raise—is collective and unintended results of human ineffective for broader social planning. At action. Complex social phenomena—such as best, prices were a historical record; the price law, language, and money—were especially of bread is a past price, even if the past was the unintended consequences of individual very recent. This information could create interactions. For example, no committee or anticipation of what the price of bread might central authority decided to invent human be tomorrow, but it could predict nothing. speech, let alone to design a language as com- A bread shortage might make the price sky- plicated as English. Acting solely to achieve rocket. Moreover, using yesterday to engineer their own ends, individuals began making tomorrow went against a fundamental tenet of sounds to facilitate getting what they wanted human action: the principle of inevitable from other people. Thus, speech was the change. result of human action but not of human In Human Action: A Treatise on Economics design, and it naturally evolved into language. (1949), Mises commented, “Human action The evolution may not have proceeded with originates change. As far as there is human scientific efficiency, but it was efficient action there is no stability, but ceaseless alter- enough to permit the development of civiliza- ation. . . . The prices of the market are histor- tion. The efficiency of government programs ical facts expressive of a state of affairs that suffers by comparison. prevailed at a definite instant of the irre- Yet constructivists argued that an unplanned versible historical process. . . . In the imagi- society is wasteful and chaotic. With suffi- nary—and, of course, unrealizable—state of cient knowledge, they could engineer a per- rigidity and stability there are no changes to fectly efficient society. There would be no be measured. In the actual world of perma- more surpluses or scarcities. Stock markets nent change there are no fixed points. . . would not crash, and currencies would not From Nation, State, and Economy through fluctuate. Perhaps society could even be to his magnum opus, Human Action, Mises designed so that its members walked in uni- eloquently argued against the possibility of son toward desirable social goals, just as they acquiring enough knowledge to engineer had marched together toward victory in society. Equally, in Hayek’s work The Sen- wartime. sory Order: An Inquiry into the Foundations Hayek bluntly stated that the knowledge of Theoretical Psychology (1952, but appar- constructivists sought was unattainable. It ently based on work he did in 1919 and 1920) was not possible to plan the dynamics of to his far more popular The Road to Serfdom tomorrow based on how people acted yester- (1944), he integrated such diverse fields as day. People were unpredictable. Human epistemology and economics to form a social beings were fundamentally different from the theory that denied any validity to central physical objects examined by the hard sci- planning. ences. A scientist could learn everything he Throughout the work of these theorists, two needed to know about the movement of an closely related concepts emerge again and object, and his knowledge would not neces- again: methodological individualism and sarily change over time. But human beings spontaneous order. These concepts are key to acted on psychological factors and motiva- understanding why Hayek and Mises so tions that were hidden, often even from them- adamantly rejected social engineering. selves. Society did not consist of objects that could be neatly categorized and made to obey Methodological Individualism the laws of science. Society consisted of errat- ic and unpredictable individuals. In Human Action, Mises offered a descrip- Mises made a similar point in regard to tion of what he called “The Principle of monetary theory. He demonstrated that even Methodological Individualism”: “First we the seemingly objective tool of monetary cal- must realize that all actions are performed by culation—the sort that people use informally individuals. . . . If we scrutinize the meaning ===== PAGE 24 ===== 280 THE FREEMAN ee MAY 1998 Mises claimed that collective wholes—such as “the family” or “society” —were nothing more than the sum of the individual members who comprised them. of the various actions performed by individu- ciples and characteristics emerged within a als we must necessarily learn everything society that were entirely different from those about the actions of collective wholes. For a that applied to individuals. In other words, social collective has no existence and reality there were rules that applied only to collective outside of the individual members’ actions.” wholes and not to individual members. Fur- Mises claimed that collective wholes— ther, these emergent rules functioned along such as “the family” or “society” —were noth- scientific lines and responded to methods of ing more than the sum of the individual mem- planning. bers who comprised them. Such wholes were abstractions useful for indicating the interac- The Individual as Abstraction tion of people in a specific context. “Family” indicates one set of interactions, “bridge With the rise of Marxism, those who club” another. favored methodological individualism were In reducing group functioning to its most often accused of “atomism” or reductionism. basic element—the acts of individuals— Marxists went so far as to assert that it was the Mises did not deny the importance of collec- individual, and not society, that was the true tive wholes. Quite the contrary. Mises abstraction. In its extreme form, these social explained, “Methodological individualism, holists even denied that the individual existed far from contesting the significance of such without society. As Mises observed, “The collective wholes, considers it as one of its notion of an individual, say the critics, is an main tasks to describe and to analyze their empty abstraction. Real man is necessarily becoming and their disappearing, their chang- always a member of a social whole.” ing structures, and their operation. And it Karl Marx argued this point by using a sort chooses the only method fitted to solve this of Robinson Crusoe example. Marx contend- problem satisfactorily.” ed that an individual who grew up in isolation In other words, methodological individual- on a desert island would not be a human ism was a powerful analytical tool that-could being. The crux of his argument was that be used to discover the principles on which a human beings are social organisms-—social group of people interacted. It was the best constructs, if you will—who cannot be lifted method by which to understand society. from their defining context and remain human Mises’s stress upon methodological indi- beings. The adult Robinson Crusoe was clear- vidualism did not arise in a vacuum but rather ly a human being, but his humanity resulted in response to the theory of social holism that from a prior history of socialization. Lan- had become popular in the early twentieth guage, thought, art—all that made Crusoe century. Social holists claimed that collective human had resulted from his life in communi- wholes had an existence far greater than the ty. Reversing Misesian logic, Marx claimed sum of their individual parts. They drew par- that the collective whole called “society” cre- allels between the fields of biology and soci- ated its individual members, who could be ology. They argued that just as higher level understood only by examining the rules of principles of explanation were needed to that society. Marx went an extra step and tried describe a complex biological organism than to extend the principles and methodology of were used to explain the molecules that com- the hard sciences—such as predictability and prise it, so too with human society. New prin- control—to society. ===== PAGE 25 ===== HUMAN IGNORANCE AND SOCIAL ENGINEERING 281 Classical liberals countered that a person ory. If collective wholes were a “mental who had been raised in utter isolation would process” within individuals rather than con- still be a human being. For example, he would crete entities with independent existence, then have a scale of preferences and would act to it made no sense to claim there were unique achieve the highest one first. True, without rules and characteristics that applied to col- social interaction, major potentialities within lectives and not to individuals. Methodologi- the person’s humanity would never develop or cal individualism removed the collective be expressed. For example, there would be no wholes from an objective realm ruled by sci- reason to develop language skills and no pos- entific principles and returned it to the subjec- sibility of becoming a parent. Were the isolat- tive realm of human judgment and preference. ed individual to be rescued and placed within Instead of being able to design social institu- society, however, his unexpressed potentials tions, such as banks, to run along scientific might well emerge. But whatever characteris- principles, social engineers were reduced to tics developed would emerge from his own regulating individuals. They were engaged in inherent potential as a human being and they planning how human beings would express would be the result of the individual interac- their preferences in the future—a knowledge tions he experienced. The characteristics that individuals themselves rarely possessed. would not emerge because a collective whole And yet, a question remains. Without plan- called “society” defined them into existence. ning, how can society improve? Part of the Classical liberals did not dispute the claim answer is to be found in the second concept that groups had a cumulative dynamic that running throughout the work of Hayek and was different than the dynamic of man in iso- Mises. lation. After all, only in society did intellec- tual and economic exchanges arise. But they believed that the differences could be explained by breaking the group dynamic During the eighteenth century, theorists like down into the intricate interactions of the Adam Smith began to examine the impact that individuals who comprised it. For example, the unintended consequences of human action everything about a conversation could be bro- had upon society. These were the collective ken down into the statements, body language, consequences that accrued as a result of peo- and other actions of the individuals involved. ple pursuing their own individual interests. Nothing about the conversation required fur- For example, if twenty people walked the ther principles of explanation. shortest distance across a field, a crude path This methodological approach worked in through the field would be established. But analyzing even extremely complex collective forging the path would be an unintended con- wholes such as “the state.” Everything the sequence of each person’s conscious goal—to state did or was could be reduced to individ- reach the other side quickly. ual actions. As Mises explained, “The hang- Smith came to believe that society and its man, not the state, executes a criminal. It is institutions could be best understood by refer- the meaning of those concerned that discerns ence to such unintended consequences. Con- in the hangman’s action an action of the sider the price of yesterdays bread. No one state.” Individuals who look at the hangman legislated what you were willing to pay for see the state in action only because an bread yesterday. That price resulted from such abstraction known as “the state” provides a unpredictable factors as how highly you context for his action. Equally, people never prized bread twenty-four hours ago. The truly see or hear a group conversation. All social institution of price, therefore, had been they see or hear are individuals speaking, and established spontaneously. It was also self- we label the sum of their exchange a “group correcting; that is, the price spontaneously conversation.” and rapidly fluctuated to reflect changing fac- Methodological individualism had pro- tors, such as the availability of bread. And found implications for social-engineering the- because such changes were unpredictable, Spontaneous Order ===== PAGE 26 ===== 282 THE FREEMAN e« MAY 1998 only a spontaneous response-—not a pre- appear unintelligible and irrational.” (“Indi- planned one—could adequately respond. vidualism True and False” in Individualism No contemporary writer has explored the and Economic Order, 1948) Ironically, this idea of spontaneous and self-correcting social resemblance to chaos may indicate an aspect institutions in greater depth than Hayek. In his of why spontaneous order is efficient. After essay “Principles of a Liberal Social Order,” all, the shifting circumstances to which this Hayek tackled an objection he often encoun- sort of order responds have no logical or pre- tered. He wrote, “Much of the opposition to a dictable order. Just as the trading floor of a system of freedom under general laws arises stock exchange cannot be run according to from the inability to conceive of an effective Miss Manners’ rules of etiquette, so too does co-ordination of human activities without a dynamic society require institutions with deliberate organization by a commanding fluidity. intelligence” (Studies in Philosophy, Politics Indeed, the main advantage of a decentral- and Society, 1960). ized system of decision-making may well For social holists, “order” and “efficiency” be its ability to adjust constantly and quickly were concepts that seemed to be wedded to shifting circumstances. Where social together. Mises and Hayek agreed, but they engineering demands a stable future and a used a different definition of “order” For godlike knowledge of the present, sponta- social holists, the word seemed to conjure up neous order recognizes and embodies the quasi-military visions of society marching inevitability of change and the inadequacy of shoulder to shoulder toward a common goal. human knowledge. It was embodied in five-year plans that An individual knows as much as it is pos- reduced the functioning of society to mathe- sible to know about his own preferences matical equations. By contrast, the order and future acts. The further you move away espoused by Mises and Hayek was a sponta- from the individual, the less reliable the neous one in which individuals pursued their data become—and the less perfect the conse- own diverse interests without coordination by quences of decision-making. a central authority. What does such an order look like? A clas- Diverging from a SIC example is the New York Stock Exchange, Common Point which was created as a location at which stocks could be bought and sold Monday to There is a sense in which both Hayek and Friday from 9 a.m. to 4 p.m. No overriding Mises based their arguments for individual authority set prices, volume limits, etc. These liberty on human ignorance. In The Constitu- were established by pockets of people who tion of Liberty (1960), Hayek acknowledges pursued their own preferences in a manner that the need for freedom “rests chiefly on the resembling chaos. In yelling out on the floor recognition of the inevitable ignorance of all that he was willing to buy ABC stock at X of us concerning a great many of the factors price, a trader intended to pursue nothing on which the achievement of our ends and more than the preferences of his client. Butan welfare depends.” Ironically, constructivists unintended consequence of his action was the make much the same-argument for their posi- establishment of an overall price for ABC tion: human beings are not naturally perfect, stock. therefore society must be engineered and Spontaneous order can resemble chaos. In designed. From a point of common agree- Hayek’s words, it is the sort of order “whose ment—namely, the inadequacy of human justification in the particular instant may not knowledge—the two sides reach diametrical- be recognizable, and which will . . . often ly opposed conclusions. [J ===== PAGE 27 ===== Potomac Principles by Doug Bandow Deficits Are Good resident Bill Clintons big-spending, billion flood of spending increases and tax high-taxing budget proves what many of hikes wouldn’t matter so much if there was us have long known: deficits are good. Years real opposition in the capital. True, House of unending red ink helped check the free- Majority Leader Dick Armey opines that “We spending tendencies of politicians from left to can’t go back to the days of skyrocketing gov- right. Unfortunately, the mirage of future ernment spending” which “the President has surpluses has now opened wide the budget proposed.” However, most Republicans as floodgates. well as Democrats give only lip service to the For instance, President Clinton wants to notion of limited government. create new childcare subsidies, launch a big In his response to the President’s State of research program on the supposed threat of the Union speech, Senate Majority Leader global warming, spend more on computers for Trent Lott decried the high tax burden borne the abusive IRS, toss additional foreign aid by Americans and denounced government into Africa’s chaotic money pit, create new waste, such as the existence of “more than federal housing initiatives to supplement 750 education programs, in 39 different failed old ones, throw more cash at artistic bureaucracies.” However, the GOP has con- elites through the National Endowment for the trolled Congress for three years. Why are Arts, and spend billions of dollars to reduce there still “more than 750 education pro- class size in local schools. Uncle Sam is to be grams, in 39 different bureaucracies”? simultaneously Santa Claus and national The same disconnect between rhetoric and nanny, wending his way across the nation reality was evident when House Speaker spreading cash and regulations far and wide. = Newt Gingrich denounced the President’ At the same time the President tells us there plan for “higher taxes, more spending, and a is no money for tax cuts for those who earn larger, less accountable government.” What the money he plans on spending. Instead, we would the Speaker do differently? He recent- should husband any surplus to “save” Social ly gave a major speech in which he decried Security, he explains—while developing a government bureaucracy, even after his party new program for every interest group with a last year made the tax law more complicated. letterhead and at least two members. Those He cited problems in funding medical paying the bills can just shut up and pay more. research, even though Congress has done lit- The subterfuge of claiming to maintain fis- tle to curb the Food and Drug Administra- cal discipline even while proposing a $150 tion’s deadly overregulation. He demanded Dous Bando sionally syndicated columnist. i that “we,” whoever that is, replace local oug panaow, a nalionatiy synadicatea columnist, is . . s a senior fellow at the Cato Institute and the author administrators in urban schools that don’t and editor of several books, including Tripwire: WOIK, rather than suggest that government Korea and U.S. Foreign Policy in a Changed World. ~~ butt out and let parents choose where to send 283 ===== PAGE 28 ===== 284 THE FREEMAN ee MAY 1998 their kids to school. Social Security is a Similar is the question of education. The decade away from insolvency, but Speaker GOP should thank the President for his con- Gingrich said there was “no crisis” and called cern over class size and suggest that he run for for . . . creation of a commission to study the the D.C. school board. There is no obviously issue. He ended with a rousing call to reduce correct class size; there certainly is no reason the burden of government, without suggesting for the national government to decide the mat- elimination of a single program. ter. There are, in fact, few issues that are more Indeed, GOP leaders privately debated drop- appropriately a private, family concern. ping the budget caps imposed only last summer. Indeed, the real problem with education is They backed away only under pressure from a that parents have little influence in a political caucus with a few members who are still capa- process dominated by administrators and ble of outrage. But the budget process is not yet unions. Instead of letting the Department of over and the advocates of more spending in Education hand cash to local bureaucracies, both parties continue to lobby hard. Congress should leave the money with par- The problem is that most everything in ents so they can take their kids out of failing Washington is based on partisanship, not schools. That is the only effective way to hold principle. The President’s proposals are wrong schools accountable. not because he likes wasteful bureaucracy— Then there’s the question of “saving” Social after all, his administration has been busy Security. Refusing to give tax cuts to people attempting to “reinvent” government. His ini- who are losing a larger share of their income tiatives are wrong because they aren’t appro- to Uncle Sam than at anytime since World priate for government, War II is a curious way to preserve a system Consider child care. More efficient govern- that has been steadily increasing its tax take ment-provided day care is not better day care. for years. Even if the administration really It is merely less wasteful bad day care. The wanted to “save” the extra money, instead of President wants Uncle Sam to throw cash at spending it on a host of new government pro- families in which the parents work outside of grams, as actually proposed by the President, the home. So far the GOP response has been pouring it down the Social Security rathole to propose a tax credit that would help stay-at- would merely postpone the system’ day of home moms as well. reckoning. Obviously government should not discrim- But creating yet another commission is no inate against families in which one parent less stupid an idea. The problem with Social stays home. But why not keep the government Security is obvious to all: it is a pay-as-you-go out of child care entirely? system that can survive only if it is trans- Someone in Washington needs to offer a formed into a private insurance system. If truly radical alternative: that parents be money is “saved” towards this end, it should responsible for their own children’s care. Hav- be immediately returned to taxpayers so they ing kids is obviously a burden, but it is freely can independently prepare for their own undertaken. People who choose to have chil- retirement or spend it on whatever else they dren should also be willing to pay the cost. would like. When difficulties arise, help should come first Despite the supposed Republican Revolu- from family and second from private charity. tion, nothing has really changed in Washington. Combined with that should be real, across- There were two parties of government before the-board tax relief that would reduce the the 1994 election, and there are still two parties pressure on both parents to work. Then fami- of government. That’s become particularly lies could choose among career options with- evident as the federal budget seems to be mov- out government interference. Big government ing to surplus. But there’s still hope. It’s true that relies on tax incentives to push people to that no one is willing to stand up for principle. act as it wishes is barely less intrusive than That almost certainly guarantees the return of big government that relies on regulations to federal deficits. And deficits may be the only force people to act as it wishes. discipline that works in Washington. OJ ===== PAGE 29 ===== THEFREEMAN DEAS ON UBERTY — Unrestrained Appetites, Unlimited Government by Jeffrey R. Snyder he federal government was supposed to The Court took this tack because the Con- be limited to a few defined powers. The stitution does not grant Congress a general Tenth Amendment to the Constitution—"“The police power to legislate in the realm of pub- powers not delegated to the United States by lic morals. That is, Congress has no authori- the Constitution, nor prohibited by it to the ty to pass such a law simply on the basis that States, are reserved to the States respectively, racial discrimination is a moral abomination, or to the people”—confirms it. or even on grounds that the institutionalized The federal government, of course, does treatment of a racial class as subhuman is apt not at present respect its constitutional limits. to result in social upheaval, riot, or other The chief culprit, in this regard, is the massive breaches of the public peace. Yet let it be social legislation and regulatory apparatus found, or reasonably suspected, that this dis- enacted under Congress’s constitutional crimination impedes commerce, why then authority “to regulate Commerce . . . among (but only then!) Congress may act. Appar- the several states” (Article 1, Section 8, ently, the Court would have us believe that Clause 3). the Founders granted the federal government That clause, as interpreted by the Supreme authority to enact all manner of social legis- Court, has been the source of constitutional lation—provided only that it is good for authority for the great expansion of federal business. control over health, morals, education, crime, An analysis this cynical ought to suggest labor, environmental conditions, and retire- that the Courts “interpretation” of the com- ment and unemployment insurance programs. merce clause is an expedient fabrication and For example, provisions of the Civil Rights that the clause was never meant to serve as Act of 1964 outlawing racial discrimination backdoor authority for social legislation. No by private individuals were upheld as a valid such luck. exercise of Congress’s power under the inter- state commerce clause. In Katzenbach v. McClung (1964), the Court held that racial 1 1€ New Deal discrimination, in the form of refusal to serve The commerce clause became the carte blacks at privately owned restaurants, blanche for social legislation through a series imposed burdens on interstate commerce that of cases upholding New Deal legislation in Congress could seek to eliminate. the 1930s and 1940s. In those cases the Supreme Court interpreted the clause as per- mitting Congress not just to regulate com- Jeffrey Snyder, a practicing attorney in New York merce (actual interstate trade in goods and City, writes frequently on public policy. services), but also to regulate anything that 285 ===== PAGE 30 ===== 286 THE FREEMAN ee MAY 1998 had a “substantial effect” on commerce. The lations promulgated by the secretary or deliv- watershed case which held that Congress ering the wheat to the secretary for storage. could regulate purely private, individual, and Filburn neither stored nor delivered his noncommercial conduct was Wickard v. Fil- wheat. Instead, he sued to prevent the imposi- burn (1942). tion of the penalty by seeking a declaration that In its simplest terms, Wickard held that Congress lacked the authority to restrict his Congress had authority under the interstate right to grow and consume, on his own proper- commerce clause to prohibit Filburn, the ty, as much wheat as he saw fit. He argued owner of a small farm, from growing, storing, specifically that regulation of his wheat pro- and consuming his very own wheat on his duction exceeded the authority of Congress to very own property. For this reason, it is often regulate interstate commerce because the activ- selected by libertarians (and occasionally ity was not commerce. He further argued that conservatives) as a patent illustration not only his activities were local and not interstate in of the Supreme Court’s egregious failure to character, and that those activities had at most uphold the Constitution, but also of the now only an indirect effect on interstate commerce. nearly unlimited scope of congressional He relied on prior cases that had held that such power. activities as production (which would encom- Yet a close reading of the case redirects pass farming), manufacturing, and mining, attention away from the Supreme Court as the first, were not commerce, and, second, were villain responsible for the loss of limited gov- strictly local (or intrastate) activities, and thus ernment, and reveals more precisely the rea- not subject to regulation by Congress under the son for that loss. More troubling still, a close interstate commerce clause. analysis of Wickard indicates why term limits, The government argued that the act regulat- balanced budgets, prohibitions on unfunded ed only marketing of wheat, a commercial mandates, or similar institutional devices will activity, and alternatively, that if the act did go not re-establish limited government, and beyond the regulation of marketing, it was points to the daunting nature and magnitude sustainable as a “necessary and proper” of the reform necessary to limit government implementation of Congress’s power to regu- pOWEer. late interstate commerce. ! The Supreme Court first noted that its The Political Perils of recent decision in United States v. Darby (1941), holding that Congress had the power under the commerce clause to regulate the Roscoe C. Filburn was a farmer in Ohio production of goods intended for commerce, who maintained a small herd of dairy cattle did not dispose of Filburn’s claim, because and a flock of chickens, and sold milk, poultry, here the Agricultural Adjustment Act and eggs. He also grew a small acreage of “extends federal regulation to production not winter wheat each year, sold a portion of the intended in any part for commerce but wholly crop, used part to feed his poultry and live- for consumption on the farm.” The Court then stock, consumed a small amount at home, and set about putting questions of this sort to rest kept the remainder as seed for next year’s crop. once and for all. Under the Agricultural Adjustment Act of Reviewing its major decisions under the 1938, the secretary of agriculture established commerce clause, the Court concluded that a quota for wheat planted by Filburn in the the scope of power granted under that clause fall of 1940 of 11.1 acres and a normal yield should not be determined by a mechanical of 20.1 bushels an acre. Filburn sowed 23 application of legal formulas: whether the acres, harvesting 239 bushels in excess of his activities were entirely intrastate or local; allowance. Under the act, this excess was sub- whether they constituted production, con- ject to a penalty of 49 cents a bushel ($117.11 sumption, marketing, manufacturing, or min- in all). The penalty could be avoided only by ing; or whether those activities had a direct or storing the excess wheat as required by regu- indirect effect on interstate commerce. Growing Wheat ===== PAGE 31 ===== UNRESTRAINED APPETITES, UNLIMITED GOVERNMENT 287 Instead, the Court concluded, Congress intents and purposes, eviscerated and made a may regulate any local, noncommercial activ- mockery of the Tenth Amendment and the ity “if it exerts a substantial economic effect doctrine of enumerated powers. on interstate commerce.” Henceforth, the The Court had swept aside substantially all reach of Congress’s power under the com- jurisdictional limits on federal legislative merce clause was to be determined solely by authority and created the constitutional autho- “an economic measure,” and not at all by the rnzation for federal regulation of nearly all nature of the activity being regulated. human activity. Henceforth, the only remain- The purpose of the regulation of wheat ing significant limitations on the power of under the Agricultural Adjustment Act was, Congress were the restrictions contained in the Court noted, to keep the price high for the the rest of the Bill of Rights. benefit of wheat farmers. America’s farmers produced more wheat than Americans con- Democracy, or the Personal sumed and were unable to export all the pn excess at favorable prices. Because of the glut Becomes the Political on the world market, the world price was The Agricultural Adjustment Act had pro- approximately 40 cents a bushel. vided that whenever it appeared that the The act increased the price in America by nation’s wheat supply would exceed normal limiting its domestic supply through the requirements for domestic consumption and imposition of production quotas. (Presum- export by 35 percent, the secretary would pro- ably, import of cheaper foreign wheat was claim a compulsory marketing quota for the prohibited or made uneconomical through forthcoming year. But that quota would high tariffs.) The law worked: in 1941, the become law only if approved in a national ref- court noted, farmers who “cooperated” with erendum by a supermajority of at least 66.7 the program received an average price of percent of the very farmers who would be $1.16 per bushel—almost three times the subject to the law. (Note that if any other world market price. group of businesses agreed on limiting ser- Yet that goal would have been undermined, vices or products in order to increase prices, if not undone, without regulating the amount the activity would be a violation of the Sher- of consumption of home-grown wheat. Farm man Anti-Trust Act.) consumption of home-grown wheat amounted Lured by the promise of obtaining an artifi- to more than 20 percent of average pro- cially high price for their wheat through legal duction. Were such a large portion of produc- restrictions on production, Filburn’s fellow tion and consumption left uncontrolied, wheat farmers approved the secretary’s quotas the Court noted, oversupply and a resulting by 81 to 19 percent. It is unclear whether Fil- decline in price could not be prevented. burn himself voted for these restrictions. In Because the isolated personal activities of any event, it was irrelevant, for he became farmers like Filburn could, in the aggregate, bound by the “will of the majority,” regardless have a substantial effect on trade in wheat at of what that majority knew or understood, and increased prices, the Court held, regulation of regardless of how ill-considered or unprinci- the amount of wheat a farmer could grow for pled its actions were. consumption on the farm was within the The quotas on wheat production that Fil- power of Congress under the commerce burn contested, then, were not mandated by a clause. socialist Washington bureaucracy eager to As a result of the decision in Wickard, the bestow the benefits of a centrally planned commerce clause became the escape hatch economy on the nation’s farmers, treading through which Congress could enact social upon the hallowed freedom and independence legislation. Although previous generations of those “sturdy yeomen” whom Jefferson had understood that the Constitution reserved praised and idealized. Far from it: the nation’s the police power to the states, the commerce farmers eagerly approved the restrictions, clause became the loophole that, for all happily trading their freedom and indepen- ===== PAGE 32 ===== 288 THE FREEMAN ee MAY 1998 dence for the government’s promise of a few penalty, and still sell it at a small profit. Fil- dollars more. burn’s argument tacitly suggests that the These yeomen were stalwart in one sense, farmers only approved the restrictions however. They did not let the fact that the gov- because they thought they could trump the ernment’s largesse would come at the expense system. Had each farmer known that the of suffering consumers stop them from doing penalty would be so high that he would really what had to be done. have to adhere to the quota, Filburn’s argu- That the farmers themselves voted for the ment suggests, few farmers would have voted quotas underscores perhaps the most impor- for it. The Court held that the defects in the tant consequence of the Court’s decision in secretary’s speech were not a basis for invali- Wickard. When it swept aside the limits that dating the referendum. formerly prevented Congress from passing Filburn’s final argument was that the quotas such laws—regardless of how many people deprived him of his property (his own wheat) wanted them—nearly all Filburn’s private con- without due process of law in violation of the duct became subject to simple democratic Fifth Amendment. The Court quickly dis- control. Henceforth, not only Filburn’s eco- posed of that argument: the law did not nomic activity, but any private conduct that deprive Filburn of any property. Rather, it might, when considered together with all other transferred additional property to him, in the similar conduct, have a “substantial effect” on form of increased prices that he would not interstate commerce would be subject to the otherwise have realized. (Obviously, the peo- will of the majority. It mattered not how trivial ple deprived of property, i.e., money, were the the activity was in isolation, unless the law nonfarming consumers. But of course that was prohibited by one of the remaining provi- was with due process, for Congress had voted sions of the Bill of Rights. for and the President had signed the bill.) Fil- burn was in no position to complain about a Last Recourse law that conferred a benefit upon him. The Court said: Filburn made two final arguments against the quotas, both predicated on a violation of It is agreed that as the result of the wheat his Fifth Amendment right to due process. programs [Filburn] is able to market his The first related to the procedure by which the wheat at a price “far above any world price quotas had been approved. Before the referen- based on the natural reaction of supply and dum, Secretary of Agriculture Claude R. demand.” We can hardly find a denial of Wickard made a radio address urging the due process in these circumstances, partic- wheat farmers to approve the quotas. He did ularly since it is even doubtful that [Fil- not mention, however, that legislation await- burn’s] burdens under the program out- ing the President’s signature would increase weigh his benefits. It is hardly lack of due the penalty for excess wheat from 15 cents to process for the Government to regulate 49 cents a bushel. that which it subsidizes. That [Filburn] is Filburn argued that the secretary’s failure to the worse off for the aggregate of this leg- mention so material a piece of information islation does not appear; it only appears invalidated the referendum. This is a fascinat- that if he could get all that the Government ing argument, for it suggests that the farmers gives and do nothing that the Government voted for the law only because they were plan- asks, he would be better off than this law ning not to obey it. It implies that each farmer allows. To deny him this is not to deny him believed he would realize the benefit, higher due process of law. (Emphasis added.) prices, of his fellow farmers’ compliance while profiting by growing extra wheat. At 15 . . . cents a bushel, the penalty was still over 60 No Subsidy Without Regulation percent below the world price of 40 cents. This is one of the more neglected lessons of Farmers could grow excess wheat, pay the Wickard. Yet on this point the Court was ===== PAGE 33 ===== The Foundation for Economic Education Irvington-on-Hudson, New York 10533 Tel. (314) 591-7230 Fax (914) 591-8910 E-mail: freeman@fee.org May 1998 Cursed by Economic Knowledge and Ignorance conomic understanding is a curse. earn to purchase American goods, ser- FE meric are fed a steady diet of vices, or assets. Contrary to the sugges- idiotic commentary and specious tion underlying too many newscasts, for- “analyses”—most of which flow smooth- | eigners don't sell their cars in the United ly down the gullets of unsuspecting States because they are abnormally fond nightly-news viewers, newspaper read- of thumb-sized, green-tinted portraits of ers, and National Public Radio devotees. | dead American statesmen. Foreigners, But for those of us vexed with some no less than Americans, want to spend comprehension of supply and demand, the dollars they earn. comparative advantage, the role of If Congress were to prevent Ameri- prices, the nature of money, and other cans from buying foreign cars, employ- economic insights, most of what is ment prospects for U.S. auto workers uttered or written by the news media on | would improve. But those foreigners economic topics is so ignorant that it who would have received dollars in hurts to hear it. exchange for automobiles they sell in This pain is inescapable. Save for America no longer receive these dollars. those glorious days in the Fall of 1989 Consequently, foreigners purchase fewer when the headlines reported the drain- American products and services. Work- ing of one communist cesspool after ers in other U.S. industries suffer, as do another, I have never as an adult read a American consumers. newspaper or watched television news Protectionism never increases domestic without wanting to throw a wrench at employment; it merely shifts it around. some writer or reporter. (Of course, in proudly report that over the years practice I throw only words.) I've taught international trade to hun- News-media discussions of interna- dreds of students and have knowingly tional trade unleash the most wrench- failed in only one case to persuade a stu- throwing urges. dent of this fundamental lesson. (For the First and foremost, of course, critics record, this lone student was a member wrongly allege that imports reduce of the Italian Communist Party.) domestic employment. It’s true that cars My students’ first reaction to the real- imported into the United States might ization that protectionism never increas- reduce the number of jobs in the Ameri- es domestic employment is this: “While can auto industry. But employment in it would be a mistake to protect domes- other U.S. industries rises because for- tic workers from foreign competition, the eign auto producers use the dollars they government should provide job re-training ===== PAGE 34 ===== and unemployment benefits to help vices in addition to trade in goods. The workers who lose their jobs to imports.” current account also reckons investment Such cruelty appalls me. Forget that income earned abroad as well as interna- government handouts weaken the incen- | tional transfers. It’s quite possible for a tive for unemployed workers to find country simultaneously to run a mer- new employment. More relevant is the chandise-trade deficit and a current- fact that such retraining programs and account surplus—although you'll never handouts must be paid’ for out of taxes. learn this fact from a television reporter. Every dollar taxed away to help so- Even a current-account deficit, how- called “displaced workers” is a dollar ever, is no cause for concern. One helpful taken from the private economy where it | way to relieve your fears of a current- would otherwise be spent on goods, ser- | account deficit is to know that there's vices, or investments. Raising taxes to something called a capital account that help workers displaced by imports dis- precisely alances the current account. places other workers. It’s cruel—or at o if the current account shows a $2.9 east grossly arbitrary—for government million deficit, the capital account shows to assist Mr. Jones by plaguing Mr. Smith. | a $2.9 million surplus. Another frequent misunderstanding Suppose that in 1998 we import $2.9 has to do with trade deficits. Whenever million more goods and services than we the U.S. trade deficit increases, Dan export. Disregardin investment income Rather and his brethren intone seriously | and transfers, America will then run a that such increases are ominous. Such $2.9 million deficit in its current account reporting suggests that Dan, Tom, and for 1998. But foreigners didn’t provide Peter are each as ignorant of economics us with $2.9 million of goods and ser- as King Tut was of quantum physics. vices for nothing. Foreigners must now Here's a quick lesson in international be holding $2.9 million more in U.S. cash economic accounting. Every nation’s for- or dollar-denominated assets. eign trade is always balanced. That's the This deficit both signals and promotes way the accounting system is designed. economic health. Foreigners investing If one part of a nation’s trade account is their dollars in America, rather than in deficit by $1.96 billion, other parts cashing their dollars out immediately must be in‘surplus by $1.96 billion. for goods or services, indicate that the When newscasters and other profes- US. ets. (Th enjoys solid long-run sional chatterers report on America’s prospects. (The story is more complicat- “trade deficit,” the are necessarily ed wnen the current-account deficit 1S telling us about only one part of the bal- caused by heavy government borrowing ance sheet. Sometimes they have in mind | at home. But even here the problem is the merchandise-trade account, a mean- | government debt financing, not the cur- ingless report of the dollar value of rent-account deficit.) Moreover, these physical goods that cross our borders in | investments put downward pressure on commerce during (say) the month. Wor- interest rates, easing U.S. firms’ access to rying about a merchandise-trade deficit capital. The result is greater productivity makes as much sense as worrying about | and higher wages. And yet reporters and a unicorn invasion. politicians, in their ignorance, invariably If foreigners buy American lumber or regard current-account deficits as omens laser printers, these purchases deflate of Armageddon. Ce America’s merchandise-trade deficit. But Despite the news media's juvenile if foreigners switch from buying Ameri- grasp of economics, I watch the lam news and read the newspapers regularly. World ods fo bu Lyorch financial Disney- I do so not for enjoyment, but to keep ! : current on the state of economic igno- vicas, thes purchases inflate our shar- rance—which, alas, is a far Worse curse chandise-trade deficit. There's no funda- | 4 2 'e .onomic understanding and illus mental economic difference between purchases of tangible §00 ds and pur- trates the task confronting FEE and other chases of services. And yet, one kind of economic equcators. purchase leads to merchandise-trade deficits, while the other kind doesn't. / A more useful concept is the current account. Unlike the merchandise-trade account emphasized by the news media, Donald J. Boudreaux the current account includes trade in ser- President ===== PAGE 35 ===== MAY BOOK SALE THE FREEMAN CLASSICS SERIES DISASTER IN RED: The Failure and Collapse of Socialism Why socialism did not work and cannot work. (Edited by Richard M. Ebeling) 384 pages, paperback regular $18.95 sale $15.95 THE FREEMAN LIBRARY SERIES THE FARM PROBLEM A collection of twenty essays on the policies that continue to plague American agriculture. 134 pages, paperback regular $9.95 sale $7.95 BURTON W. 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Ordering information: 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, fax, and E-mail orders ($10 minimum) are welcomed: (800) 452-3518; fax (914) 591-8910; freeman@fee.org. ===== PAGE 36 ===== Available from FEE! LAW AND REVOLUTION: The Formation of the Western Legal Tradition by Harold J. Berman “A magnificent volume, broad in scope and rich in detail; this may be the most important book on law in our generation.” —American Political Science Review n this era of nation-states, we think of law as a body of rules LAW and that are centrally planned and | d a b REVOLUTION | [Firesteirrnhetass remarkable and award-winning The Formation of the Western Legal Tradition book refutes this myth. Berman shows that law in the West is HAROLD J. BERMAN historically not the product of sovereign nation-states but, rather, of competition among different law-supplying institutions. Berman's research uncovers the exciting fact that during the law’s formative era centuries ago, the crown competed with the church, with feudal manors, with cities, and with societies of merchants in supplying law. The lesson is g 3 : profound: law generated by ee dg competing law-supplying Laie RAGA institutions is likely to be superior | I to law produced monopolistically and centrally by a sovereign. CONTENTS: Introduction. PART I: THE PAPAL REVOLUTION AND THE CANON LAW. 1. The Background of the Western Legal Tradition: The Folklaw. 2. The Origin of the Western Legal Tradition in the Papal Revolution. 3. The Origin of Western Legal Science in the European Universities. 4. Theological Sources of the Western Legal Tradition. 5. Canon Law: The First Modern Western Legal System. 6. Structural Elements of the System of Canon Law. 7. Becket versus Henry II: The Competition of Concurrent Jurisdictions. PART II: THE FORMATION OF SECULAR LEGAL SYSTEMS. 8. The Concept of Secular Law. 9. Feudal Law. 10. Manorial Law. 11. Mercantile Law. 12. Urban Law. 13. Royal Law: Sicily, England, Normandy, France. 14. Royal Law: Germany, Spain, Flanders, Hungary, Denmark. Conclusion. Index. ISBN 0-674-51776-8 © 672 pages * indexed ® maps and figures ¢ paper $19.95 TO ORDER, CALL (800) 452-3518, FAX (914) 591-8910, OR E-MAIL freeman@fee.org ===== PAGE 37 ===== UNRESTRAINED APPETITES, UNLIMITED GOVERNMENT 289 absolutely correct: “It is hardly lack of due problem is not just certain people or certain process for the Government to regulate that groups, and not just a question of balancing which it subsidizes.” The federal government one group against another, or of increasing cannot give you what you want (high wheat “representation” to magnify the number of prices) unless it regulates you (controls the voices vying for the prize that participation in amount of wheat you can grow, even for per- a majority confers. sonal use), and if it is conferring a benefit on No, the problem is that each stands ready to you, you have no basis for complaining of the conscript his fellow citizens into his service, regulation. Be careful what you seek to enact that each denies equal liberty to all others and into law. will use force to achieve his ends. The prob- You cannot both remain free and expect the lem is the limits of man’s—each man’s— government to give you what you want; for it capacity for acting morally. is only by controlling you that the govern- ment can insure that you will get what you Justice for All want. There is no subsidy without regulation; freedom. Court’ decision in Wickard for failing to were apparently eager to make, evidently con- the decision was just. The Court refused to fident that the lost freedom was but a bauble Permit the farmers to escape from the conse- far and away surpassed by the gains to be real- quences of their own actions. ized from a legally restricted market for their But it can also be said that Wickard worked goods. As Filburn’s “but we didn’t know . . justice on a national scale, for the rest of us. due-process argument indicates, however, itis With the full power of the federal government a fine question how much that desire for leg- at last able to reach virtually all individual islated benefits hangs on the perception that conduct, we were free to form shifting, ad hoc the restrictions are at someone else’s expense. majorities to impose all manner of national social and economic restrictions on one eo. another, to seek and compel the subsidization The Source of Unlimited of one another’s activities. to coerce participa- Government tion in schemes like Social Security, and to pursue cultural hegemony through coerced conformity to “lifestyle” mores (such as bans on smoking). Like the nation’s farmers, we were now free to seek legislated benefits, both material and psychic, confident that the laws we desired would be at someone else’ expense. Little noted at the time, however, was the fact that if we were free to vie endlessly with one another to become legally protected predators, we would also be bound to labor perpetually to avoid becoming legal prey. The decision in Wickard wrought a terrible and lasting justice: by giving us what we wanted, the Court insured that we would all get exact- ly what we deserved. Cl It is unbridled desire to coerce others into serving their ends that causes grown men to rationalize the distortion of the words in founding documents (and lesser laws) and that eventually destroys all institutional barri- ers limiting government power. If the barriers erected by the Constitution ultimately proved powerless to keep this will to coerce within limits, there is no reason to believe that any other parchment barriers, such as term limits, supermajority requirements for tax increases, prohibitions on unfunded mandates, or the rest of the Bill of Rights, will have any greater capacity to contain that force. Fundamentally, then, the problem of limit- ing government is not merely a question of institutional devices designed to prevent the 1. Article 1, section 8, clause 18 of the Constitution confers upon creation or excesses of a ruling class, or the Congress the authority “To make all laws which shall be necessary . « . N vs and proper for carrying into Execution the foregoing Powers,” which co-opting of law by special interests.” The include the power to regulate interstate commerce. ===== PAGE 38 ===== THE IDEAS ON UBERTY ——— We Can Do Better than Government Inspection of Meat by E.C. Pasour, Jr. ast year’s news reports of tainted beef changes in the government’s meat-inspection focused public attention on the safety of system. Moreover, a federal inspector was the meat supply. In August 1997, Secretary of based at the Hudson Foods plant to check the Agriculture Dan Glickman forced Hudson plant’s procedures daily. Foods to recall 25 million pounds of ham- Chronic problems related to meat inspec- burger meat produced at the firm’s state-of- tion and meat safety warrant increased the-art plant in Nebraska. The nation’s largest scrutiny of the most appropriate method of beef recall occurred after several Colorado inspecting meat. During recent decades, suc- consumers became sick from hamburgers cessful deregulation initiatives occurred in a linked to E. coli contamination. number of areas including banking and trans- Examples of illness rooted in unsafe meat portation. This shows that market forces may are not isolated incidents. Bad or under- provide an improvement over government cooked meat causes an estimated 4,000 regulation of economic activity, even when deaths and 5 million illnesses annually, regulations are long-standing and widely according to the federal government’s Centers accepted. for Disease Control.! Moreover, a single inci- dent of contaminated meat has the potential to . * 4 affect large numbers of people. In 1993, five Is Meat Inspection Different: hundred people became ill and four children Skeptics, including even many market pro- died in the Pacific northwest as a result of eat- ponents, might say that the conventional ing tainted hamburgers. analysis doesn’t hold for government regula- Illness and death caused by bad meat tions protecting health—where slip-ups can (whether tainted or undercooked) inevitably be fatal. Problems of “government failure,” evoke calls for more government regulation. however, may be worse than any market It is ironic that increased government inter- imperfections that government regulation is vention is viewed as an antidote to tainted instituted to remedy.2 Thus, government fail- meat, despite the federal government’s long- ure would have even graver implications for standing responsibility for meat inspection in health issues. the United States. Indeed, the Hudson Foods Is it possible that the free market could sub- incident occurred only a year after President stitute for, and even improve on, the current Clinton announced the most sweeping system of federal meat inspection? The fol- lowing analysis demonstrates that the prob- lems in government meat inspection are simi- E.C. Pasour, Jr., is an economist at North Carolina 1ar to those that plague all other government State University. regulation of economic activity. There is no 290 ===== PAGE 39 ===== 291 way for government regulators to obtain the accounted for about 90 percent of the cattle information and realize the incentives of the slaughtered in Chicago within a decade after decentralized market process, whatever the the introduction of refrigeration. area of economic activity. Thus, market The Chicago packers fundamentally inspection of the U.S. meat industry, when changed demand and supply conditions in the contrasted with the current system of federal meatpacking industry. Small, local slaughter- regulation, is likely to reduce the incidence of houses throughout the country were rapidly illness associated with the consumption of displaced because they could not compete unsafe meat. with the lower-cost Chicago packers. Local slaughter firms, in response, charged that Federal Meat Inspection— Chicago packers used diseased cattle and that How It Began their dressed beef was unsafe. The disease issue, as bogus as it apparently was, threat- The Meat Inspection Act of 1891 was a ened both domestic demand and export mar- major landmark in federal regulation of meat kets for U.S. meat. Cattle raisers, especially and, indeed, of federal regulation of econom- those in the midwest, backed federal meat ic activity in the United States.> A review of inspection to promote demand.’ the political economy of that era is helpful in Cattle producers were also concerned about understanding the impetus for government falling prices. Prices fell because the supply regulation. Most government intervention of cattle grew rapidly. But producers attrib- then and now, at least ostensibly, is in uted the fall to their declining market power response to “market failure”—economic out- versus the Chicago packers—a charge that comes that fall short of “perfect competition.” seemed credible because of the packers’ size (All markets fail, of course, when measured and concentration. Ostensibly to deal with the against this criterion.) largely spurious allegations of unsafe meat Moreover, the 1891 act was instituted under and collusion by the Chicago packers, cattle- false pretenses. It was a solution to a largely men, and local packers called for federal meat nonexistent problem—contaminated meat. inspection and antitrust legislation. Enact- There 1s no reliable evidence that tainted meat ment of the Sherman Act in 1890 and the was a major factor in the adoption of the leg- Meat Inspection Act of 1891 were thus close- islation. In a political-economic analysis of ly tied legislatively. the era, Gary Libecap concludes that “the record does not indicate that the incidence of The Jungle and the Meat diseased cattle or their consumption was very Insp ection Act of 1906 great, and there is no evidence of a major health issue at that time over beef consump- The famous Meat Inspection Act of 1906 tion.”4 Government meat inspection, once in also was heavily influenced by false charges. place, however, like many other government Ideas have consequences, and public policy regulations, was soon viewed as necessary to can be influenced by a popular book, such as protect consumers. Upton Sinclair’s The Jungle—regardless of its There is a great deal of evidence that the merits. The muckraking novel focused on political impetus for the 1891 legislation was greed and abuse among Chicago meat-pack- the consequence of rapidly changing econom- ers and government inspectors.” The charac- ic conditions. Market dominance by Chicago ters in The Jungle tell of workers falling into meat-packers—primarily Swift, Armour, tanks, being ground up with animal parts, and Morris, and Hammond—quickly followed the being made into “Durham’s Pure Leaf Lard.” introduction of refrigeration around 1880. Sinclair wrote The Jungle to ignite a social- Refrigeration allowed for centralized, large- ist movement on behalf of America’s workers. scale, and lower-cost slaughterhouses because He did not even pretend to have actually wit- of production, distribution, and transportation nessed or verified the horrendous conditions advantages. The four large Chicago firms he ascribed to Chicago packing houses. ===== PAGE 40 ===== 292 THE FREEMAN ee MAY 1998 Instead, he relied heavily on both his own of goods and services decreases as resources imagination and hearsay. Indeed, a congres- are used to restrict competition rather than to sional investigation at the time found little expand production and exchange. Favor- substance in Sinclair’s allegations.? seeking is just one example of “government Nevertheless, the sensational allegations failure.” dramatically reduced the demand for meat. Government intervention often is counter- U.S. exports fell by half. Major meat-packers productive because of information and incen- saw new regulations as the way to restore con- tive problems. The crucial economic problem fidence, and they strongly endorsed the Meat confronting society is how to use people’s Inspection Act of 1906, which expanded the specialized knowledge to best satisfy con- scope of federal inspection to include smaller sumers. As Nobel laureate F.A. Hayek empha- competitors. sized, government officials cannot obtain the Economic conditions back then were much information that motivates individual choice different from today’s. However, there is a because that information, much of which lesson to be learned from that early period is never articulated, is strongly linked to a concerning government and free-market particular time and place. Consequently, offi- approaches to meat inspection. cials must base decisions on something other The early legislation, for the most part, was than the “public interest,” if that term means not a response by government to a legitimate the interests of the people who comprise the public-health threat. Congress enacted the public. 1891 act in response to political pressure by Moreover, even if the information could be local meat-packers and cattle growers who known, it is unlikely to be used most effec- felt victimized by the rise in power of the tively. Government officials lack appropriate Chicago packers and by lower cattle prices. incentives because power and responsibility This legislation along with the Sherman Act are separated. Those who make and adminis- and the Interstate Commerce Act, all enacted ter laws do not bear the consequences of their within a four-year period, represented a sig- actions, at least not to the same extent as pri- nificant break with what had previously been vate individuals. As shown below, markets considered an appropriate role for the federal generally are superior to government regula- government.? tion because they cope better with informa- The 1906 Meat Inspection Act, too, was tion and incentive problems. largely a response to the meat industry’s finan- cial problems rather than to a health threat. The earlier spate of interventionist legislation, however, had provided a new mandate for Related to the incentive problem is anoth- government regulation of economic activity er flaw in the current system of meat inspec- that facilitated the passage of the 1906 act. tion: the adverse effect of government regu- Thus, the case of federal meat inspection is lation on innovation. That flaw is found in all yet another example of Ludwig von Mises’s alternatives to the decentralized market insight that government intervention almost process.!! Dealing with Change inevitably leads to further intervention. In the absence of the profit motive, individ- uals have less incentive to discover and imple- Pitfalls of Government ment new technology in the inspection and R egul ation handling of meat. No one knows, of course, which new technology will ultimately prove Thus government meat inspection, like beneficial in meat inspection or in any other most other economic regulation, was institut- area. However, in the marketplace, if an inno- ed mainly because of favor-seeking: the use vation proves to be profitable the person of time and money to harness the power of responsible for it will receive a large part of government for private ends.!0 Favor-seeking the reward. Things are quite different in a cen- is a negative-sum activity. The nation’s output tralized system. Under government regula- ===== PAGE 41 ===== WE CAN DO BETTER THAN GOVERNMENT INSPECTION OF MEAT 293 tion, the government employee who discovers Moreover, profit-seeking firms are likely to or adopts a potentially superior technology is have a greater incentive than government reg- likely to receive only a small amount of addi- ulators to adhere to quality standards. Gov- tional compensation. On the other hand, if the ernment inspectors get to know the people innovation doesn’t pan out, he will lose much operating the plants they regulate. Strict less than the entrepreneur in a profit-and-loss enforcement of standards might create hard- system. ship for those people. For example, if meat is This fundamental difference between mar- considered to be of marginal quality but not to kets and government is highly important to pose a significant health threat, regulators innovation in the meat industry. The heart of may be inclined to overlook such infractions. U.S. meat inspection continues to be the In short, when contrasted with market regula- “poke and sniff” method that relies on the tion, government regulators have a smaller eyes and noses of some 7,400 Department of incentive to enforce safety regulations. Agriculture inspectors. In 1997 a small Massachusetts company, SatCon Technology Corporation, working with a North Dakota- Who Will Protect the based group of ranchers, found a way to use Consumer? lasers to find illness-causing pathogens such as E. coli and salmonella by scanning animal carcasses in slaughterhouses.!2 Such techno- : logical innovation has the potential to revo- lms of food safety would be dealt with better lutionize meat inspection in the United through the decentralized market process, States. which provides a greater opportunity for both But it is more likely to be adopted in a free business firms and consumers to achieve their market than in a government-regulated mar- goals. Stated differently, the market process ket. Since it has the potential to dramatically Provides a greater incentive than government reduce both the amount of labor currently regulation for private firms and consumers to used in meat inspection and the rationale for discover, disseminate, and use information government regulation, it is inconsistent with about the quality of meat. oo two important goals of any bureaucracy: For one thing, government regulation gives maintaining jobs and expanding its operation, ~CONSUMErS a false sense of security. !3 It leads them to assume that they are being protected by eqs the government, reducing the incentive to do Market Competition versus their own checking. Market methods of inspec- Government Regulation tion, in contrast, give consumers a greater The experience of government control of incentive to acquire information about the qual- economic activity shows why government ity of meat. Consequently, they are likely to be meat inspection is likely to be inferior to free more alert to potential problems of food safety. markets. Private inspection firms, which must It is true, of course, that meat may be cont- meet the market test, have a greater incentive ~aminated when it appears to be safe. If sellers to be effective than do government regulators. of meat have more information about quality A private firm providing information to con- than consumers do, can consumers look after sumers about meat quality will reap profits their interests? Yes; uneven information does when successful and incur losses when not. not imply that sellers have an incentive to sell Thus, if a private meat-grading service were unsafe meat. Consumers are protected by the to become lax in satisfying consumers, meat sellers’ economic interests. firms no longer would be willing to pay for The use of brand names, such as Armour or the service. Consequently, the private firm not Swift, is one way that private firms assure only has an advantage in obtaining the neces- quality standards for meat.'* A brand name sary information; it also has a greater incen- enables consumers to identify a firm’s meat tive to use it in the interest of the public weal. product and choose it over competitors. Numerous studies have shown the benefits from privatization. It is quite likely that prob- ===== PAGE 42 ===== 294 THE FREEMAN ee MAY 1998 Hence, a firm with an established and valu- Why Not More Market able brand name has a strong financial incen- Inspection of Meat? tive to adhere to quality standards. A company responsible for selling contam- We've seen that businesses and consumers inated meat can be quickly ruined by adverse are willing to pay to assure product quality. publicity about its products. The recall of And, as emphasized throughout, it is apparent Hudson beef in 1997 left Burger King branch- that private inspection agencies “have a lot es across the midwest without hamburgers. going for them.”!s Yet, despite the ostensible Following the recall, Burger King canceled advantages of the market approach, there is their contract with Hudson Foods and little reliance on market forces in meat announced that it would never buy from the inspection in the United States. Why does the company again—showing that it is strongly in meat industry not rely on market regulation the financial interest of business firms not to more? sell tainted meat. Market-generated information about the Where quality is difficult for consumers to quality of meat undoubtedly would be much evaluate, little-known firms may benefit from greater in the absence of government regula- the services of private inspectors to certify tion. Government inspection tends to preempt safety. There is considerable evidence that market inspection, much as taxpayer-financed market forces can assure product quality education crowds out privately funded without government regulation. Best Western, schools, by reducing the incentives of sellers for example, is a private certification agency and buyers to look after safety on their own. 16 that enables travelers to identify motels that There is little demand on the part of meat han- meet specified quality standards. Underwrit- dlers for services that would be provided by ers Laboratories establishes standards for private firms in the absence of government electrical products, and tests them to see if inspection. Business firms are, of course, also they meet those standards. These examples happy to have the taxpayers pick up the tab for show that firms frequently are willing to pay inspection. to assure customers that their products meet Similarly, with assurances by the USDA prescribed standards. The success of Con- (and the media) that government regulation is sumer Reports and similar publications is fur- crucial to consumer safety, there is little impe- ther evidence that consumers are willing to tus for consumers to change the current insti- pay to be informed. tutional arrangement. Moreover, when prob- Is meat inspection an exception to the rule lems of meat safety occur, there is no discus- that private firms generally perform more sion of “government failure.” Instead, effectively than government? There are good regulatory officials plead for more power. In reasons to think that market-based inspection the aftermath of the Hudson Foods incident, of the meat industry could improve on the for example, Secretary Glickman requested current system. Illness associated with conta- additional authority to shut down food- minated meat often occurs with federal meat processing plants and to impose fines of inspection. There is no way, of course, to pre- $100,000 per day on any plant not obeying his vent all food-related illness. Mistakes on the order. part of buyers and sellers, and some degree of There can be no guarantees when it comes fraud, are unavoidable whatever the institu- to food safety. Indeed, zero risk is not a rea- tional arrangement. The goal in meat inspec- sonable objective in any aspect of human tion, as in other areas of economic activity, is action. There are two approaches to ensuring to establish an institutional arrangement that the safety of meat—market inspection and provides and uses information in a way that government regulation. It is ironic that the best serves consumers. The free market gen- public expects government regulation, which erally is more effective than government reg- has more imperfections than the competitive ulation in doing so. market process, to provide for meat safety.!” ===== PAGE 43 ===== WE CAN DO BETTER THAN GOVERNMENT INSPECTION OF MEAT 295 Few people question the appropriateness of 4. Ibid, p. 246. . 5. Tbid., p. 244. government regulation of the meat industry, 6. Ibid even when they fault its effectiveness. 7. Lawrence W. Reed, “Of Meat and Myth,” The Freeman, . . . November 1994, pp. 600-02. No one has a stronger interest in protecting 8. Ibid., pp. 600-01. consumers from tainted meat than the busi- 9. Libecap, p. 242. . . . . 10. Economists use the term “rent-seeking.” James D. Gwartney nesses in the industry. Ultimately, safety 1S and Richard L. Stroup, Economics: Private and Public Choice, 8th best assured when rooted in the self-interest ed. (Orlando, Fia.: Harcourt Brace & Co., 1997), p. 102. . 11. Milton Friedman, Market Mechanisms and Central Econom- of business firms and consumers. ] ic Planning (Washington, D. C.: American Enterprise Institute for Public Policy Research, 1981), p. 21. 1. Peter J. Howe, “New Laser May Identify Tainted Meat,” 12. Howe. The Boston Globe, 1997, http://yourhealthdaily.com/090497_ 13. Randall G. Holcombe, Public Policy and the Quality of Life: 110006_15810.htmi. Market Imperfections Versus Government Planning (Westport, 2. William C. Mitchell and Randy T. Simmons, Beyond Politics: ~~ Conn.: Greenwood Press, 1995), p. 105. Markets, Welfare, and the Failure of Bureaucracy (Boulder, Colo.: 14. The discussion of quality standards draws on Holcombe, Westview Press, 1994). pp. 93-106. 3. Information presented here on the early history of meat inspec- 15. Ibid., p. 101. tion in the United States relies heavily on Gary D. Libecap, “The 16. E. C. Pasour, Jr., “Consumer Information and the Calculation Rise of the Chicago Packers, and the Origins of Meat Inspection and ~~ Debate,” The Freeman, December 1996, pp. 780-86. Antitrust,” Economic Inquiry, April 1992, pp. 242-62. 17. Mitchell and Simmons, p. 82. Austrian Economics Summer Seminar for graduate students and faculty July 5-10, 1998 a The Foundation for Economic Education Irvington-on-Hudson, New York Faculty for the seminar include: « Professor Israel Kirzner, New York University « Professor Roger Garrison, Auburn University « Professor Mario Rizzo, New York University « Professor Lawrence H. White, University of Georgia « Professor Peter Boettke, New York University Space is limited to about 40 participants. Only persons who can attend the entire seminar should apply. Successful applicants will receive a fellowship to cover tuition, meals, lodging, and study materials. Participants, however, will be responsible for travel expenses. Priority will be given to faculty members and graduate students who have not had the opportunity formally to study Aus- trian economics. Exceptionally well-qualified undergraduates are also encouraged to apply. For complete application details, see http://www.econ.nyu.edu/dept/austrian/app.htm or contact Peter J. Boettke, Austrian Economics Seminar Department of Economics New York University 269 Mercer Street New York, NY 10003 telephone (212) 998-8959; fax (212) 995-4186; E-mail: Boettke@fasecon.econ.nyu.edu ===== PAGE 44 ===== Peripatetics by Sheldon Richman Drawing the Line Qocialism and communism have collapsed ital device deals with ones and zeroes. A so completely that only a few holdouts switch in a computer chip is either open or refuse to acknowledge the rubble before their closed. There is no in-between, no range of eyes. We've apparently reached “the end of adjustment, no third way. history,” as Francis Fukuyama labeled the What does this have to do with government postcold-war era a few years ago. and the marketplace? A great deal. When we But appearances can deceive. Capitalism focus on the nature of state and economy, we may look triumphant, but some people are see that the framework is digital, not analog. clearly uncomfortable with the fact that it Let me explain. George Washington was to seems to be the only “ism” left standing. The have said that “government is not reason or search for a “third way” goes on. President eloquence. It is force.” When you come right Clinton used that very term in his state of the down to it, all government can do is compel. union address. Every activity it undertakes ultimately relies Authors Daniel Yergin and Joseph Stanis- on coercion. If you take away its power to tax, law are also looking for that chimera. In their what is left? Regulations would be mere sug- interesting new book, The Commanding gestions if the officers of the state did not have Heights: The Battle Between Government and prisons, guns, and the legal authority to use the Marketplace That Is Remaking the World, them. Government does not produce or cre- they wonder where our era will set the “fron- ate; it appropriates and transfers what others tier between government and marketplace.” produce and create. (See Mark Skousen’s column on p. 313 for a In contrast, the marketplace is reason and pleasant surprise about this book.) It is ironic eloquence. It is an environment in which peo- that in thinking about the world on the brink ple try to better their circumstances by offer- of the new millennium, they are thinking in ing to better those of others. A proffer is an act such old terms. They discuss the frontier of persuasion. A price, someone said, is an between government and marketplace in ana- argument. The marketplace is productive and log terms, as though that line can be adjusted creative. Think about what happens there. Pro- in infinitely small steps. The task, as they see duction is actually transformation. A success- it, is to find just the right position, where mar- ful entrepreneur transforms pre-existing fac- ketplace and government balance each other tors—Ilabor, machines, land, raw materials— and each prevents abuse by the other. into a finished whole for which people are But we live in the digital age! Analog think- willing to pay more than they would pay for all ing is inappropriate in so many areas of life— the separate parts. The entrepreneur’s profit is including the politico-economic realm. A dig- the difference between those two prices, his reward for figuring this all out. Contrariwise, Sheldon Richman is editor of The Freeman. losses represent the consumers’ penalizing an 296 ===== PAGE 45 ===== 297 entrepreneur for “misusing” the factors by words “Anything that’s peaceful.” As he turning them into a less valuable form. wrote, “[L]et anyone do anything he pleases State and market, then, are opposites, that’s peaceful or creative; let there be no embodying, respectively, force and creativity. organized restraint against anything but That is why the mission to finely adjust the fraud, violence, misrepresentation, predation. frontier between the two, as Yergin and Stanis- . . . [L]eave all else to the free, unfettered law wish, is misconceived. It is not a shade of market!” gray that we should be seeking, but the bright The frontier between the state and market line between force and reason (creativity). has only one right position, precisely at the Force is appropriate only against force. point that leaves people free to do as they will Leonard Read captured the proper conception so long as they recognize the same right held of the scope of market and government in the by everyone else. OJ Put in a good word for us. We are compiling a daily calendar for 1999, which will feature the very best ideas on liberty. It's a big project — and who better to help us than Freeman readers? Please mail, fax, or e-mail your favorite freedom quotation (with full documentation, if possible) to: 1999 Calendar Quotations FEE 30 South Broadway Irvington-on-Hudson, NY 10533 fax: (914) 591-8910 e-mail: Marybeth Fennell, mbfennell@fee.org ===== PAGE 46 ===== THEFREEMAN @ Government/Civics IDEAS ON UBEATY ———— A Number, Not a Name: Big Brother by Stealth by Claire Wolfe hen Representative Dan Schaefer of other documents that display or are linked to Colorado held a consumer protection Social Security numbers and that have securi- seminar in October 1997, he thought he was ty features supposedly to discourage tamper- going to educate constituents about guarding ing or counterfeiting. Any time you wish to their privacy against con artists. Instead, it receive a service from the federal govern- was Schaefer who got an education. ment, you will be required to produce this “My concern with privacy,” snapped the license or a similar nondriver ID. No alter- first person to rise for a question-and-answer nates will be accepted. session, “is what the damn government is It is important to note that PL 104-208 con- doing to me.” tains 468,937 words—about four times the A flood of comment followed—nearly all size of an average novel. The national ID pro- of it about laws passed by Schaefer’s own vision occupies approximately one page. How 104th Congress, controlled by Republicans, many people knew it was even there? and signed by President Clinton, a Democrat. Together, considering the information and Inse curity Features technology at the government’s disposal, these laws create the most comprehensive Secretary of Transportation Rodney Slater identification and citizen-tracking system has not published his proposed regulation on ever imposed on any country. Yet they have security features. (The law required him to do received little attention in the mainstream so by September 30, 1997.) However, we media and in some cases were passed with lit- already know that these features will not con- tle or no debate in Congress. sist of innocuous items like those in the recent- ly redesigned currency. They will contain, oe among other things, your biometric identifiers. In the Beginning Was the The American Association of Motor Vehi- ID Card cle Administrators (AAMVA), the group Since 1996 the United States has had a assisting Slater with design of the card, has mandate for a de facto national ID card. It already made this apparent via state laws takes effect October 1, 2000. Public Law 104- being passed at their behest. Some 28 states 208 (Division C, Title VI, Subtitle D, Section have begun, or are proposing, to change their 656) says that for identification, federal agen- drivers’ licenses since the federal law was cies may only accept state drivers’ licenses or Passed. Changes and proposals include digi- tally encoded fingerprints; digital, computer- Claire Wolfe is a writer in Tacoma, Washington. readable photo; digitally encoded retinal scan; © Claire Wolfe, 1998. and other forms of biometric ID. 298 ===== PAGE 47 ===== 299 These, or similar features, will be on your Law 104-191), much ballyhooed in the license in the form of bar codes, magnetic media as “moderate” health-care reform, strips, and, eventually, silicon chips (smart dictates national “standards” for the elec- cards). In December 1997 the AAMVA tronic transmission of all personal medical announced that fingerprints were its currently data. Standards seems an innocuous term. favored form of biometric ID. However, the law specifies that every indi- vidual’s medical data will be stored and transmitted under a “unique identifier.” These standards were ordered in the name of Bar codes and magnetic strips enable the preventing abuses of medical data. However, driver’s license to carry a significant amount by placing every American’s records into one of data about your life. The card becomes a form, with one identifying number for each mini-databank containing such electronically individual, Congress made abuse not only readable information as your driving record, easier, but inevitable. In fact, the law carries employment, age, sex, race, Social Security built-in blueprints for abuse. For example, number, and criminal record. The most you have no right to forbid your private sophisticated cards will have the capability to information to be transmitted as the govern- contain far greater amounts of data, which ment orders. You have no right to inspect might include your health history, education your own transmitted data or correct it. The records, job history, DNA scans, and virtually law does, however, guarantee access to a anything else the government decides to leg- variety of government agencies and islate into the license, or a bureaucrat decides “researchers.” Although, once again, the pro- to regulate into it. posed standards have not been published, it’s Those data will be available to anyone with a virtual certainty that your Social Security the capability of scanning your card. Yet the number will be used as your “unique identi- card itself is not the biggest problem. The far fier” in this system. larger problem lies in the databases a Social In other words, your Social Security num- Security number-based ID can unlock. By ber—which had been gradually turning into making the card a carrier of a “unique identi- an unofficial universal ID number for fier” for every citizen, the federal government decades—becomes the key to a vast new store has created a nightmare. And the nightmare is of personal information about your life. made flesh by other provisions passed by the But, still, these invasions of privacy aren’t 104th Congress. the most serious problem. Buried in both Public Law 104-208 and Public Law 104-193 (the Welfare Reform Act of 1996) are similar provisions requiring development of scannable Social Security As the Welfare Reform Act was on its way cards. If this doesn’t seem ominous in its own to becoming law, left-liberals, conservatives, right, it becomes so when connected with and the media alike hailed one of its provi- another hidden element of PL 104-208. The sions—the “Deadbeat Dads’ Database.” Near- law orders pilot programs in which job-seek- ly everyone agreed that tracking down dead- ers will be required to obtain the permission beat, absentee parents was a good idea. of the federal government before being Except... that’s not what the database does. allowed to work (Division C, Title IV, Subtitle If you were designing a system to track A, Sections 401-404). The machine-readable nonpaying, noncustodial parents (leaving Social Security card will be used to transmit aside the constitutional issue of whether the the potential employees ID to Washington federal government has authority to do any and to receive an okay from the Social Secu- such thing), how would you do it? The least rity Administration. obtrusive way, of course, would be to wait Moreover, the Health Insurance Portabili- until an absentee parent had missed at least ty and Accountability Act of 1996 (Public one child-support payment, then enter infor- Only the Beginning The Biggest Invasion of All ===== PAGE 48 ===== 300 THE FREEMAN ¢ MAY 1998 mation about the parent in the database. But Taken together, these databases, ID cards, by then the absentee might have disappeared. and programs will become a citizen-monitor- The next logical course, somewhat more ing system that would have been the envy of obtrusive to responsible parents, but more the old Soviet Empire or Nazi Germany. Yet effective, would be for court clerks to enter there is more already on the books. And there every child-support judgment into a local is certainly more to come. database at the time it is issued. The parent who owes child support could then be Other Sections of the Maze required either to make payments through the court or to report periodically to the court. If The School to Work Opportunities Act of the parent failed to do so, police could be 1994, passed by the Democratic Congress in quickly issued an order to contact the non- Clinton’s first two years, has many cheerlead- complying parent. When the children had ers in the education community and was pro- matured and the obligation ended, the parent’s moted to the public as a solution to the long- name would be removed from the record. standing problem of children’s leaving school The database Congress created has no con- unprepared for work. In reality, however, the nection whatsoever with child-support judg- act requires local schools to supply data to the ments. It has nothing to do with parenthood in secretaries of labor and education for the any manner. It is, quite simply, a permanent School to Work program’s “labor-market record of every person hired by any company identification system.” Although it is benignly in America, anywhere, at any time—filed by worded, this all sounds ominous, as though Social Security number. The “new hires data- students are national resources and the feder- base,” as it is more properly called, tidily lets al government is needed to oversee the work many a self-employed “deadbeat” slip force for the benefit of industry. through the cracks. Yet at the same time it Furthermore, as British scholar Sean Gabb sweeps in the single and childless, devoted noted in his well-researched 1994 essay on married couples, great-grandparents, and the national ID issues: “In the United States every other category of productive worker. ... the education system is fast acquiring a Clearly, the purpose of this database never national network of electronic student was, isn’t, and never will be to track “dead- records. Its purpose is to allow the exchange beat dads.” It is to track citizens, particularly of information between various agencies, working citizens—those whom the federal both public and private, and the continuous government increasingly regards as its tracking of individuals through school and “resources.” higher education, through the armed forces, Furthermore, Section 317 of the Welfare through the criminal justice system, through Reform Act requires that, as a condition of their civilian careers, and through their use of receiving federal welfare funds, states must the medical services.”! “establish procedures requiring that the Social Right now the databases contain an “elec- Security number of any applicant for a pro- tronic portfolio” of students’ work, teacher fessional license, commercial drivers license, assessments, and Social Security numbers. recreational license, occupational license, or But Gabb notes that the National Education marriage license be recorded on the applica- Goals Panel (NEGP), set up under Goals tion.” A year later, the word commercial was 2000, has recommended that other informa- removed, applying the regulation to the tion be included, such as health information, nation’s 180 million drivers. poverty status, after-school activities, employ- Once the states pass their enabling legisla- ment, and voter-registration status. The panel tion, no American will even be able to get a also identifies other “data elements useful for fishing license, get married, or become a hair- research and school management purposes,” dresser without the information being imme- including how many people live in a student’ diately available to government agencies home, the relationship of those people, and across the land. the education level of “primary care-givers.” ===== PAGE 49 ===== A NUMBER, NOT A NAME: BIG BROTHER BY STEALTH 301 Gabb writes that the records are availableto and Social Security number, name of the private agencies. “In Together We Can, a book manufacturer, the caliber or gauge (as appro- published jointly by the U.S. Department of priate), the model and type, and the serial Education and the U.S. Department of Health number identification (if any) of the firearm.” and Human Services, there is talk of ‘over- The application for a firearm permit must be coming the confidentiality barrier,” he “on a written application that contains a pho- writes. “The purpose of the new databases is tograph and fingerprints of the applicant.” to give all agencies ‘ready access to each (This bill appears to be languishing.) other’s data.” ” All the laws discussed have been passed or With this in mind, it should be noted that proposed in the name of “safety,” “security,” recent changes in tax law also require that “anti-fraud,” “crime control,” or “stopping every child have a Social Security number in illegal immigrants.” The federal government order to be claimed as a deduction on a par- cannot force the states to adopt ID and track- ent’s tax return. As of this year, there are no ing systems. It has done something even more alternative means of “proving” the existence powerful threatened to withhold tax dollars of your child. Whether the specific recom- from those that don’t comply and rewarded mendations of the NEGP are implemented or those that do with bonus millions. Every state some other, equally intrusive proposal one in the nation is adopting the new-hires data- day becomes law, what do you think will be base and Social Security number require- used as a “unique identifier” in childhood ments for licensing. Every state will be forced databases? by sheer necessity to adopt the national ID Speaking of those growing databases: in license. mid-1997 President Clinton proposed cre- ation of a federal registry of all children’s vac- cinations, stating that “most people” can’t But Why Worry? track their children’s medical records, even Some may say, “Well, good. It’s about time when it may have “something to do with they found some way to stop illegal aliens, whether their children live or die.” Not a sin- deadbeats, and criminals.” Others will react, gle parent, teacher, or physician’s group spoke “Gee, I'd like to have my health record on my out in protest of this stunning assumption driver’s license in case I’m in an accident or about the stupidity and carelessness of the something.” Or, “Criminals ought to have average American parent. their records where police can easily get Finally, bills under consideration by Con- them.” And then there is the standard: “Why gress are ominous. HR 231 would make the should I worry about the government having Social Security card every American’s photo information about me? I don’t have anything ID. Second, according to Scott McDonald of to hide.” Alabama’s Fight the Fingerprint, the Voter But those responses, all of which imply Eligibility Verification Act, HR 1428, would face-value acceptance of the federal govern- permit states to require people to provide ment’s claims of “security,” ignore the long- Social Security numbers when they register to term harm that will inevitably come from a vote. Furthermore, the bill would establish a national ID and database system. “Voter Eligibility Confirmation System” to be maintained by the attorney general’s office in You should worry because all these laws cooperation with the Social Security Admin- work together for one purpose, and that pur- istration. Third, again according to McDon- pose is to control your life. Every one of these ald, HR 1998, the Yates Firearm Registration measures implies government ownership of and Crime Prevention Act would require the information about your life—and by pro- everyone who owns a firearm to register it jection, of your life itself. They imply that with the federal government within one year we are subjects, not citizens. Serfs, not free after the effective date of the act. To register, people. Cattle, not independent and equal you must submit your “name, age, address, humans. ===== PAGE 50 ===== 302 THE FREEMAN ee MAY 1998 Every one of these measures implies government ownership of the information about your life—and by projection, of your life itself. They imply that we are subjects, not citizens. By assuming it has the unlimited right to his parent ceased using cigarettes. The infor- collect and maintain data on us, to require us mation on the parents’ habits was in a nation- to use numbering systems and ID systems of al database. its design, and to track its “human resources” The potential for discrimination by govern- as it sees fit, the federal government is treat- ment against people on the basis of their ing us precisely as a modern farmer treats his habits, sexual orientation, health history, or herds. Certainly, he wants them to be healthy, other factors is enormous. While a national ID to be grazing in the right pasture at the right card might never result in mass slaughter, as moment, to be secure against predators . . . in Nazi Germany, it could result in such but he wants them most emphatically to be things as quotas that would deny medical care under his constant watch and control. to elderly or overweight people. You should worry because innocent errors You should worry because your alleged or deliberate corruption could cost you every- representatives feel themselves bound by no thing you've ever worked for. For instance, restraints at all—neither by the Constitution once the pilot job ID program becomes nor your opinion. The Constitution gives the national policy, if your Social Security card federal government no authority to pass any fails to scan, you may not be able to get a job of this legislation. But Congress discarded the anywhere in the United States. A card could Constitution long ago. And it is passing fail to scan for many innocent reasons. Or, if sweeping laws in such a way as to keep them you are a political activist, a rival of a govern- largely invisible to you until it is too late. ment contractor, or some other form of “unde- sirable,” your card could fail to scan because And if these things don’t worry you . . . someone hacked the system or tagged your Here’s one small practical reason to oppose Social Security file. It could take months, these federal efforts at control. They’ll do even years, to straighten out innocent errors. nothing whatsoever to make anyone more An error in your health records could indi- secure. On the contrary, as quickly as the new cate that you were mentally ill. In that case, driver’ license systems are being put online, you might lose your gun rights or your job. A they are being compromised. In two states, political opponent could use your nonexistent thieves rapidly broke in and stole the comput- “illness” against you in a variety of ways. er systems that produce the “secure” ID. In How many more horrors can result from California, Department of Motor Vehicle incorrect or “fiddled” data? employees were arrested for selling black- market “secure” ID cards. You should worry because accurate data Every database can be hacked. Employees can harm you, too. As Sean Gabb has pointed can be bribed. The most sophisticated card can out, even accurate data can easily be used be faked. By establishing systems that some against you. In Britain there have already people will have to evade merely to survive, been incidents in which smokers were denied and by driving ordinary privacy lovers to des- health care. Gabb cites one case in which the peration, these laws actually create more law- child of a smoker was denied dental care until breaking and entirely new classes of criminals. ===== PAGE 51 ===== A NUMBER, NOT A NAME: BIG BROTHER BY STEALTH 303 Opposition Grows vent, or monkey-wrench the numbering and i i» a database systems. Across the nation, citizens are mobilizing Many fundamentalist Christians believe to fight their state’s rendition of the national they will literally lose their souls if they ID card. Three of the earliest and most active accept a universal ID number, seeing it as a groups are mn Georgia, Alabama, and Wash- sion of the Antichrist. (Revelation 13:16-17: ington.2 However, their efforts will lead to a “And he causeth all, both small and great, rich dead end. If a state refuses to comply with and poor, free and bond, to receive a mark in federal ID requirements, its citizens will not their right hand, or in their foreheads. And be able to get passports, welfare, or Social that no man might buy or sell, save he that had Security, among other services. the mark, or the name of the beast, or the This might bring a momentary smile to lib- number of his name.”) Many nonreligious ertarians (like me) who would like to see such activists and freedom-seekers have simply federal services abolished. Unfortunately, it declared this to be their line in the sand. As would also leave most citizens of the rebel- one commented, “Slaves to one side; free peo- lious states crying for ID chains and the tax- ple to the other. I know which side I'm on, no funded “security” that comes with them. matter what damn laws they pass.” J Even among activists carrying on the battle 1. “A Libertarian Conservative Case Against Identity Cards,” by 1994, as Political Notes 98. Available on the Internet at http:// element to the struggle. Unnoted by the freespace.virgin.netiold.whig/ideards html. media, a solid resistance movement is form- 2. The Alabama Fight the Fingerprint organization maintains } ; . the best all-round web site on this subject at http://www. ing under and around the polite activism. AS networkusa.org/fingerprint.shtml. If you visit, be sure to check their : 3 : 3 3 recently updated record on all state driver’s license requirements at states introduce their enabling legislation for http://www .networkusa.org/fingerprint/page4/fp-04-page4-winners the new ID, and as activists gradually lose the 1osers.html. Other sites of interest: the Georgia Coalition to Repeal battle, we can expect to see literally millions the Fingerprints Law at http://www atlantainfoguide.com/repeal . and Washington State Citizens Against National ID at http://home. of Americans take steps to drop out, circum- earthlink net/~idzrus/opwid.html. 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 52 ===== Economic Notions by Dwight R. Lee ¥ Economics Social Cooperation, Good Intentions, and Incentives (Editor’s Note: This is the first installment of the fact that the implications of scarcity and Professor Lee’s new monthly column.) rational decision-making allow us to under- stand how certain social institutions make lthough each of my Freeman columns productive cooperation possible among large will stand alone, let me emphasize at the numbers of people, each of whom is con- outset that economics is far more than a series cerned primarily with achieving a better life. of unrelated concepts. Economics provides a This explanatory power goes back to Adam coherent and powerful framework for seeing Smith, who elaborated on the connections order in the seemingly unrelated actions of between “the invisible hand” and the “Wealth hundreds of millions of individuals as they of Nations.” It was Smith who first explained struggle to improve their lot in life. systematically how the social institutions of Improving our circumstances is always a the free market encourage the creation of struggle because of the fundamental problem wealth by motivating people concerned with of scarcity. All economic concepts are rooted their own interests to behave in ways that best in the problem of scarcity. No matter how pro- serve the interests of others. ductive we become, there always will be lim- In some respects, the economics profession its on what we can accomplish. Each individ- has made little progress since Adam Smith. ual confronts the fact that he must choose Economists have been ineffective at commu- among many different ways to use his time nicating to the public the tremendous benefits and talents, and he makes those choices to we all realize from the cooperation promoted achieve his particular purposes. No one else by the free market, or the threat to that coop- can know as much about another person’s pur- eration from the political influence of orga- poses as that person himself. So while we may nized interest groups. In part, this failure can not understand the actions of others, we can be explained by the difficulty of the task. The be confident that they are doing the best they benefits of the market are spread so wide in can to realize their objectives; from their own the form of lower prices, improved products, perspectives, they are acting rationally. and better opportunities that they tend to go unnoticed or be taken for granted. Because the benefits are primarily the indirect and unintended consequences of the actions of But economics is more than just a consid- millions of individuals, people fail to connect eration of how individuals improve their well- those benefits to their source. being. The power of economics comes from In contrast, political benefits tend to be con- centrated in visible ways and are easily con- Dwight Lee is Ramsey Professor of Economics and 1€cted to the intentional actions of particular Private Enterprise at the University of Georgia. people, while the damage done is spread over 304 The Power of Economics ===== PAGE 53 ===== 305 the entire economy and difficult to trace back believe that social cooperation depends on to its cause. But economists could have done appealing to people to put aside their narrow more to promote a widespread understanding personal ambitions (such as amassing person- and appreciation of economic fundamentals. al wealth) and concentrate on promoting Even in their teaching, professional econo- broad social goals (such as protecting the mists tend to focus on the trees of technical environment or helping the needy). Achieving details while overlooking the impressive forest more social cooperation requires more virtu- of market cooperation and coordination. ous people. The great economist Ludwig von But in other ways, economists have made Mises explained in Human Action (page 2): much progress since Adam Smith. While technical economic concepts can divert econ- If social conditions did not fulfill the wish- omists into analytical minutia, when appropri- es of the reformers, if their utopias proved ately used, these concepts improve our eco- unrealizable, the fault was seen in the nomic understanding in important ways. For moral failure of man. Social problems were example, the concept of comparative advan- considered ethical problems. What was tage extends Adam Smith’s insight into the needed in order to construct the ideal soci- benefits of free trade. The concept of margin- ety, they thought, were good princes and alism (which, among other things, drained the virtuous citizens. With righteous men any “labor theory of value” swamp in which utopia might be realized. Smith and Karl Marx became mired—Marx more so than Smith) explains a wide range of In contrast, good economists realize that, economic activity that most people find puz- regardless of one’s idea of “virtue,” coopera- zling. Those, and many other economic con- tion through the division of labor and cepts can help economists better explain the exchange—the kind that people engaged in power of the market to promote a pattern of long before there were economists and moral social cooperation impossible under any other philosophers—is what creates a better society. arrangement. Communicating this power as widely as possible is one of the most impor- (Good Intentions Are Not tant contributions economists can make. I shall connect the discussion in each column Enough back to the goal of social cooperation. Without denying the desirability of people behaving “virtuously,” economists see it as The Problem of Achieving largely unrelated to social cooperation on a broad scale. Attempts to change behavior with conventional moral appeals are sometimes Despite the common belief that economists frustrated, and even if people were persuaded are interested only in narrow material con- to put the “interests of the larger community” cerns, they are primarily concerned with ahead of their own, the problem of knowing explaining how the spontaneous market how best to do so would remain. process expands the opportunity for people to Economists recognize that people will achieve their objectives, no matter what they behave consistently in ways that are simul- are, through cooperation with one another. taneously self-interested and socially cooper- Whether your goal is accumulating personal ative only when market incentives are per- wealth, protecting the environment, or assist- mitted to reward that behavior. But this means ing the needy, you will be more successful if that not just any incentives will do; they have you can enlist the cooperation of others. to be incentives that embody information on But how do you enlist this cooperation, the best course of action. Next month I will given the variety of conflicting goals people examine the effect of incentives on human are intent on pursuing? Reformers usually action. Cl Cooperation ===== PAGE 54 ===== 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 5 FOUR FREE ISSUES of The Washington Times he Washington Times | NATIONAL WEEKLY EDITION! It takes the best of tr) RATIONAL WEEXLY EDITION [rr : our award-winning daily news coverage and makes it a z available to you every week —no matter where you live! 2 besiege the White House ? No Risk... : es me I : a oC No Cost... 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The 4 sample copies will be yours to keep! ===== PAGE 55 ===== THEFREEMAN @ History IDEAS ON LIBERTY W— Herbert Dow and Predatory Pricing by Burton Folsom Ox of the sacred cows of statism is the School of Applied Science when he watched idea that government needs to protect us the drilling of an oil well outside Cleveland. from predatory price-cutting. Large corpora- At the well site he noticed that brine had come tions, according to this argument, have big to the surface. The oil men considered the advantages in the marketplace. They can cut oozing brine a nuisance. One of them asked prices, drive out their competitors, then raise Dow to taste it. “Bitter, isn’t it,” the driller prices later and gouge consumers. Antitrust noted. “It certainly is,” Dow added. “Now laws are needed, so the argument continues, to why would that brine be so bitter?” the driller protect small businesses and consumers from asked. “I don’t know,” Dow said, “but I'd like those corporations with large market shares in to find out.” He took a sample to his lab, test- their industries. ed it, and found it contained both lithium The story of Herbert Dow, founder of Dow (which helped explain the bitterness) and Chemical Company, is an excellent case study bromine. Bromine was used as a sedative and for those who think predatory price-cutting is also to develop film. This set Dow to wonder- a real threat to society. Dow, a small producer ing if bromine could be extracted profitably of bromine in the early 1900s, fought a price- from the abundant brine in the Cleveland cutting cartel from Germany. He not only area. lived to tell about it; he also prospered from it. The key to selling bromine was finding a Born in 1866, Dow was a technical whiz way to separate it cheaply from brine. The tra- and entrepreneur from childhood. His father, ditional method was to heat a ton of brine, Joseph Dow, was a master mechanic who remove the crystallized salt, treat the rest with invented equipment for the U.S. Navy. He chemicals, salvage only two or three pounds shared technical ideas with Herbert at the din- of bromine, and dump the rest. Dow thought ner table and the workbench in their home in this method was expensive and inefficient. Derby, Connecticut. He showed Herbert how Why did the salt—which was often unmar- to make a turbine and even how to modernize ketable—have to be removed? Was the use of a pin factory. Whether Herbert was selling heat—which was very expensive to apply— vegetables or taking an engine apart, his really necessary to separate the bromine? And father was there to encourage him. why throw the rest of the brine away? Were Dow’s future as an inventive chemist was there economical methods of removing the triggered during his senior year at the Case chlorine and magnesium also found in brine? Burton Folsom is senior fellow with the Mackinac The answers fo these questions were Impor- Center for Public Policy in Midland, Michigan. This tant to Dow: the United States was ignoring or article is condensed from his new book, Empire discarding an ocean of brine right beneath the Builders (Rhodes and Easton, 1998). earth’s surface. If he could extract the chemi- 307 ===== PAGE 56 ===== 308 THE FREEMAN ee MAY 1998 cals, he could change America’s industrial Dow had to be administrator, laborer, and future. fundraiser, too. He looked at his resources, envisioned the possible, and moved optimisti- cally to achieve it. For Dow Chemical to become a major cor- After graduation in 1888, Dow took a job poration, it had to meet the European chal- as a chemistry professor at the Huron Street lenge. The Germans in particular dominated Hospital College in Cleveland. He had his world chemical markets in the 1800s. They own lab, an assistant, and time to work out the had experience, topflight scientists, and bromine problem. During the next year, he monopolies in chemical markets throughout developed two processes—electrolysis and the world. For example, the Germans, with “blowing out.” In electrolysis he used an elec- their vast potash deposits, had been the domi- tric current to help free bromine from the nant supplier of bromine since it first was brine; in blowing out he used a steady flow of mass-marketed in the mid-1800s. Only the air through the solution to separate the United States emerged as a competitor to Ger- bromine. Once Dow showed he could use his many, and then only as a minor player. Dow two methods to make small amounts of and some small firms along the Ohio River bromine, he assumed he could make large sold bromine, but only within the country. amounts and sell it all over the world. About 30 German firms had combined to The next 15 years of bromine production form a cartel, Die Deutsche Bromkonvention, were a time of testing for Dow. He started which fixed the world price for bromine at a three companies. One failed, one ousted him lucrative 49 cents a pound. Customers either from control, and the third, the Dow Chemical paid the 49 cents or they went without. Dow Company, struggled to survive after its found- and other American companies sold bromine ing in Midland, Michigan, in 1897. in the United States for 36 cents. The The bromine market seemed to have poten- Bromkonvention made it clear that if the tial, but Dow never had enough money Americans tried to sell elsewhere, the Ger- because nothing ever worked as he expected mans would flood the American market with it to. Electrolysis was new and untested. His cheap bromine and drive them all out of busi- brine cells were too small, and the current he ness. The Bromkonvention law was, “The U.S. passed through the brine was too weak to free for the U.S. and Germany for the world.” all the bromine. When he strengthened the Dow entered bromine production with current, he freed all the bromine, but some these unwritten rules in effect, but he refused chlorine seeped in, too. Instead of being frus- to follow them. Instead, he easily beat the car- trated, Dow would later go into the chlorine tel’s 49-cent price and courageously sold business as well. After all, people were mak- America’s first bromine in England. He hoped ing money selling chlorine as a disinfectant. that the Germans, if they found out what he So could Dow. Meanwhile, the chlorine and was doing, would ignore it. Throughout 1904 bromine were corroding his equipment and he merrily bid on bromine contracts through- causing breakdowns. He needed better car- out the world. bon electrodes, a larger generator, and loyal Professor Dow workers. . s Dow found himself working 18-hour days A Visit from the Cartel and sleeping at the factory. He had to econo- After a few months of this, Dow encoun- mize to survive, so he built his factory in Mid- tered in his office an angry visitor from Ger- land with cheap local pine and used nails many—Hermann Jacobsohn of the Bromkon- sparingly. “Crazy Dow” is what the Midland vention. Jacobsohn announced he had “posi- people called him when he rode his dilapidat- tive evidence that [Dow] had exported ed bike into town to fetch supplies. Laughs, bromides.” “What of it?” Dow replied. “Don’t not dollars, were what most townsfolk con- you know that you can’t sell bromides tributed to his visionary plans. To survive, abroad?” Jacobsohn asked. “I know nothing ===== PAGE 57 ===== HERBERT DOW AND PREDATORY PRICING 309 of the kind,” Dow retorted. Jacobsohn was pany—if it had a future—depended on how indignant. He said that if Dow persisted, the he handled the Germans. Bromkonvention members would run him out On that train, Dow worked out a daring of business whatever the cost. Then Jacob- strategy. He had his agent in New York dis- sohn left in a huff. creetly buy hundreds of thousands of pounds Dow’s philosophy of business differed of German bromine at the 15-cent price. Then sharply from that of the Germans. He was he repackaged and sold it in Europe—includ- both a scientist and an entrepreneur: he want- ing Germany!—at 27 cents a pound. “When ed to learn how the chemical world worked, this 15-cent price was made over here,” Dow and then he wanted to make the best product said, “instead of meeting it, we pulled out of at the lowest price. The Germans, by contrast, the American market altogether and used all wanted to discover chemicals in order to our production to supply the foreign demand. monopolize them and extort high prices for This, as we afterward learned, was not what their discoveries. Dow wanted to improve they anticipated we would do.” chemical products and find new combinations Dow secretly hired British and German and new uses for chemicals. The Germans agents to market his repackaged bromine in were content to invent them, divide markets their countries. They had no trouble doing so among their cartel members, and sell abroad because the Bromkonvention had left the world at high prices. Those like Dow who tried to price above 30 cents a pound. The Germans compete with the cartel learned quickly what were selling in the United States far below cost “predatory price-cutting” meant. The of production, and they hoped to offset their Bromkonvention, like other German cartels, U.S. losses with a high world price. had a “yellow-dog fund,” which was money Instead, the Germans were befuddled. They set aside to use to flood other countries with expected to run Dow out of business; and this cheap chemicals to drive out competitors. they thought they were doing. But why was Dow, however, was determined to compete U.S. demand for bromine so high? And where with the Bromkonvention. He needed the was this flow of cheap bromine into Europe sales, and he believed his electrolysis pro- coming from? Was one of the Bromkonven- duced bromine cheaper than the Germans tion members cheating and selling bromine in could. Also, Dow was stubborn and hated Europe below the fixed price? The tension in being bluffed by a bully. When Jacobsohn the Bromkonvention was dramatic. According stormed out of his office, Dow continued to to Dow, “The German producers got into sell bromine, from England to Japan. trouble among themselves as to who was to Before long, in early 1905, the Bromkon- supply the goods for the American market, vention went on a rampage: it poured bro- and the American agent [for the Germans] mides into America at 15 cents a pound, well became embarrassed by reason of his inabili- below its fixed price of 49 cents and also ty to get goods that he had contracted to below Dow’s 36 cents. Jacobsohn arranged a supply and asked us if we would take his special meeting with Dow in St. Louis and [15-cent] contracts. This, of course, we demanded that he quit exporting bromides or refused to do.” else the Germans would flood the American market indefinitely. The Bromkonvention had the money and the backing of its government, Jacobsohn reminded Dow, and could long The confused Germans kept cutting U.S. continue to sell in the United States below the prices—first to 12 cents and then to 10.5 cents cost of production. Dow was not intimidated; a pound. Meanwhile, Dow kept buying cheap he was angry and told Jacobsohn he would bromine and reselling it in Europe for 27 sell to whomever would buy from him. Dow cents. These sales forced the Bromkonvention left the meeting with Jacobsohn screaming to drop its high world price to match Dow and threats behind him. As Dow boarded the train that further depleted the Bromkonvention’s from St. Louis, he knew the future of his com- resources. Dow, by contrast, improved his for- More Price-Cutting ===== PAGE 58 ===== 310 THE FREEMAN e MAY 1998 deal so they could make money again. The terms were as follows: the Germans agreed to quit selling bromine in the United States; Dow agreed to quit selling in Germany; and the rest of the world was open to free compe- tition. The bromine war was over, but low- priced bromine was now a fact of life. Dow had more capital from the bromine war to expand his business and challenge the Germans in other markets. For example, Dow entered the dye industry and began producing indigo more cheaply than the dominant Ger- man dye cartel. During World War I, Dow tried to fill several gaps when Germany quit trading with the United States. Aspirin, pro- caine (now better known by its trademark name, Novocain), phenol (for explosives), and acetic anhydride (to strengthen airplane wings) were all products Dow began produc- ing more cheaply than the Germans did in the World War I era. As he told the Federal Trade Commission when the war began, “We have been up against the German government in competition, and we believe that we can com- Tm me Re == pete with Germany in any product that is Herbert Dow made in sufficient amount, provided we have the time and have learned the tricks of the eign sales force, often ran his bromine plants trade.” at top capacity, and gained business at the expense of the Bromkonvention and all other American producers, most of whom had shut down after the price-cutting. Even when the Dow’s favorite new chemical from the war Bromkonvention finally caught on to what was magnesium. Magnesium, like bromine Dow was doing, it wasn’t sure how to and chlorine, was one of the basic elements respond. As Dow said, “We are absolute dic- found in Michigan brine. Dow hated throwing tators of the situation.” He also wrote, “One it away and had tried since 1896 to produce it result of this fight has been to give us a stand- effectively and profitably. As a metal, magne- ing all over the world. . . . We are . . . in a sium was one-third lighter than aluminum and much stronger position than we ever were.” had strong potential for industrial use. Mag- He added that “the profits are not so great” nesium was a chief ingredient in products because his plants had trouble matching the from Epsom salts to fireworks to cement. new 27-cent world price. He needed to buy Unfortunately for Dow, the Germans had the cheap German bromides to stay ahead, magnesium deposits near New Stassfurt. So and this was harder to do once the Germans while he was struggling, the Germans suc- discovered and exposed his repackaging ceeded in mining magnesium and using it as scheme. an alloy with other metals. In 1907, they had The bromine war lasted four years formed the Chloromagnesium Syndikat, or the (1904-08), when finally the Bromkonvention Magnesium Trust. invited Dow to come to Germany and work Even before the war, Dow began pouring out an agreement. Since they couldn’t crush more capital into magnesium, but only during Dow, they decided to at least work out some the war did he begin selling his first small Move to Magnesium ===== PAGE 59 ===== HERBERT DOW AND PREDATORY PRICING 311 amounts. After the war, Dow still could not ble by asking him to join them, not fight them. match Germany’s low cost of production, but What's interesting, though, is that through the he refused to give up. Instead, he plowed mil- battles with bromine, indigo, phenol, aspirin, lions of dollars into developing magnesium and procaine, the Germans persisted in their as America’s premier lightweight metal. Part strategy of using government-regulated car- of his problem was the high cost of extracting tels to fix prices and control markets. They magnesium; the other problem was the fixa- continued to believe that monopolies were the tion most businessmen had with using best path to controlling markets and making aluminum. profits. The Germans had mixed feelings as they Dow must have been flattered by the Ger- watched Dow struggle with magnesium. On man offer, but he refused to join the Magne- one hand, they were glad to still have their large sium Trust. He had already shown the world market share. On the other hand, they were ner- that his company—by trying to make the best vous that Dow would soon discover a method product at the lowest price—could often beat to make magnesium more cheaply than they the large German cartels. Predatory price- could. Their solution was not to work hard on cutting, the standard strategy of the German improving their own efficiency, but to invite chemical cartels, failed again and again. By Dow to join them in their magnesium cartel using the strategy, the Germans unintentional- and together fix prices for the world. ly helped the smaller Dow secure capital, cap- In a sense, of course, the Germans were ture markets, and deliver low prices for his paying Dow the strongest compliment possi- products around the world. Cd An Evening at FEE with Dr. Mark Skousen AN AUSTRIAN ECONOMIST LOOKS AT THE CURRENT MARKET Saturday, May 30, 1998 Don’t miss this stimulating roundtable at The Foundation for Economic Education, 30 South Broadway, Irvington-on-Hudson, New York. This informal get-together starts at 5 p.m. with a reception and dinner, fol- lowed by a lively discussion on economics and market prospects. Price is $40 per person. For reservations, call Janette Brown, at (800) 452-3518. ===== PAGE 60 ===== ritical Review An interdisciplinary journal focusing on the effects of market and state on human well-being. “An exciting corner in the great marketplace of competing ideas. 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(issn 0891-3811) ===== PAGE 61 ===== Economics on Trial by Mark Skousen THE May 1998 Today’s Most Influential Economist? “But half a century later, it is Keynes who has been toppled and | ], the fierce advocate of free markets, who is preeminent.” —DANIEL YERGIN and JOSEPH STANISLAW, The Commanding Heights! EF! in the blank. Who is the mysterious Hayek's criticisms of Keynesianism (4 Tiger economist named above? Most of my col- by the Tail) called into question deficit spend- leagues named Milton Friedman, but in ing and the ability of the state to fine-tune the Daniel Yergin and Joseph Stanislaw’s best- economy. His theory of decentralized knowl- seller, the Chicago economist runs a close edge and competition as a discovery process second to. . . . has had an impact on microeconomic theory FA. Hayek, the Austrian economist! and experimental economics. His work on the Why Hayek? Because, according to Yergin trade cycle and the denationalization of cur- and Stanislaw, Hayek has done more than any rencies has influenced monetary policy. His other economist to debunk socialism in its co-founding of the Mont Pelerin Society many forms—Marxism, communism, and spread the gospel of free markets, property industrial planning—and to promote free rights, and libertarian thought throughout the markets as an alternative system. Hayeks globe. influence perfectly illustrates John Maynard Keynes’s remark that politicians, “madmen in = A Surprising Victory authority,” are the “slaves of some defunct economist.’”2 Yergin and Stanislaw’s revelation in The Indeed, Hayek's influence has been ubiqui- Commanding Heights: The Battle Between tous. As Yergin and Stanislaw point out, The Government and the Marketplace That Is Road to Serfdom greatly affected Margaret Remaking the World is a monumental victory Thatcher in reforming Great Britain and for Austrian economics. It is all the more raised doubts about industrial planning. remarkable given Yergin’s background as an establishment journalist and author of The Dr. Skousen is an economist at Rollins College, Prize, a Pulitzer Prize-winning book about Department of Economics, Winter Park, Florida big oil. 32789, a Forbes columnist, and editor of Forecasts & SA - . Strategies. He is also the author of Economics on E At the beginning o ts decade, I argued no Trial (Irwin, 1993), a review of the top ten textbooks conomics on Iria at the “next economics in economics. He is currently working on his own Would be the Austrian model, with its focus textbook, Economic Logic. on entrepreneurship, microeconomics, dereg- 313 ===== PAGE 62 ===== 314 THE FREEMAN ee MAY 1998 ulation, savings, free enterprise, and sound al Reserve and economic policy (under money.4 But even 1 am surprised how rapidly Ronald Reagan). And, of course, all top-ten Hayek and the Austrian school have achieved textbooks in economics have significant sec- recognition. tions on Friedman and his theories (mone- The next step is to see how quickly the eco- tarism, natural rate of unemployment, welfare nomics profession absorbs Austrian econom- reform, privatization). Friedman and the ics in its theories and textbooks. A quick Chicago school have mounted an effective review of the current top-ten textbooks counter-revolution to Keynesianism. reveals only two with significant entries on Hayek and the Austrians: Roy Ruffin and Paul Gregory’s sixth edition of Principles of Eco- The Great U-Turn nomics, and James Gwartney and Richard But Keynes’s principal rival in the 1930s Stroup’s eighth edition of Economics: Private was Hayek. Teaching at the London School of and Public Choice. Ruffin and Gregory give Economics, Hayek defended the classical credit to Hayek (and Mises) for the fall of model of thrift, balanced budgets, the gold socialism, one of Ruffin and Gregory’s “defin- standard, and free markets, while Keynes ing moments in economics.” Curious note: (Cambridge University) promoted the “new Ruffin and Gregory’s fifth edition had no economics” of consumption, deficit spending, references to Hayek or Mises; clearly Ruffin easy money, and big government. Keynes won and Gregory are quick to recognize a para- the first battle for the hearts of economists, digm shift. and his brand of “mixed economy” swept the Other textbook writers are not so prescient. profession. Hayek fell out of favor and went Samuelson’s 16th (50th anniversary) edition on to write about law and political science. highlights only Joseph A. Schumpeter. Text- The task of dethroning Keynes fell to Fried- books by David Collander, John Taylor, and man; he has accomplished it masterfully. Joseph Stiglitz cite Hayek only once, while Since winning the Nobel Prize in econom- top sellers by Roger LeRoy Miller; Michael ics in 1974, Hayek and the Austrians have had Parkin; William Baumol and Alan Blinder; a rebirth. Equally, Friedman and the Chicago Campbell McConnell and Stanley Brue; and school have come out of obscurity into promi- Paul Heyne make no references to Hayek and nence. Fifty years ago the Keynesian- the Austrians. collectivist consensus expressed the senti- ment, “The state is wise and the market is stu- A Tale of Two Cities pid.” Today, the growing consensus is just the opposite: “The market is wise and the state is Yergin and Stanislaw rightly point to two stupid.” schools of free-market economics responsible Break out the champagne. It’s time to for the shift from government to private enter- celebrate. [] prise as the solution to world economic prob- lems. “And the eventual victory of this view- 1. Daniel Yergin and Joseph Stanislaw, The Commanding . . . Heights: The Battle Between Government and the Marketplace That point was really a tale of two cities—Vienna is Remaking the Modern World (Simon & Schuster, 1998), p. 15. : » 5 2. John Maynard Keynes, The General Theory of Employment, and Chicago, declare the authors. ) . Interest and Money (London: Macmillan, 1936), p. 383. In the judgment of many economists, Mil- 3. For a good overview of Hayek’s works, see The Essence of : . Hayek, ed. Chiaka Nishiyama and Kurt R. Leube (Stanford, Calif: ton Friedman and the Chicago school have Hoover Institution, 1984). For a partial autobiography, see Hayek on had even a greater influence than Hayek and Hayek (Chicago: University of Chicago Press, 1994). A full-scale . : : intellectual biography of Hayek has been completed by Alan Eben- the Austrians. Yergin acknowledges Friedman stein, Hayek: Philosopher of Libertarianism (forthcoming). as “the world’s best-known economist,” not- 4. Mark Skousen, “The Next Economics,” Economics on Trial : 3 : (Baldwinsville, N.Y.: Irwin, 1991), pp. 274-90. Ing tha . the Chicago School loomed very S. Yergin and Stanislaw, p. 141. See my Freeman column, large In 1tS Sway on monetarism at the Feder- “Vienna and Chicago: A Tale of Two Schools,” February 1998. ===== PAGE 63 ===== 315 is better understood if examined with the BOOKS mental tools supplied by basic economics. Among the many slivers of reality that Landsburg illuminates with the klieg light that is his economic understanding are envi- Fair Play: What Your Child ronmental conservation, income redistribu- Can Teach You About Economics, tion, the choice of a career, and the choice of a spouse. (On choosing a spouse, Landsburg abhors the idea that his daughter would marry by Steven E. Landsburg a perfect husband: “A perfect husband is a Free Press © 1997 © x +230 pages © $24.00 costly extravagance. Most costly extrava- gances turn out to be mistakes.”) Indeed, Landsburg teaches his readers eco- nomics and ethics by relating how he and his t’s impossible not to relish a book whose ten-year-old daughter Cayley teach each other author, early on and with only slight economics and ethics. For example, he advis- rephrasing, reveals the real message in the es Cayley that she would be wrong to steal famous Bismarckian maxim from John toys from a playmate who owned more toys Kennedy’s inaugural address: “Ask not what I than she. She would be equally wrong, Dad can do for you. Ask what you can do for me.” makes clear, to join with a majority of her Upon reading this line, I knew that the next other playmates to forcibly take toys from the 200 pages would be immense fun. wealthier child. The lesson for adults is obvi- And fun they are! But they are also impres- ous: “if your kids aren’t allowed to get away sively educational. With Fair Play, Steven with something, neither you nor your con- Landsburg, who teaches economics at the gressman should be allowed to get away with University of Rochester, cements his reputa- it either.” Values, and the Meaning of Life Reviewed by Donald J. Boudreaux tion as one of today’s foremost economics In this light, many Americans today are the teachers. The most important lesson Lands- moral equivalent of schoolyard bullies. burg teaches is that the amount of insight Cayley herself is quite the economist. extractable from a handful of basic economic When her father, in an unguarded moment, postulates is unlimited. (I don’t doubt that if inferred from her enthusiasm for shopping F.A. Hayek and Adam Smith were alive each that she loves money, she retorted in the way would glean additional economic insights that the young Frederic Bastiat might have from this book.) replied to such an accusation: “Dad! The rea- Learning economics is no stair-step proce- son I like to shop and buy things is to get rid dure in which you first master the basics and of my money.” Consumption is truly the end then move on to conquer more elaborate mod- of all economic activity! eling techniques. While this is the way eco- For me, the most fascinating pages of the nomics 1s taught in universities, it isn’t the book feature Landsburg’s discussion of Jim way we really come to know economics. To Crow legislation. Of course, it’s standard truly understand economics is to remain firm- practice today among America’s Concerned ly planted in the basics, training yourself Elite to cite this legislation to justify today’s always to examine every facet of reality race-based policies that give special privi- through the lenses supplied by these basics. leges to blacks. Opponents of affirmative When you do this, you realize three things. action typically retort that most of the whites First, no matter how thoroughly you under- who benefited from Jim Crow legislation are stand economics today, you understand it now dead. more deeply tomorrow. Second, anyone over Landsburg condemns affirmative action on the age of 15 with a modicum of common grounds more economically sweeping: Jim sense can grasp sound economic explana- Crow hurt not only blacks of a century ago— tions. And third, almost any human institution it also hurt most whites! ===== PAGE 64 ===== 316 THE FREEMAN ee MAY 1998 Jim Crow prevented blacks from dealing with whites, and it also prevented whites from dealing with blacks. Who would want by Dick DeVos to argue that being denied the right to trade Dutton ® 1997 306 pages ® $24.95 with white people is a form of oppression, : but being denied the right to trade with Reviewed by George C. Leef black people is no big deal? Rediscovering American Values f you want to make a point, tell a story.” When 1 first read this argument I simulta- In Rediscovering American Values, Dick neously exulted in my new-found understand- DeVos, president of Amway Corporation, ing, and suffered chagrin that I'd not thought puts this old advice to excellent use. The of this argument on my own. But what then theme of his book is that freedom and the did occur to me is that this same argument many benefits that flow from it cannot exist applies as well to slavery. As vile as slavery unless the people of a society adhere to cer- was to those enslaved, it also harmed non- tain values (and, by implication, reject their slaves who owned no slaves. Slaves were pre- corresponding disvalues). Each chapter is vented by law from choosing their own pro- about one of the values that the author regards ductive specialties and, hence, from employ- as important to nurture—the “values that pro- ing their creativity and efforts in the market in vide the very foundation of freedom.” In each ways that would have made not only them, but instance, he illustrates his point with stories also all with whom they would have dealt, of real human beings. better off. While it’s incontestable that black That is what makes this book work. slaves were slavery’s premier victims, they Consider, for example, one of the stories weren’t its only victims: nonslave-owning the author employs to show the value of whites were injured by that abominable prac- brotherhood. Francis Aebi and Tamaki tice. Slavery’s only beneficiaries were the tiny Ninomiya were neighbors in northern Califor- fraction of the population who owned slaves. nia in 1941. Both grew roses and sold them in Most books crammed with substance offer the flower market in San Francisco. After several nits for the picking. In Fair Play, Pearl Harbor, the Ninomiya family was split though, I find only one. Landsburg argues that up and sent off to the internment camps where minimum-wage legislation is bad only Americans of Japanese ancestry were impris- because it is an unfair tax on entrepreneurs. oned during the war. Prior to his arrest, He dismisses the standard case that legislated Ninomiya gave Aebi, a man of Swiss ances- minimum wages hurt unskilled workers. His try, his bankbook and a prized family posses- dismissal, in my view, fails. sion—a Japanese doll. Aebi promised to do But picking even one nit with such a his best to look after his neighbor’s property. remarkable book seems unbecoming. Read In 1942, government officials ordered and relish Fair Play. Steven Landsburg’s flower growers to grow vegetables instead. grasp of economics is herculean. [J This required the considerable task of clearing Donald Boudreaux is president of the Foundation for ~ 8W3Y the beloved rosebushes and planting veg- Economic Education. etables. Aebi cleared not only his own land, but also the Ninomiyas’. Throughout the war, Aebi sold his own produce and that which he grew on the Ninomiya farm, carefully deposit- ing the income from the latter sales into the Ninomiya bank account. He also preserved and tended a few of the rosebushes. Imagine the emotions that swept over Tama- ki Ninomiya when he was finally allowed to return to his home in 1946. While the proper- ty of many internees had been looted, his stood ===== PAGE 65 ===== BOOKS 317 In periscy condition. The family dolt was In Restraint of Trade: The Business returned. His bank account had even grown. . . ops Francis Aebi had done, DeVos emphasizes, Campaign Against Competition, “the right thing.” He had no obligation to do 1918-1938 anything for Ninomiya and might have gained by Butler Shaffer personally from the great misfortune that Bucknell University Press ® 1997 © 284 pages had befallen his neighbor. But he acted with e $42.50 kindness and compassion—brotherhood—to lessen the suffering of the Ninomiya family. Reviewed by Burton Folsom He made the world just a little bit better, sim- ply because he knew he should. n Restraint of Trade is an excellent book Many of the stories in Rediscovering that deserves a large readership among his- American Values demonstrate the remark- torians, economists, and politicians. Butler able ability of people to solve problems Shaffer effectively challenges the traditional without even thinking the word “govern- historical argument that government during ment,” much less trotting off to ask that it the early 1900s regulated big business in “the tax or regulate something. Cleaning up the public interest” In truth, as Shaffer ably environment, overcoming prejudice, helping shows, most businessmen in the 1920s and people to get off and stay off drugs or alco- 1930s wanted government regulation to pro- hol, educating the hard to educate: De Vos tect their companies from talented entrepre- politely refutes the common assumption that neurs who were giving consumers better the individual is powerless to accomplish products at lower prices. In other words, anything. If you know anyone afflicted with American businessmen followed the path pre- the “voluntary action is old-fashioned” dis- dicted by Adam Smith when he observed, ease, this book is the cure. “People of the same trade seldom meet Honesty, reliability, fairness, compassion, together, even for merriment and diversion, courage, humility, reason, self-discipline, but the conversation ends in a conspiracy optimism, commitment, initiative, work, per- against the public, or in some contrivance to severance, accountability, cooperation, stew- raise prices.” ardship, encouragement, forgiveness, service, The late 1800s and early 1900s were a time charity, leadership, opportunity, education, of growing national and international mar- and brotherhood—these are the values that kets. In business after business, chain stores Dick DeVos believes are necessary for the and improved transportation increased com- preservation of freedom. Although he does petition. For consumers, this was good news: not say so, the decline of freedom in the Unit- they had more products to choose from at ed States can be directly traced to a decline Jower prices. Sellers, by contrast, had to inno- in those values. Those who do not see the vate and improve their products to stay in value of work are apt to seek welfare; those business. Faced with this challenge, many of who are lacking in courage will seek govern- them preferred to organize, merge, or consol- ment guarantees; those who feel no sense of idate to better control prices and retain their brotherhood will lobby for government favors market shares. The snag with this strategy was for themselves at the expense of everyone that bigness in a free market is no guarantee else. of success. Large corporations often became The great work in front of all of usis to find bureaucratized and lost their creative edge. ways to reverse America’s slow and steady U.S. Steel, International Harvester, and Amer- decline. With this clear and easily accessible ican Sugar Refining were all examples of book, Dick DeVos has shouldered some of the large merger-driven corporations that lost load. [J market shares steadily throughout the early George Leef is book review editor of The Freeman 1900s. . . and coordinates FEE’s Freeman Society discussion Shaffer sees World War I as a critical time clubs. when larger corporations—through the War ===== PAGE 66 ===== 318 THE FREEMAN ee MAY 1998 Industries Board—discovered they could use Supreme Court struck down the NRA in government to set prices, stifle competition, 1935, many businessmen since then—in and guarantee a steady market for whatever industries from railroads to airplanes to they sold. Bernard Baruch, chairman of the sugar production—have worked through WIB, commented on the advantages (to sell- Congress and various regulatory commis- ers, not buyers) of cartelization: “Many busi- sions to maintain high prices, dispense quo- nessmen have experienced during the war, for tas to members, and restrict the actions of the first time in their careers, the tremendous innovative competitors. advantages, both to themselves and to the Shaffer emphasizes the collaboration general public, of combination, of coopera- between business and government in the New tion and common action, with their natural Deal era “to provide the coercion essential for competitors.” holding together a collectivized industrial During the 1920s, with wartime controls order.” He concludes that “Legislative inroads lifted, most businessmen were thrust back in into economic life were occasioned not by the the free market again. Now they tried to use failure of the market to provide order and dis- trade associations to prop up prices and divide cipline but by the market’s general immunity markets among the members. These codes to being corrupted for the benefit of special would often condemn “cutthroat competition” interests. The purpose of such legislation, and talk about establishing prices that would including the NRA legislation, was to repress be both “customer friendly” and provide a and stabilize competitive conditions—to 0ssi- “fair return on investment.” After analyzing fy industries and restrain those influences that these codes, Shaffer observes that “The essen- represented the threat of change.” tial factor to keep in mind regarding a study of Parts of Shaffer’s argument have been business code making is the overriding con- advanced by historians Gabriel Kolko, cern of businesses to protect themselves—not William Leuchtenburg, Ellis Hawley, and the customer—from the effects of aggressive Alfred Chandler, Jr. But Shaffer pulls competitive practices.” Without the force of together these many threads, knits them government, however, these attempts to write together with his own craftsmanship, and pro- binding codes always failed—cost-cutters and duces a sturdy and original garment that innovators in industry after industry found wears well and is likely to be durable over ways to beat the trade association standards time. [ and attract more customers. Burton Folsom is senior fellow at the Mackinac Cen- The New Deal, Shaffer argues, was the (er for Public Policy, a free-market think tank in Mid- golden opportunity for businesses to use gov- land, Michigan. ernment to protect themselves from competi- tion. Roosevelt’s National Recovery Act (NRA) allowed businessmen throughout the country to fix prices, hours of work, and wages for their industries. According to Busi- ness Week at the time, “Washington hotels rejoice and Cabinet members groan over the wild rush of business men to the capital to find out about the new industrial plan. They want to know everything, but mostly how to punish the rascal who has been cutting prices in their industry, and how to fix some nice new prices.” Shaffer specifically looks at steel, coal, oil, retailing, and textiles to show how the stodgy majority imposed a variety of con- trols on their industries. Even though the ===== PAGE 67 ===== The Pursuit of Happiness by Charles W. Baird Salt Without Savor pose that Microsoft hired people to trying to get for years). The National Labor pose as ordinary job applicants at Relations Board (NLRB) would be outraged. Netscape. When hired by Netscape, their mis- It would move swiftly to convict Nissan of sion would be to disrupt and sabotage pro- unfair labor practices and impose the most duction, file as many complaints as possible severe sanctions the law permits. against Netscape alleging noncompliance with workplace regulations imposed by the . . Occupational Safety and Health Act (OSHA), UMion Privilege the National Labor Relations Act (NLRA), Finally, suppose that the UAW hired people the Family and Medical Leave Act (FMLA), to pose as regular job applicants at Nissan. the Fair Labor Standards Act (FLSA), and any Their job would be identical to that of the other applicable regulations. Their goal would hypothetical Microsoft agents. They would be to drive Netscape out of business or, fail- try to damage the firm as much as possible ing that, to cripple the ability of Netscape to through disruptions and acts of sabotage. compete with Microsoft. If the antitrust peo- They would try to impose as many legal costs ple at the Department of Justice think that on the firm as possible by alleging OSHA, Microsoft should pay a $1 million per-day NLRA, FMLA, and FLSA violations. Their penalty for merely integrating its Internet goal would be to force Nissan to capitulate to Explorer web browser with Windows, they or unionization or, failing that, to drive Nissan the people at the Justice Department would out of business in the United States. The probably try to send Bill Gates to jail for such NLRB and the U.S. Supreme Court would espionage. . . . approve! When it comes to unions, there Again, suppose that the Nissan Motor is no equality under law. Rather, different Company plant in Tennessee hired people to legal principles apply to unions. They have infiltrate the United Auto Workers (UAW) special privileges and immunities not avail- union local. Their job would be to spy on all able to most other economic organizations. union activity and try to foment dissension The Fourteenth Amendment to the Constitu- and strife throughout the rank-and-file union tion insists on “equal protection of the laws.” members. Their goal would be to shut the Congress and the Supreme Court have said, union local down or, failing that, to make it “Except for unions.” impossible for the union to gain representa- In the 1995 Town & Country Electric case, tion privileges at Nissan (which it has been the Supreme Court ruled that people paid by unions to become employees in order to sub- Charles Baird is a professor of economics and direc- vert the firms that hire them—*salts” in the tor of the Smith Center for Private Enterprise Studies jargon of labor relations—must be consid- at California State University, Hayward. ered “employees” under the NLRA. That 319 ===== PAGE 68 ===== 320 THE FREEMAN ee MAY 1998 means that firms cannot discriminate against tion, but construction workers were unionized salts in hiring and firing. They must ignore from the top down. Under the prehire agree- that the salts are paid by unions and intend to ments, workers were told if they didn’t accept act solely in the unions’ interest and to the union representation, without a vote, they detriment of the firms. Since salts are hired couldn’t work. In 1987, the NLRB ruled in by and act as agents of unions, the court deci- the Deklewa case that when a prehire agree- sion in effect gives unions the status of ment expires the contractor returns to a union- employees under the NLRA. That is contrary free status unless a majority of continuing to the original understanding of the NLRA, workers vote to be represented by the union. which was that unions could organize and (The NLRB was not as union-friendly as it is represent employees, who were working in now.) Under Deklewa, construction unions no the interest of employers. longer had the advantage of top-down orga- If a firm fires or refuses to hire a person nizing. Instead, they had to persuade workers because he is a salt, or even fails to promote to vote in favor of unionization just as unions that person, it is guilty of an unfair labor prac- in most industries must do. tice. Defending against such a charge is very In the 1992 Lechmere case the U.S. expensive. For example, from 1994 through Supreme Court complicated the organizing 1997 Corey Delta Constructors in Benicia, efforts of all unions by ruling that employers California, had to pay more than $200,000 a did not have to give job-site access to union year to defend itself against charges connect- organizers who are not employees. This is ed with a salting campaign by the AFL-CIO particularly burdensome to construction Construction Organizing Membership Educa- unions because the job sites constantly tion Training (COMET) program. In the end, change. Corey Delta was driven off a major construc- In an act of political entrepreneurship, the tion project in the San Francisco Bay area construction unions reverted to salting. The merely because it was, and remains, a union- Lechmere decision restricts only union orga- free firm. nizers not employed by firms. The obvious way around the decision is to have union-paid The Roots of Salting organizers become employees. The principle of equal protection under law would not coun- The COMET program was undertaken by tenance such subversion, but in the Town & the AFL-CIO in 1993 in response to the Country Electric decision the Supreme Court declining market share of unionized labor in allowed unions to subvert union-free employ- the construction industry. In 1983 the unions’ ers with impunity. market share was 30 percent. In 1993 it was Since that case was decided as a matter of 20 percent, and by 1996 it was 19 percent. statutory interpretation, not constitutional Union organizing in the construction indus- law, Congress can overrule the Court by try is a special case. Most workers in that amending the NLRA. The Truth in Employ- industry are employed by different companies ment Act, which is under consideration in from project to project. In 1959, the NLRA both houses of Congress, would do just that. was amended to permit employers to enter However, there is little chance that it could “prehire” agreements with unions under survive a filibuster in the Senate and no which firms would agree to hire only union- chance that it could survive a presidential ized labor. Workers in other industries are at veto. Rectification of this injustice will have least permitted to vote on union representa- to wait until the 21st Century. Hl