===== PAGE 1 ===== ul [REEMAN Ideas On (Ideas On Liberty] October 1998 Vol. 48, No. 10 FEATURES 582 587 589 591 ¥ 597 600 604 607 612 615 621 623 The Nature and Significance of Economic Education by Israel Kirzner Why economic education is crucial to everyone’s well-being. On Behalf of the Ideal by Leonard E. Read The genuine practicality of FEE’s work. Employers Swamped by Good Intentions by James L. Payne How regulation replaced common sense. Discrimination by the Numbers: Lies, Damned Lies, and Statistics by Robert A. Levy Unmasking “disparate impact.” Terms of Impairment by George C. Leef Attention-deficit disorder and the ADA. The IMF’s Dubious Purpose by lan Vasquez Long on bailouts, short on success. Dr. Andrew Ure: Pioneer Free Trader by John Chodes An unsung proponent of international trade and internal industry. Whose Kids Are They? by David Boaz Revisiting The Twelve-Year Sentence. The Fine Art of Conservation by Bernie Jackson Trusting our ecological resources to the market. Sizing Up Downsizing by Christopher Lee Growth and change characterize free markets. How Big Government Usurped Personal Responsibility by Peter T. Leeson Why Americans don’t—and can’t—save more. Gertrude B. Kelly: A Forgotten Feminist by Wendy McElroy A dynamic physician who defended individual rights. Andrew Ure COLUMNS Center 595 602 610 Pe19 630 ¥e639 NOTES from FEE—Why Honorable People Avoid Politics by Donald J. Boudreaux IDEAS AND CONSEQUENCES—What Is This Thing Called “Sprawl”? by Lawrence W. Reed POTOMAC PRINCIPLES—The Folly of Economic Warfare by Doug Bandow PERIPATETICS—The Seen and Unseen in Gun Control by Sheldon Richman ECONOMIC NOTIONS—Demand and Supply by Dwight R. Lee ECONOMICS on TRIAL—A Golden Comeback, Part II by Mark Skousen THE PURSUIT of HAPPINESS—Fairness: Results Versus Process by Walter E. Williams DEPARTMENTS 578 580 629 632 Perspective —Whose Choice? Whose Responsibility? by Sheldon Richman It Just Ain’t So! by Andrew N. Kleit Capital Letters Book Reviews *Conquests and Cultures by Thomas Sowell, reviewed by George C. Leef; The Book of Heroes: Great Men and Women in American History by George Roche, with Lissa Roche, reviewed by Bur- ton Folsom; Law and Disorder in Cyberspace by Peter W. Huber, reviewed by Solveig Singleton; The Arc of the Pendulum: A Philosophy for Government in the 21st Century by Charles Stewart Goodwin, reviewed by Randall G. Holcombe; Energy: Ending the Never-Ending Crisis by Paul Bal- lonoff, reviewed by Jerry Ellig; Big Trouble by J. Anthony Lukas, reviewed by David Kendrick. ===== PAGE 2 ===== FREEMAN AN PERSPECTIVE [Ideas On Liberty J Whose Choice? Whose Responsibility? Published by . . . The Foundation for Economic Education The Wisconsin Supreme Court has given Irvington-on-Hudson, NY 10533 the school-voucher movement a shot in the Phone (914) 591-7230 FAX (914) 591-8910 arm by declaring that tax-funded school E-mail: freeman@fee.org FEE Home Page: http://www .fee.org President: Donald J. Boudreaux Editor: Sheldon Richman Managing Editor: Beth A. Hoffman choice does not violate the separation of church and state. I always thought the argu- ment that it does violate the separation was wrong. Vouchers would be given directly to parents, and they would decide where to Editor Emeritus redeem them. As the court said, school choice Book Review Editor certainly would not be a government program George C. Leef intended to further religion. Editorial Assistant That said, I hasten to add that the soundness Mary Ann Murphy : : : bl of the court ruling is entirely distinct from the Columnists Baird merits, or lack thereof, of the voucher plan Doug Bandow itself. We have enough experience to know Dwight R. Lee that when government subsidizes something, Lawrence W. Reed it attaches conditions. I find it hard to believe Mark Skousen that a large-scale voucher plan will not Walter Williams include a long list of rules with which private Contributing Editors schools will have to comply before parents Peter J. Boettke Clarence B. Carson Thomas J. DiLorenzo Burton W. Folsom, Jr. can take their vouchers there. Some intrepid private educators will thumb their noses at the authorities and forgo vouchered customers, Joseph S. Fulda but most will not. Those schools will then lose Bettina Bien Greaves their independence. One effect will be to Robert Higgs undermine religious schools, as happened in John Hospers Europe with government subsidies. The Wis- Raymond J. Keating consin ruling says that under a voucher plan, Daniel B. Klein religious schools would have to allow students Wendy McElroy to opt out of religious instruction. Tibor R. Machan Ronald Nash Edmund A. Opitz James L. Payne Vouchers will undermine something else. As others have pointed out, parents who today know what it means to write a tuition check William H. Peterson for their children’s education would be Jane S. Shaw relieved of some of that responsibility under a Richard H. Timberlake voucher plan. That would be a tragedy, Lawrence H. White because the main libertarian goal in education The Freeman is the monthly publication of The Foundation for Eco- should be to promote freedom through nomic Education, Inc., lrvington-on-Hudson, NY 10533. FEE, x eqs . . established in 1946 by Leonard E. Read, is a non-political, educational parental responsibility. Public education cre- champion of private property, the free market, and limited government. . . . . FEE is classified a5 a 26 USC 501(c)(3) tax-exempt organization. ates irresponsible parents precisely because it Copyright © 1998 by The Foundation for Economic Education. Per- thls mission is granted to reprint any article in this issue, except "Whose Kids removes esp onsibility from them. The par- Are They?"—provided credit is given and two copies of the reprinted - 1 A ents of 12 percent of school-aged children _ The costs of Foundation projects and services are met through dona- have refused to relinquish that responsibility, tions, which are invited in any amount. Donors of $30.00 or more . f receive a subscription to The Freeman. For foreign delivery, a donation and consequently, they are exercising their 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. freedom. Vouchers would be a blow to those Additional copies of this issue of The Freeman are $3.00 each. ’ Bound volumes of The Freeman are available from The Foundation parents. We can’t countenance that. for calendar years 1972 to date. The Freeman is available in microform from University Microfilms, 300 N. Zeeb Rd., Ann Arbor, MI 48106. * %k Xk Cover photo: Ludwig von Mises (September 28, 1881-October 10, 1973) 578 ===== PAGE 3 ===== The eminent economist Israel Kirzner ago, that wasn’t true—with a few exceptions. opens this issue with an important article on In his introduction to the new edition of The why economic education is crucial to every- Twelve-Year Sentence: Radical Views of Com- one’s well-being. The article is drawn from the pulsory Schooling, edited by the late William first John Anthony Krogdahl Memorial Lec- F. Rickenbacker, David Boaz says he finds ture, which Kirzner delivered at FEE last arguments that are as timely as ever. March. Aside from passing along many Fine-art auctions don’t usually upset peo- insights about the nature of economics, Kirz- ple. Sotheby’s isn’t routinely picketed by art ner also resolves a paradox about his great preservationists. So why do many folks worry teacher, Ludwig von Mises, namely, how he about privatizing environmentally “sensitive” could be a passionate “value-free” scientist. lands? Can’t see the connection? Bernie Jack- In our latest reprint commemorating the son explains. 100th anniversary of the birth of Leonard E. Corporate downsizing, to hear the media Read, FEE’s founder and long-time president tell it, represented the death of the American tells freedom’s friends how they can best work dream, the end of hope. A few facts were left “On Behalf of the Ideal.” out of the reporting. Christopher Lee fills in James Payne was wondering why anyone the blanks. would travel to some unromantic spot and pay Official America is so concerned about how good money to sit through a day-long seminar little we save that they called a national summit on employment law. Then, recalling how to discuss the matter. Too bad they weren’t con- much government dominates employer- cerned enough to carry out the few pro-free- employee relations, it all made sense. dom suggestions made here by Peter Leeson. And speaking of employer-employee rela- Wendy McElroy delves into the archives of tions, it’s well known that a business owner can forgotten classical liberals to tell the story of be found guilty of race or sex discrimination Gertrude B. Kelly, a nineteenth-century writer against job applicants purely on the basis of and activist-physician who favored free mar- statistics. The issue is none of the governments kets, educational liberty, and individual business, of course, writes Robert Levy, but rights, even for women. even if it were, the idea that discrimination can Andrew Kleit looks at what Robert Bork be demonstrated statistically is ludicrous. has to say about the Justice Department’s The Americans with Disabilities Act has antitrust suit against Microsoft and declares turned out to be the nightmare its critics pre- “It Just Ain’t So.” dicted. But according to George Leef, we ain’t Lawrence Reed exposes the urban-sprawl seen nothing yet. ADA, meet ADD. myth. Doug Bandow, writing from Belgrade, Does the International Monetary Fund pro- tells why economic sanctions don’t work. mote free markets? Can the IMF resolve the Dwight Lee explains the two most-used economic crisis in Asia? If you answer yes to words in economics: supply and demand. that question, Ian Vasquez has some news for Mark Skousen continues his discussion of the you. new interest in gold money. And Walter Classical liberals are well acquainted with Williams argues that fairness is in the process Richard Cobden and John Bright, the brilliant not the results. intellectual-activists who spearheaded Britain’s Our book reviewers consider such subjects nineteenth-century free-trade movement. as conquest and cultures, American heroes, Now John Chodes introduces the forgotten law in cyberspace, anti-federalism, the end- English free-trade pioneer Andrew Ure. less energy crisis, and murder of an Idaho Lots of people talk about the failure of pub- governor early this century. lic schooling these days. Twenty-five years —SHELDON RICHMAN 579 ===== PAGE 4 ===== FREEMAN Ideas On Libert It Just Ain't So! ntitrust, now over a century old in the gathered up all its horses and deployed them United States, has always had its sup- against the Microsoft Corporation. When it porters and critics. In the 1970s, however, a comes to generating benefits to consumers, it group of conservative scholars, including would be hard to find a corporation that has Richard Posner and Frank Easterbrook (who done more than Microsoft. Over the last 15 are now federal judges) and Robert Bork years, it has been Microsoft’ software prod- (now a retired federal judge), overwhelmed ucts that have opened up computers and the the existing consensus with devastating eco- Internet to millions. Microsoft is sufficiently nomic arguments and dramatically reduced effective that it is a very difficult firm to com- the intellectual and practical scope of pete against. And therein lies its problem. antitrust. Microsoft has been such a successful firm Perhaps the most obvious example of the that its rivals are upset. But instead of overreaching of antitrust was the 13-year-long responding to their frustration by making bet- case against IBM, finally closed by the Justice ter products, they complained to the Justice Department in 1982. And what was IBM’s Department and got it to file a suit against crime? Simple. IBM produced computers so Microsoft. But of course these firms can’t well that no one else could compete with it, simply say that they are tired of fighting giving it a “monopoly,” or at least a high mar- Microsoft. So in steps Robert Bork, on behalf ket share in the industry. But how did IBM get of one of Microsoft’s competitors, Netscape. that market share? By offering consumers Netscape has particular reason to worry about what were for that time high-quality products Microsoft: Microsoft’s Internet Explorer has at low prices. reduced Netscape’s market share from a dom- Of course, IBM could have escaped the inant 80 percent to a paltry 50 percent of the wrath of the Justice Department by raising its World Wide Web browser market. prices, but that would have harmed con- You might wonder how Judge Bork can sumers, contrary to the alleged purpose of the escape his anti-antitrust legacy and sign on antitrust laws. Thus, by suing IBM, the Justice with Netscape. In an op-ed piece in the New Department was punishing it for giving con- York Times and a letter to the editor in the Wall sumers what they want. The message to firms Street Journal, Bork justified his position and was clear: don’t become too successful, or Justices case against Microsoft by citing a we’ll come after you. It only took the Justice 1951 antitrust case, U.S. v. Lorain Journal. Department 13 years to figure out how anti- Indeed, according to Judge Bork, “The paral- consumer this policy was. lel between The Journal’s action and Microsoft’s behavior is exact.” Of course, the typical reader has no idea what Judge Bork is talking about. But if one does a simple LEXIS Today, the lessons of the IBM case seem- search on Lorain Journal (aided, most likely, 94 6% ingly forgotten, the Justice Department has by one or more of Microsoft’s “anticompeti- 580 Tough Competitor ===== PAGE 5 ===== 581 tive” products) it becomes clear there is no against a company like Microsoft that is so merit to his position. successful in meeting consumer desires. In Lorain Journal, the only newspaper in Microsoft may or may not be guilty of Lorain, Ohio, refused to accept advertising antitrust violations, however those are from firms that were advertising simultane- defined. It should give one pause, however, ously on a radio station in nearby Elyria, that the best argument that Judge Bork can though it allowed advertisers to switch back cite to support his position against Microsoft and forth between the two media. The Justice is a case that lacks a sound economic founda- Department accused the newspaper of trying tion. It is disappointing that such a prominent to drive the radio station out of business. scholar would take so public a position based Already you might be wondering how this on so little evidence. relates to Microsoft, where a large successful firm is charged with violating She antitrust Forgotten IBM Lessons laws for reducing Netscape’s market share in Perhaps even more frightening, a review of the browser market from 80 to 50 percent. the Justice Department’s petition in the case But wait, there’s more. While Judge Bork reveals how completely it has forgotten the asserts that the effect of the newspaper’s lessons of IBM. For example, according to the action on competition was “devastating,” this official complaint against Microsoft, “One was hardly the case. Though the Supreme consequence of tying Internet Explorer to Court ruled for the government in this matter, Windows is that the Internet browser is made an examination of the record by Professor available to purchasers of Windows at no John Lopatka of the University of South Car- additional charge” As a consumer, I am olina and me (Texas Law Review, May 1995) always pleased when firms add more features shows the governments position (and by to their products, but somehow the Justice extension, Judge Bork’s argument) to be fun- Department finds it objectionable. According damentally flawed. to the complaint, Microsoft Chairman Bill The facts of the Lorain Journal case are Gates, taking an allegedly “anticompetitive clear. Contrary to what Judge Bork suggests in position,” has declared, “Winning Internet his writings, the Lorain Journal had no hope browser [market] share is a very, very, impor- of driving the radio station out of business. tant goal for us.” Again, as a consumer I’m Indeed, the station was earning substantial pleased that Mr. Gates wants to compete for profits during the period of alleged “preda- my business, rather than resting on his already tion” and paid out dividends to its stockhold- substantial laurels. 0 ers. In the end, all Lorain Journal was about —ANDREW N. KLEIT was a difficult man who owned a newspaper Associate Professor and who didn’t like radio stations. It is hardly Department of Energy, Environmental, a precedent in favor of major antitrust enforce- and Mineral Economics ment action, especially one that is directed The Pennsylvania State University ===== PAGE 6 ===== FREEMAN ideas On Libert The Nature and Significance of Economic Education by Israel Kirzner or many years | have been fascinated by understand the manner in which his life and what at first glance seems a paradoxical work showed that these two apparently con- feature in Ludwig von Mises’s attitude to the tradictory attitudes—passion and scientific economics he taught. I believe that this seem- detachment—can and must be simultaneously ing paradox in the life and work of my revered maintained, without jeopardizing either the teacher can provide us with the key to under- purity of the wertfreiheit or the white-hot fer- standing the role of economic education (and, vor of the passion. I will further propose, to appreciating the spe- Economics is a science; the truth of its pre- cial character and philosophy of the Founda- dictions does not depend on whether or not tion for Economic Education). we find these truths palatable. But this cir- On the one hand, even the casual reader of cumstance does not, to be sure, wipe out the Mises senses the enormous passion with palatability or unpalatability of the predicted which he preached the message of the free outcomes. Mises’s economic science, in fact, society and its dependence upon free markets. predicts consequences of central planning that (See, for example, the almost dramatic clos- are not only unpalatable, but tragically disas- ing paragraph of his magnum opus, Human trous for human well-being—even for human Action, reprinted on the next page.) On the survival. It was this which ignited Mises’s other hand, one of the foundations of eco- passion, not as a scientist, but as a human nomic science was, for Mises, the austere being agonizing over what he (so accurately!) wertfreiheit with which, he maintained, the foresaw as the inevitably horrible conse- economist must pursue his scientific work. quences of twentieth-century dirigisme. For Science, Mises insisted, must never express or Mises, economic education is the only tool we reveal the personal preferences, or judgments have with which to warn mankind of these ter- of value, of the scientist. The economist’s rible consequences. The content of this educa- work requires objectivity and detachment, in tion is science. This content must be estab- order that its conclusions can be arrived at, lished and demonstrated with austere, disin- and accepted by, persons subscribing to wide- terested objectivity. The purpose of this ly divergent sets of personal ideologies. Many education, however, is to further human goals superficial readers of Mises have failed to (since, after all, any human activity, including scientific activity, must have as its objective, some human goal). In the case of economics, York University. This article is a condensed and that human goal is of such overriding impor- revised version of the first John Anthony Krogdahl tance for the human race that passionate con- Memorial Lecture, delivered at the Foundation for cern becomes well-nigh inevitable and a Economic Education, March 19, 1998. morally natural phenomenon. It is this fasci- 582 Israel Kirzner is a professor of economics at New ===== PAGE 7 ===== 583 The body of economic knowledge is an essential element in the structure of human civilization; it is the foundation upon which modern industrialism and all the moral, intellectual, technological, and therapeutical achievements of the last centuries have been built. It rests with men whether they will make the proper use of the rich treasure with which this knowledge provides them or whether they will leave it unused. But if they fail to take the best advantage of it and disregard its teachings and warnings, they will not annul economics; they will stamp out society and the human race. —LupwiG VON MISES, Human Action nating fusion of austere objectivity with pas- omy, there do emerge “law-like” regularities sionate concern that characterized the life and in economic phenomena—regularities that work of Mises—and which, I believe, defines society can ignore or defy only at its own the philosophy of the Foundation for Eco- peril. nomic Education. Second, these regularities appear as power- But why is economic education needed? ful tendencies in free markets toward the Why can we not rely on the truths of econom- directing of scarce resources: ics being recognized by the intelligent public without deliberate, organized effort at public * into those branches of production which enlightenment? We may identify two interre- the consuming public values most lated reasons: urgently and most highly; } * into those methods of production which, 1. The conclusions of economics are, in judged from the consumers’ perspective, general, counter-intuitive. Without careful must be described as the most efficient; guidance, the intelligent layman is likely tobe « with market consequences such that the led to accept as “obvious,” policy prescrip- rewards to owners of scarce resources tions that economics reveals as tending to express those resources’ respective rela- generate wholly unwanted consequences. tive productive values, as judged by con- 2. The reasoning by which economics sumers, and thus stimulate these owners reaches its conclusions is not only not self- to place their resources and talents in the evident, but in fact involves insights the sub- efficient service of consumers. Many tlety of which is likely to be completely have identified these conclusions with missed by the untrained. An education in eco- what the textbooks often call Adam nomics does not have to be lengthy or very Smith’s “invisible hand” doctrine. elaborate—but it is needed in order to intro- duce the intelligent layman to new ways of These conclusions are counter-intuitive. looking at and understanding the world. Let very many intelligent, well-meaning persons us take up in turn these two sources for the gyring the past two centuries have simply need for economic education. assumed exactly the opposite of these conclu- sions to be the truth—and have concluded that The Counter-Intuitive government planning and control of market activities are crucially needed in order to avoid economic chaos, disorder, and social The most significant of the counter- inefficiency. It was, however, true of the hey- intuitive conclusions can be succinctly pre- day of neoclassical economics (between, say, sented as follows: 1890 and 1930), that the overwhelming bal- First, despite individual freedom in the ance of professional opinion came to endorse making of decisions in the free-market econ- the “invisible hand” conclusions. The major Conclusions of Economics ===== PAGE 8 ===== 584 THE FREEMAN ee OCTOBER 1998 schools of economic thought (not including reasons we have identified (as responsible for the German Historical School) agreed with the need for economic education). these conclusions. And after World War 1, with the demise of the German Historical School, it seemed to Mises! that economists The Subjectivism and of all schools were virtually unanimous in Subtlety of Economic Reasoning their understanding of markets. To deny these conclusions, it appeared, was simply to reveal Economic understanding does not call for a gap in one’s education. sophisticated technical prowess. It does, how- This unanimity rapidly crumbled away dur- ever, require appreciation for a way of looking ing the central decades of this century. The at human actions and of social interaction, dominant orthodoxy of the years between, which many at first find rather strange and say, 1935 and 1970, was one that urgently unfamiliar. Economic understanding requires endorsed centrally planned intervention in one to see the “objects” with which economic market economies (and, indeed, looked rather activity is concerned—the money, the natural favorably upon the possibility of efficiency resources, the capital equipment, the flows of under socialism even in its purest forms), on half-finished goods, the fully produced goods both macroeconomic and microeconomic ready for delivery to the consumer—from a grounds. Such intervention was needed at the subtly different perspective from that to which macro level, the conventional wisdom ran, in the layperson has been accustomed. Take, for order to avoid the instability predicted by example, the simple act of exchange. To the Keynesian economics; it was needed at the untrained eye, an episode of market exchange micro level in order to avoid the distortions is seen as one in which an exchange of and inefficiencies predicted by the theorists of objects, presumably of equal value, occurs. imperfect competition and/or of externalities. = When I buy a meal for $20, I have given up a Austrian economics never gave up the $20 bill for food and service having a market central conclusions of the earlier shared con- value of $20. For the economist this episode is sensus of neoclassical economics. In fact, seen in an entirely different light. For me the both Mises and Hayek significantly deep- meal was subjectively valued as being more ened Austrian economic understanding (of important than the $20 bill that I was asked to how markets work and of how they set surrender for the meal. For the owner of the benign, efficiency-enhancing, tendencies establishment that sold me the meal, its value into motion) during these decades of was lower than that of the prospective $20 he eclipse.2 They demonstrated (in effect if not hoped to receive from me. So that this simple always quite explicitly) how Austrian episode of exchange must have meant, in the insights concerning the entrepreneurial role, prospective judgments of both the consumer the competitive process, and the knowledge- and the vendor, that new, additional value was discovery process in fact respond effectively being created by this exchange. This elemen- to both the macro and the micro concerns of tary insight, so foundational to economic rea- the new interventionist orthodoxy in the eco- soning and understanding, is strange and nomics profession. And their work and unfamiliar to the world of commerce and of teaching during those lonely decades of the everyday activity. fifties and sixties laid the groundwork for the In fact, the subtlety of such “subjectivist” subsequent modest but important revival of insights often eludes analysts equipped with Austrian economics during the past quarter sophisticated mathematical tools. Their train- of a century. ing, and the scope of their analytical tools, Economic education, aiming to enlighten lead them to focus on the objects exchanged the intelligent lay public to these significant— in such episodes, rather than on the human but still counter-intuitive—implications of motives expressed in the purposeful actions economics, surely has a valuable role to play. of which such episodes consist. And it has Let us however now turn to the second of the been this “blind-spot” in modern mathemati- ===== PAGE 9 ===== THE NATURE AND SIGNIFICANCE OF ECONOMIC EDUCATION 585 cal economics that has tended to render it, in Economic Education and general, surprisingly insensitive to the role of Economic Policy expectations and of knowledge in economic decision making and in market processes. An eminent economist once provocatively Without the subtlety conferred by the sub- declared that economists qua scientists have jective perspective, the market process no business making normative pronounce- appears to consist of endless sequences of ments on economic policy (or, in fact, on any- exchanges. From the subjective perspective, thing else). To make such pronouncements, however, it becomes possible (if not indeed George Stigler somewhat impishly asserted, imperative) to recognize the market process was to engage in “preaching.” As a citizen as involving processes of mutual discovery (to the economist may certainly express dismay use a Hayekian phrase) on the part of market at the consequences of economic policies; he participants. It becomes possible to recognize may abhor these consequences. But those scope for superior entrepreneurial vision into who initiated and executed these policies, he the future, and for the consequence that such argued, obviously desired these consequences vision can be expected continually to shake (which others are viewing with abhorrence). up existing patterns of production and of mar- We have no reason to presume that those ket exchange (in directions inspired by more engaged in actions or in executing policy are accurate or, at least, more up-to-date assess- unaware of the consequences of what they do. ments of the underlying realities). To object to these policies is then simply to Not only does the subjective perspective assert what those with the power to initiate taught in economic reasoning offer new and policies refuse to accept, namely, that their deeper understanding of market phenomena consequences are indeed abhorrent. To so and of market processes, it permits us to judge object, Stigler maintained, 1s merely to these phenomena and processes from a more preach, not to engage in scientific discourse. comprehensive and all-encompassing vantage The position we have been articulating in this point. One of the most pervasive fallacies in lecture (and, I suggest, the position consis- public opinion has been that of seeing the gain tently taken by FEE) utterly rejects Stigler’ that one participant derives from a market contention. exchange as having necessarily been extract- That contention rested on the premise that ed and subtracted from his partner in that we must assume those who take actions or exchange. After all, if I profit from an undertake policies to be correctly aware in exchange with my neighbor, that profit can advance of the likely consequences of those only have arisen from my neighbor's pre- actions or policies. But, as we have argued sumed, corresponding, loss. It is of course an here, the truth is that, because of sheer eco- elementary economic insight, yet one often nomic ignorance, well-meaning policy mak- entirely missed, that my profit must, at least ers may be completely unaware that what they prospectively, be in fact accompanied, not by are doing may in fact generate consequences a loss to my exchange partner (as in a “zero- quite the reverse of what they wish to achieve. sum game”), but by profit to him (a “positive- Someone once defined the job of an econo- sum game”). No one, after all, engages in a mist as that of warning people when and how voluntary act of exchange unless he or she they are seeking to run in two opposite direc- expects to gain from it. This kind of entirely tions at the very same time. My teacher, fresh perspective introduced by the subjective Mises, used to say something like the follow- foundations of economic reasoning often ing in his lectures on price controls: “These (correctly) strikes beginners in economics as laws passed by the legislators are bad not offering revolutionary new insights. It does because I, Mises, do not like their conse- not require lengthy training to introduce quences. These laws are bad because they beginners to this kind of perspective. But eco- produce consequences which they, the legisla- nomic education clearly has a “revolutionary” tors themselves, would not like and certainly role to play in this regard. did not aim at.” In other words, economic ===== PAGE 10 ===== 586 THE FREEMAN e OCTOBER 1998 ignorance is rife; it leads voters and politi- to educate) the lay public, it is necessary that cians to support policies the consequences of this public be convinced of the objectivity and which they themselves can only regret. The ideological impartiality of the insights being economist has a role to play in offering policy transmitted. advice, and this role is not one of preaching, If public policies seeking to increase the but one of pointing out the respective conse- scale and scope of government intervention in quences of alternative policies among which the economy are to be successfully fought at voters and legislators must choose. Economic the legislative and executive levels, the eco- education is vitally and essentially relevant nomic understanding of the public must cer- for this role. And this returns us to the para- tainly and urgently be enhanced. For this to be dox with which we began this lecture, the achieved, the delicate interface between moral paradox of passion and austere wertfreiheit passion and scientific detachment must be that permeated Mises’s life and work. recognized and respected. There is, we have insisted, a fundamental . . difference between economic education (the The Passionate Pursuit raison d’étre of this Foundation) and “liber- of Austerely Defined tarian” ideology or rhetoric. The former is Economic Education not, and must not be, a mere “public rela- tions” expression of the latter. The legitimate moral, and even passionate, commitment with which the Foundation and its supporters seek to promote its goals need not (in fact, dare not) compromise the detachment and objec- tivity of the content of the economic educa- tion, the dissemination of which makes up those goals. OJ If one recognizes, as Mises did, how central planning in all degrees is likely to generate disastrous human consequences, it becomes clear that a passionate urge to spread elemen- tary scientific economic understanding among the public involves no contradiction whatever. The phenomenon of economic ignorance is so widespread, and its conse- reducing that ignorance becomes a goal der Nationalskonomie, 1933]), p. 214. invested with independent moral worth. But 2. It was in 1949 that these two Austrian economists published ; A ) major works (unappreciated for a long time) developing these deep- the economic education needed to reduce ened insights: Ludwig von Mises, Human Action: A Treatise on Eco- : nomics (New Haven: Yale University Press, 1949) and F.A. Hayek, such 1gnorance must be based on austere, Individualism and Economic Order (London: Routledge and Kegan objective, scientific content—with no ideo- Paul, 1949). : : : 3. George J. Stigler, “The Economist as Preacher,” in The Econ- logical or moral content of Its own. Precisely omist as Preacher and Other Essays (Chicago: University of Chica- because it is necessary to “persuade” (that is, go Press, 1982). A special sale of books by Ludwig von Mises is featured in this month's Notes from FEE. ===== PAGE 11 ===== Anything That's Peaceful On Behalf of the Ideal by Leonard E. Read here is a line of reasoning, gaining adequate corps of what we shall call idealists ground among businessmen and others, to keep FEE going as a small-scale enterprise. that tends to narrow an understanding of free- Now, however, “practicality” appears to be dom rather than broaden it. It relates in part to winning converts from among those who our work at the Foundation for Economic were thought to be the idealists. Limiting Education, and I want to examine the reason- these comments to the “practical” as distin- ing from this standpoint. guished from the idealistic businessmen and Over the past 14 years—from countries as putting it bluntly, defections are observed at a remote as India as well as here at home—have time when leadership on behalf of the ideal come inquiries to this effect: “In what ideo- might well turn the tide for freedom. logical pigeonhole can FEE be put? You folks These “practical” people—many of them— don’t quite fit Bentham or the Physiocrats or will readily acknowledge that our society is the Georgists or Smith or Mill or Simons, or shot through and through with socialism. But, any system. Where shall we put you?” having said this, they will add, “While I agree Honor be to these discriminating inquirers, with your idea of the ideal society in theory, it for what FEE attempts to purvey is neither a is utterly naive to insist upon its rightness in system nor is it “pigeonholeable.” On the today’s world. The existing political interven- contrary, we seek to learn of freedom in its tions are fait accompli, water over the dam. To consistent, undiluted, ideal form, and to condemn them and to suggest the ideal in report candidly and in full what that search their stead, as you so undeviatingly do at FEE, reveals. is to operate in a dreamland. Forget about This effort on behalf of the ideal has met upholding the ideal and do your educational with enough approval to put FEE on its edu- work for freedom premised on the what is, not cational and financial feet. While always chal- on an idealistic what-ought-to-be. Let us be lenged and even criticized by many “practi- practical!” cal” people—among whom are some of the Such counsel, increasingly offered, could world’s greatest producers—there has been an more accurately be phrased, “Tell us how to make socialism work,” as though we at FEE could perform that miracle if only we'd try! Leonard E. Read established FEE in 1946 and served For instance, the “practical” argue that TVA as its president until his death in 1983. This article, ig here to stay, as are subsidies to farmers, one of Mr. Read’s Notes from FEE messages, is compulsory Social Security, federal delivery excerpted from Essays on Liberty, Vol. VII (1960), . . pp. 332-436. It is the tenth in a monthly series com- of the mails, exchange controls, the minimum memorating the 100th anniversary of Mr. Read’s Wage at which one is allowed to work, the birth. maximum one is permitted to earn, coercive 587 ===== PAGE 12 ===== 588 THE FREEMAN e OCTOBER 1998 powers in the hands of labor unions called Socialism has only a few articulate antago- “gains for the laboring man,” indeed any item nists and only a few articulate protagonists. of socialism once it is put on the statute Between these two small groups are unnum- books. Everything, no matter how absurd, bered millions who are more or less indiffer- appears sacrosanct to them the moment it ent, who at best are only followers of one becomes law. Thus, they regard as foolhardy camp or the other. Every issue has always any questioning of what they deem “unalter- been thus. able.” The president of one of America’s Socialism’s protagonists will argue for, not largest corporations summarized their conclu- against, their credo. Count on that! sions, “We wouldn’t think of supporting the Now, socialism’s antagonists, were they to work of FEE. Why those folks even argue that follow the counsel of the “practical” people, the government’s social security program is would remain neutral—standing neither not right.” against socialism nor for the ideal. In short, Conceding, as they do, the hopelessness of not one person in the population would be sig- removing any of the interventions, and recog- naling either right or wrong. What is not nizing clearly enough the miserable distor- shown to be wrong is perforce right, or so that tions these interventions inflict on a free and unnumbered millions “who have the votes” competitive market, the “practical” minded would be warranted in concluding. . . . look with favor on additional anti-market Those who, in this moral crisis, remain devices such as governmental protections noncommittal while purporting to be private against their competitors. They privately enterprisers are, in effect, however innocently, regard as “economic nonsense” the wage abettors of collectivism. They, not the social- earner’s claim to the job he has vacated and, at ists, have the educational obligation for stat- the same time, claim a right to an exchange ing the private enterprise case, ideally. made by other parties. They denounce com- Regardless of how thoroughly we may pulsory actions of unions as they ask for com- adjust ourselves to our sickness—or even pulsory protection for themselves. Their enjoy it—the numerous social diseases must inconsistency, which certainly is apparent to be repeatedly and consistently identified as them, is charged off to “being practical.” maladies lest we mistake our sickness for a It isn’t that these people quarrel with the state of health. Indeed, such diagnostic action way FEE presents the ideal; it is that they is a necessary preface to corrective action, to reject the presentation of the ideal as sound the presentation and ultimate realization of educational procedure. This brings us to the freedom in its ideal form. nub of the question, to the point when analy- There aren’t many of us at FEE naive sis of their position is possible. enough to believe that identifying socialistic One thing for certain: our “practical” projects as maladies, and upholding the ideal, friends, according to their own admissions, will bring about the ideal. Any such expecta- are dead set against any more socialism than tion is absurd among human beings who, by we now have. Except for some socialism in nature, are fallible. However, we do insist that the form of protection against competition or this course is the essence of genuine practi- a pet project, they stoutly advocate “dropping cality, for only in this manner can our coun- anchor.” Yet, their unwillingness to criticize try’s direction be reversed. Man can do no bet- the status quo, coupled with their refusal to ter than travel toward the ideal, and this he can uphold the ideal of a free society for all to see do only if the ideal is sought for and to some and hear, makes them more effective obsta- extent discovered. We must always face in the cles to freedom’s progress than are the social- right direction! There will never be any undo- ists themselves. ing of socialism unless the ideal of freedom is This, indeed, is a serious charge. Valid? identified and upheld with enthusiasm and Let’s see. with undaunted faith. J ===== PAGE 13 ===== FREEMAN deas On Liberty Employers Swamped by Good Intentions James L. Payne ne of the hidden costs of regulation is the ture, so that only the experts know what’s intellectual burden of keeping up with it. right and wrong. In many cases, finding out what the rules are The seminar, with its 35 sections on differ- can be more than a full-time job. Consider the ent aspects of employment law, helps employ- area of employer-employee relations. ers become experts. It tells them how to A few months ago, an odd travel brochure define “hours worked,” how to define “regular arrived in my mail. It wasn’t printed in four rate of pay,” and how to define and apply the colors, and it didn’t invite me to Hawaii or different types of exemptions from the law. It Cancun. No, this brochure offered me explains how the law treats time spent on vol- Dullsville. Printed on gray paper in blue ink, unteer activities, travel, preparatory activities, it urged me to come to the Doubletree River- on-call duty, sleeping, and going to work- side Hotel in Boise, Idaho, to attend an all-day shops and conferences. The seminar also cov- seminar on wage-and-hour legislation. My ers what the law requires about minimum first reaction was, who would ever go on such wages, vacation pay, holiday pay, overtime, an unappealing excursion? jury duty, lunch hours, and work breaks. Then I realized that probably / should. I run Even if you attend this $169 seminar, it a small business, and I’m thinking of taking doesn’t mean you will avoid problems. on an employee. Reading this brochure about Employment law is not a system for prevent- what’s involved in hiring somebody gave me ing disputes. It’s a framework for provoking lots of second thoughts. them, and all employers, even the most saint- It turns out that there isn’t just one law gov- ly, need to know how to navigate the sea of lit- erning wages and hours, but three compre- jgation. Hence, the seminar devotes an entire hensive federal acts, plus state laws, as well as section to these hazards, including a “Step- all the judicial case law that has grown up py-step guide through the civil complaint over the past half-century. So the eight-hour process” a segment on “Defenses available to seminar in Boise barely scratches the surface he employer,” and another on “Practical of this legal specialty. No employer can sim- strategies for handling wage/hour claims.” ply hire a worker on the assumption that if he is fair and reasonable the law will have no . . quarrel with his behavior. Decades of regula- Regulating Snakes in tion have put common sense out of the pic- the Workplace James Payne's most recent book is Overcoming Wel- And even if you become a master of all the fare: Expecting More from the Poor—And from Our- Wage-and-hour regulation, that would only be selves (Basic Books). a beginning. Congress and the courts have 589 ===== PAGE 14 ===== 590 THE FREEMAN « OCTOBER 1998 stepped in to regulate many other aspects of When legislators first came upon the idea of employer-employee relations, including dis- regulating workplace relationships, did they crimination, medical and maternity leave, and have any idea where this process would lead? accommodation for disabilities. To help Regulations are like potato chips: no one ever employers grapple with these regulations, the stops at just one. Lawmakers can always see Society for Human Resource Management in more possible wrongs to right, and the courts Alexandria, Virginia, has established a hot will keep interpreting and extending the law, line for employers with personnel questions. until an entire area of human activity is pre- According to the Washington Post, the hot scribed in vast detail. Instead of being directed line receives an average of 300 calls a day and against the few bad apples, the law bears down takes nine counselors to handle them. on everyone. Everyone has to keep records, “Can we fire an employee who just ran over everyone has to submit to audits and inspec- a customer with a forklift?” asked one caller. tions, and everyone has to try to master arcane “Do we have to allow an employee to bring in legal concepts that are but tenuously related to snakes because his psychiatrist feels it will what is right, fair, and sensible. help him with his phobia?” queried another. Surely the day will come when even the reg- One executive called in to ask what they ulators, sinking ever deeper into the mire of should do about someone who had just died at this vexing, irrational system, will be struck his desk. The counselor was floored. “Why by a shining vision: Why not just let people use are you calling me?” she responded. “Call their own judgment? The results won’t be per- 911” She ruefully noted that in the rule- fect by any means, but could a system based bound modern context, many employers seem on freedom be so much worse than what we to have lost their ability to deal with problems now have? At least we wouldn’t have to drag on their own. “The first thing they think of is ourselves to stupendously boring seminars in not what should I do, but will I be sued,” she Boise when there are mountains to climb, said. poems to read, and children to be hugged. 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Indeed, insofar as those Wendell Holmes observed: “For the laws are enforced against private-sector rational study of the law . . . the man of the employers, they violate freedom of associa- future is the man of statistics.” Lamentably, tion as guaranteed by our Bill of Rights. Nev- our lawmakers learned their lesson only too ertheless, Title VII is the law, so let’s examine well. Over the past three decades they have a few of the problems with “disparate impact” co-opted statistics, stretching its already mal- theory. leable bounds to create an incoherent legal First, which pool of workers is relevant for doctrine under the rubric of “disparate comparison? Is it the general population, or impact.” job applicants, or only those applicants As codified in the 1991 Civil Rights Act, an deemed “qualified”? Should a nationwide employee can make out a prima facie case of pool be considered, or should it be limited to race or gender discrimination based on no a more narrowly defined geographic area? more than a statistical disparity between the What about potential applicants who were composition of a company’s work force and dissuaded by what they perceive to be a dis- the pool of available workers. To defend itself, criminatory hiring practice? The possibilities the company must then show that the dispari- are nearly limitless—and adjustable to suit the ty is job related or consistent with business desired outcome. necessity, whatever that may mean. And even if the company can make such a showing, the worker wins if he can demonstrate that the company rejected an alternative practice that Second, the logic of disparate impact is fun- would have resulted in a less disparate impact. damentally incompatible with the logic of Nowhere along the way does the employee affirmative action; yet the chief use of the for- have to prove that he personally was subject to mer is to justify the latter. Disparate-impact discriminatory treatment. theory tells us that under-representation of a To criticize the use of statistics in discrimi- protected group in the work force is presump- nation law is not to acknowledge that Title VII tive evidence of discrimination. But propo- of the 1964 Civil Rights Act and its progeny nents of affirmative action make exactly the _ opposite point. They contend that females and Robert Levy is senior fellow in constitutional studies 10 orities will be under-represented even if at the Cato Institute and adjunct professor at George- . employers are scrupulously fair. Because of town University Law Center, where he teaches “Sta- JES EE . tistics for Lawyers." past discrimination, disadvantaged groups are Conflicting Doctrines 591 ===== PAGE 16 ===== 592 THE FREEMAN ee OCTOBER 1998 handicapped at the starting line. Accordingly, Illusory Discrimination so the argument goes, work force composition will be unbalanced even without ongoing dis- To illustrate, here’s how the omission of a crimination; only preferential programs can confounding variable, job preference, can level the playing field. lead to an inference of discrimination when In other words, the upshot of historical there is none. The Equal Employment Oppor- prejudice is that women and minorities do not tunity Commission (EEOC) applies this so- now have a fair shot at job opportunities— called 80 percent rule: if the group of appli- regardless of how successful we have been in cants least successful in obtaining a job has a rooting out recurrent intolerance and bigotry. hire rate less than 80 percent of the rate for the So a statistical disparity in the employment most successful group—a measure called the mix could occur despite nondiscriminatory selection ratio—EEOC infers discrimination. practices. Of course, that doesn’t square with Let’s assume that 200 of 600 women appli- disparate-impact case law, which permits an cants (33 percent) are hired for two types of inference of discrimination whenever there is job openings; and 350 of 800 men applicants disproportionate representation in the work (44 percent) are hired for the same two types. force. The two propositions cannot coexist. The resultant selection ratio is 33 / 44 or 75 Either an imbalance in the work force signi- percent, thus suggesting discrimination. But fies current discrimination (disparate-impact suppose that most of the women applied for theory) or it reflects vestiges of past discrimi- the more difficult of the two job types, for nation (affirmative-action theory). which only a quarter of the applicants were That’s not all. For statistics to prove dis- hired; while most of the men applied for the crimination, an apparent association between easier type, for which half the applicants were A (say, race) and B (say, percentage of appli- hired. The numbers look like this: cants hired) must be interpreted to mean that A caused B. But it is conceivable, per- Difficult Job Easy Job Total haps likely, that the relationship between A MF MF MF and B is not causal. Instead, both A and B Applied 200 400 600 200 800 600 may be correlated with one or more other Hired 50 100 300 100 350 200 factors, which statisticians call confounding % Hired 25 25 50 50 44 33 variables. Selection Ratio 100% 100% 75% For example, there seems to be a close association between math scores and shoe If each type of job is considered separately, size. Yet nobody would suggest that big feet precisely the same percentage of men and enhance mathematical ability, or that math women was hired. But if the data for the two skills cause one’s feet to grow. The obvious job types are combined, the female-to-male confounding variable is age. As people grow selection ratio is only 75 percent. Explana- older, they learn more about math and they tion: the particular job sought is a confound- wear larger shoes. ing variable; it helps explain the disparate Similarly, in assessing the correlation selection rate, but it also correlates with the between race and hiring rates, it is essential to variable at issue (gender). control for a long list of factors—education, Unless the EEOC controls for job prefer- experience, age, and test scores, just to name ence—say by calculating job-specific selec- some obvious candidates. If those variables tion ratios—it may, in this instance, infer are omitted, a disparity in hiring rates may be discrimination that is illusory. Of course, mistakenly attributed to discrimination in the if women applied primarily for the easier workplace when the real problem is else- jobs and men for the more difficult, then fail- where—for example, minorities may more ure to control for the confounding variable likely come from broken homes or attend could lead to an opposite but equally erro- poorer schools, both of which contribute to neous result—an inference of nondiscrimina- lower scores on standardized tests. tion despite a discriminatory hiring process. ===== PAGE 17 ===== LIES, DAMNED LIES, AND STATISTICS 593 The symmetry of potential mistakes only fur- systematically removed from circulation, then ther buttresses the case against statistical we have an independent, nonstatistical basis measures. for believing that the coin is fair. A related problem is that multiple explana- That logical error, says Professor Kingsley tory variables may be correlated with one R. Browne, pervades the way in which courts another, in which case the separate effect of think about disparate impact. Browne’s the variable at issue—usually gender or insightful 1993 article in the Washington Law race—will not be measurable with precision. Review lays out the many objections to statis- Let’s say, hypothetically, that the probability tical proof of discrimination. He describes of being hired for a particular job is a function how courts now reason: “This disparity is of both gender and experience. If those two very unlikely to have occurred by chance; the variables are themselves correlated (say, men result is suspicious and the employer must tend to have more years on the job), then we explain it.” More properly, Browne suggests, will not be able to determine reliably the the court should be reasoning in these terms: impact of gender alone. “The plaintiff has described statistics that That leaves us with a dilemma. On one would be true for thousands of nondiscrimi- hand we must include in our statistical study nating employers; if the plaintiff wants me to all of the variables that could affect the result. suspect discrimination, he better give me a lot Otherwise we could mistakenly attribute dis- more than that.” parate impact to discrimination when it was Put another way, statistics without individ- actually due to an omitted variable like expe- ualized corroboration are at best prejudicial rience. But on the other hand, if we include and very possibly unjust. Consider this exam- multiple explanatory variables, they will ple from criminal law: What if the blood type almost always be correlated with one another. of an accused rapist matches a specimen And that makes it very difficult to determine recovered from the victim? The prosecution whether and to what extent discrimination is establishes that the likelihood of a random the culprit. match is one in 1,000. Is that strong evidence? It depends on how the accused was selected and whether corroborating evidence estab- lished a prior probability of guilt. If the There’s more. Statistical tests are designed accused met the victim’s description, was to address a question that is totally different arrested nearby, then picked out of a lineup, from the one a court faces. Given an observed the statistical evidence would be strong con- disparity in, say, hiring rates between a sam- firmation. But if the police had a data bank of ple of men and a sample of women, a court blood characteristics and selected the defen- must determine the probability that discrimi- dant merely because of the forensic match, nation is a cause of the disparity. But statisti- the evidence would be quite weak. Indeed, cal tests reason in the opposite direction: they 1,000 people in a city of one million would assume a nondiscriminatory environment, have qualified. then assess the probability that a disparity as In a nutshell, statistics are not enough. large as the one observed between men and Their purpose is to show whether an observed women could have arisen just because a sam- work-force disparity might simply be due to ple and not the entire population was studied. chance, which statisticians call “sampling While those two issues are related, they are error.” Conventionally, when that likelihood is not equivalent. By analogy, presupposing a 5 percent or less, courts will infer that dis- fair coin, statistics tell us that the chance of crimination, not chance, is the reason. But two flips in a row coming up heads is one in that inference, by definition, will be wrong 5 four. That is not the same as saying that, given percent of the time: sampling error will be the two heads in a row, the odds are only one in underlying reason in five cases out of every four that the coin is fair. If we know that qual- 100. Thus, many innocent employers will be ity control is rigorous and counterfeits are held accountable for discrimination that does Two Different Questions ===== PAGE 18 ===== 594 THE FREEMAN ee OCTOBER 1998 not exist. And the defense available to those on 20/20 hindsight, we should not be sur- employers under the 1991 Civil Rights Act— prised that companies are forced to imple- they may show that the disparity is job relat- ment quota systems and adopt other class- ed—is utterly fruitless. There can be no job- based practices—the same practices that the related explanation when the disparity is a sta- anti-discrimination laws were allegedly tistical artifact. designed to eradicate. In the real world, far more than S percent of Whether the problem is using hindsight, employers are at risk. Statistical disparities mischaracterizing the relevant population, can exist for each job, each department, each omitting confounding variables, inferring factory, each geographic region, each time erroneous causation, applying backward period, and each grouping by race, color, reli- logic, excluding corroborating evidence, or gion, sex, or national origin. Whats even disentangling the separate effect of multiple worse, the court doesn’t deal with a randomly factors, the conclusion is unavoidable. selected profile of employers but with compa- Dependence on statistics alone to prove dis- nies that were specifically selected because of crimination is wrong as a matter of justice an observed work-force imbalance. So the and ought be prohibited as a matter of law. To probability that a court will mistakenly infer rewrite Justice Holmes: For the rational discrimination is much higher than 5 percent. study of the law, the man of the future is the When plaintiffs and their attorneys are per- man who understands how statistics can be mitted to introduce statistical evidence based misused. O] “Only by statistics, can the federal government make even a fitful attempt to plan, regulate, control, or reform various industries—or impose central planning and socialization on the entire economic system. If the government received no railroad statistics, for example, how in the world could it even start to regulate railroad rates, finances, and other affairs? How could the government impose price controls If it didn’t even know what goods have been sold on the market, and what prices were prevailing? Statistics . . . are the eyes and ears of the interventionists: of the intellectual reformer, the politicians, and the government bureaucrat. Cut off those eyes and ears, destroy those crucial guidelines to knowledge, and the whole threat of government intervention is almost completely eliminated.” —MURRAY N. ROTHBARD ===== PAGE 19 ===== Ideas and Consequences by Lawrence W. Reed What Is This Thing Called “Sprawl”? Ure sprawl” is fast becoming the most In contrast, Sam Staley, an Ohio economist, important issue among so-called “land says sprawl is just another name for subur- use” experts and in many state legislatures as banization, something that has been going on well. If it isn’t understood correctly, laws since the first Puritan settler left downtown enacted to deal with it are likely to become Boston to live in the nearby countryside. He major threats to both liberty and economic describes it as “the ongoing process of fami- well-being. lies moving outward [from cities] to live . . . One man’s trash is another man’s treasure, in single-family homes,” prompting the con- as the old saying goes. This has never been struction of businesses and schools and a sub- more apparent than with the sprawl issue. sequent decline in farmland and open space. “What you call sprawl, I call home,” a friend But he doesn’t see it as an inherent threat to who lives in a suburban subdivision told me civilization. He writes that it is simply the out- recently. Lacking a precise, universally come of voluntary exchange and the use of accepted definition, what constitutes sprawl is resources for maximum value. ultimately in the eye of the beholder. Are these two perspectives irreconcilable? Holly Madill, a Michigan environmentalist Not necessarily. In fact, there are signs that writing in the Detroit News last spring, is pas- people of these disparate views are coming sionately in the camp of sprawl opponents. together behind at least one principle. More She describes it as “the haphazard, unman- on that in a moment, after a few important aged growth that is replacing our open space observations. and farmland with asphalt and strip malls. . . . Debates about sprawl, or suburbanization, It is a threat to many things . . . that we hold offer little but noise and emotion if they are not dear: forests, wildlife, water, farmland, grounded in certain fundamentals. Like it or healthy ecosystems and communities, beauti- not, it results from the voluntary decisions of ful scenery and recreational opportunities.” individuals who believe they will ultimately be Supporters of this perspective insist we better off. That’s just as true for the farmer who have a crisis. A 1997 report from the Ameri- sells his land as it is for the developer and later can Farmland Trust estimated that the United the resident who buy it. Depicting sprawl as a States is losing about 50 acres an hour to the “monster” or a “plague on the land” may cap- growth of suburbia and other forms of eco- ture headlines, but it doesn’t inform. nomic development. Suburbanization represents a significant —————— improvement in the quality of life for those Lawrence Reed is president of the Mackinac Center 1,5 make the move: larger houses, more land, for Public Policy, a free-market research and educa- . tional organization in Midland, Michigan, and chair- safer neighborhoods, and better schools. The man of FEE’s Board of Trustees. Visit Mackinac’s only real question seems to be, does sprawl Website at www.mackinac.org. harm other people or society at large because 595 ===== PAGE 20 ===== 596 THE FREEMAN e OCTOBER 1998 of ‘pollution, traffic, noise, or even a smaller and competition to poorly performing schools. food supply owing to the shrinking farmland. These issues are controversial enough to Those problems have solutions. Free- keep both sides in the sprawl debate apart, but market economists have shown that both tech- the one principle that has great potential to nology and clear definitions and enforcement bring them together is this: whatever sprawl is of property rights can mitigate pollution. If and whether you think it’s good or bad, gov- private enterprise owned the roads, or if gov- ernment should not subsidize it. ernment did a better job of pricing their use so The unvarnished truth is that, from roads to that users paid their full cost, traffic problems sewers, government policies artificially stimu- could be greatly ameliorated too. Pollution late sprawl at the expense of densely populat- and traffic usually plague dense inner cities ed areas. “The residents of low-density devel- more than suburbia anyway. opments pay taxes,” Phillip J. Longman wrote As for food, at the same time that people in U. S. News & World Report in April, “but have been gobbling up cropland with their are rarely charged the full cost of the govern- buildings and roads, agricultural productivity ment services they consume. Instead those has risen dramatically. Americans fed far costs are usually averaged across a whole fewer people when 90 percent of us lived on region or state, in effect charging the people farms than we feed today with just 3 percent in the older areas for the costs of sprawl.” (or less) of us tilling the soil. And in terms of Longman cites the example of a sewage the amount of work required, food is cheaper treatment plant recently built by the city of than ever. The average family spends much Tallahassee, Florida, for an upscale neighbor- less of its income to feed itself than it pays in hood. Actual costs were about $4,447 for the taxes to feed the government. mostly black, inner-city neighborhoods near- The fear of food’s becoming more scarce est the plant, but were $11,443 for the more indicates a misunderstanding of how prices exclusive area further away. “Despite this work in free economies. If demand for food nearly $7,000 difference in real cost, all goes up at the same time that supply goes households pay the same price, about $6,000, down, the inevitable upward pressures on for sewer connections,” Longman wrote. The prices would attract both land and profit- poor get soaked paying part of the sprawl bill seeking people back into agriculture; or it for the wealthy. would prompt research on how to obtain high- Recognizing that governments spending er yields. With so few people producing so and irrational pricing of its services is a major much food so cheaply these days, markets are cause of sprawl, the state of Maryland adopt- telling us not to worry. ed a bipartisan growth policy. Despite some Moreover, economists like Sam Staley inherent problems, the law is guided by an point out that it isn’t only the “pull” of subur- important principle: no longer will Maryland bia’s attractions that draw people out of the use taxpayer money to subsidize growth in cities. Quite often, it’s the “push” of bad city rural or suburban areas at the expense of peo- policies that drives them away. Instead of ple in the cities. Amen. imposing new restrictions on the suburbs or Are you concerned about this thing called rural areas, urban sprawl alarmists would do “urban sprawl”? Fine. Don’t start assaulting well to encourage American cities to cut their people’s liberty and property. Better to devote sky-high taxes, deregulate business opportu- your time to getting rid of the policies that nities, scale back burdensome bureaucracies, drive people away from cities and subsidize reduce crime, and let the market bring choice the suburbs. OJ] ===== PAGE 21 ===== ¥ Current Issues FREEMAN deas On Libert Terms of Impairment by George C. Leef he Americans with Disabilities Act makes it easy for prowling lawyers to concoct (ADA) was passed by Congress and federal cases out of rejection, disappointment, signed into law by President George Bush in or inconvenience. A person has a “disability” 1990 amid much congratulatory hoopla. “Let if he has a “physical or mental impairment the shameful wall of exclusion finally come that substantially limits one or more of the tumbling down,” the President declared. major life activities.” But what counts as an “Every man, woman, and child with a disabil- “impairment”? What is a “major life activi- ity can now pass through once-closed doors ty”? What is a “substantial limit”? Laws used into a bright new era of equality, indepen- to be very precise. You knew whether you had dence, and freedom.” Like all the other grand, stolen another person’s car or not. But with noble exercises in federal utopia-building, the the ADA, the demarcation between lawful ADA 1s proving to be a prolific source of activity and unlawful “discrimination” is pure examples of the law of unintended conse- fog. quences. One would almost suspect that a group of crazed free-market economists had dreamed this law up so as to never run out of Fashionable Diagnosis illustrations of the ways coercive legislation leads to harmful results. Among the “impairments” that have Stories about the litigation the ADA has become prominent under the ADA is atten- spawned are legion: a suit by a 350-pound tion-deficit disorder (ADD). This recently Tennessee woman against a movie theater for “discovered” learning disability can entitle not having seats wide enough to accommo- the “sufferer” to special legal status and oblig- date her; a judge who argued that he should ates others to provide special compensatory not be removed from the bench after being treatment, known in legal parlance as caught shoplifting because he was “disabled” “accommodation.” In the years to come, one by depression over his daughter’ failure to of the most uttered phrases in America will get into law school; a suit by a deaf lifeguard be, “You must accommodate me—or else.” over a YMCA’s insistence that all lifeguards Children who have trouble staying focused, be able to hear distress cries. The list goes on following instructions, or playing calmly are and on. said to have ADD. There are no objective The remarkable vagueness of the law symptoms, and everyone who has ever been around children very much knows that at George Leef is book review editor of The Freeman times virtually every child has trouble paying and president of Patrick Henry Associates: Liberty attention to what adults want him to pay atten- Consultants in East Lansing, Michigan. tion to. Fortunately, trained experts—child 597 ===== PAGE 22 ===== 598 THE FREEMAN ee OCTOBER 1998 psychologists and counselors with the appro- abled—is simply not worth the benefit of priate university degrees and state certifi- being able to assess more fully the capabilities cates—are able to diagnose ADD. In fact, par- of the various applicants. ents often ask them to. The result is that students whose parents Why would a parent want to have his child were clever and wealthy enough to use the diagnosed as having a learning disability? The ADA to their advantage by securing a “dis- answer is that in the perverse world of the ability” diagnosis wind up with a substantial ADA, the special privileges to which you are advantage over others. The student who was entitled if you fall into the “protected class” allowed to take, for example, the MCAT of the disabled give you significant advan- without time pressure is more likely to gain tages over normal (or, to use the politically admittance into medical school than an other- correct term, “differently abled”) people. wise comparable student who took the MCAT One accommodation to which those with normally. this learning disability are entitled is the right to take crucial exams, such as the Scholastic Assessment Test (SAT), the Law School A Legal Leg Up Admission Test (LSAT), and the Medical Col- To the extent that attention-deficit disorder lege Admission Test (MCAT) under special diagnoses are just a scam (and some medical conditions—in a distraction-free room and experts argue that the very notion of ADD is with extended time. Taking away the normal, quackery), the law is simply giving the pressure-filled test conditions and replacing unscrupulous a means of getting ahead of them with the congenial conditions of ADA everyone else. To the extent that ADD is real accommodation can make a large difference and the law is assisting individuals who have in performance. Parents know that, and, want- a hard time concentrating to get into colleges ing to maximize the chances of success for and professional schools, it is attacking one of their children, some shop around for a spe- the most important functions of market com- cialist who will give the desired diagnosis. petition, namely, steering people into the The number of exams given under “special kinds of work for which they are best suited. circumstances” has risen exponentially ever Not even the most vociferous advocate for since the ADA became law. “the disabled” would be willing to be treated The Educational Testing Service (ETS) or operated on by a doctor who has difficulty administers the SAT, LSAT, MCAT, and other in staying focused. exams. When students show their ADD By short-circuiting the market’s tendency papers, they are routinely given the mandatory to direct people into appropriate work, the “accommodation.” When their scores are ADA increases the likelihood that consumers reported to colleges and universities, ETS will suffer at the hands of less-than-compe- marks them as “nonstandard administration,” tent practitioners. Ordinarily, the slightest which could mean that the test was given in chance that something might harm a con- braille, in enlarged print, or, as with those sumer is enough to send statists into frantic “disabled” with ADD, additional time. More activity. Several years ago, for instance, the than that ETS does not dare say, for fear that it federal government banned the use of Alar in would be sued if it provided any further infor- apple orchards when it was disclosed that mation about the exact testing conditions. some lab rats developed tumors after being Once they have the test results, colleges and force-fed megadoses of the chemical. The universities are careful not to treat the stan- resulting publicity had mothers wondering if dard ones as any different from the nonstan- it was even safe to dump apple juice down the dard ones. To do so would, again, be to invite drain. Sober scientists pointed out that neither litigation. The expense and adverse public- the apple juice nor Alar posed even the slight- ity that would come from a suit alleging one est threat to humans, but their voices were of the most heinous of all contemporary drowned out by the cry, “We must not take offenses—discrimination against the dis- chances!” ===== PAGE 23 ===== TERMS OF IMPAIRMENT 599 There is far more likelihood that someone rather than forcing themselves on those that will be harmed by the egalitarians’ attack on didn’t. They naturally steered themselves standards, of which the ADA is an integral toward those situations where their handi- part. However, you search in vain for any caps were not handicaps at all, just as people expression of concern from them that com- lacking an aptitude for mathematics steer pelling schools to admit lesser-qualified indi- themselves into fields where mathematical viduals involves taking chances. Evidently, ability is not important. risks brought on by their own feel-good med- The statists with their mania for group dling with individual decision-making and the rights, however, can’t tolerate that “the handi- natural order of the world don’t count. capped” sometimes have to take “no” for an Despite the high-blown rhetoric, the ADA answer. Rather than trying to help the handi- is a terrible solution to a virtually non- capped to improve their abilities and find the existent problem. Most truly handicapped places where they fit in naturally, they take the people who wanted to work, attend college, political path of legislated coercion. Much as or do anything else were able to do so prior we may feel for the disabled individual strug- to the enactment of the ADA. They had to gling to make ends meet (and bear in mind adapt to the world, however, pursuing goals that many disabled people succeed very well that were realistic given their mental and on their own), it is wrong to use coercion to physical limitations. They had to seek out deprive other people of their freedom to make institutions and employers that wanted them, decisions—their right to say “no.” [] We are helping | hosted by | 30 RESEARCH FEE sell books over the Internet May We Help You? 3D RESEARCH http://fee.3dresearch.com web @ 3dresearch.com (724)-776-7384 ===== PAGE 24 ===== FREEMAN deas On Libert The IME’s Dubious Purpose by Ian Vasquez reasury Secretary Robert Rubin insists themselves reluctant to introduce necessary that the International Monetary Fund reforms. After providing billions of dollars to (IMF) is “the right institution” to resolve the Indonesia, for instance, the Fund pleaded with Asian crisis and that it deserves an additional the former Suharto regime to end certain sub- $18 billion from U.S. taxpayers. But the bur- sidies and government bailouts of well- den of proof falls on the Clinton administra- connected industries. No wonder few people tion, which must explain why the IMF has any had confidence that President Suharto and his credibility either in moving crisis countries cronies would undertake the wide range of toward market reforms or in detecting finan- other necessary economic measures. cial crises in the first place. Giving money to such governments does not IMF bailouts have not prevented Mexico- tend to promote market reforms; it tends to style crises from occurring or stopped them delay them because the financial aid takes the from spilling over once they’ve begun. Asia’s pressure off governments to reform. In 1994, financial turmoil has instead spread with each for example, Boris Fyodorov, President Boris IMF intervention. And Indonesia’s currency is Yeltsin’s former deputy prime minister for sinking to record lows even after the IMF finance, warned against further IMF aid to arranged a third emergency loan package Russia: “The sooner this money is handed over, since last fall. It appears that these develop- the sooner we shall see a change in policy—in ments have not occurred despite the Fund’s the wrong direction. I recall how Mikhail Gor- “aid,” but largely because of it. bacheyv, after each new loan, would lose inter- None of this is too surprising given the est in any kind of economic reform.” Fund’s record of creating loan addicts rather Rather, a suspension of loans concentrates than economic success stories. A review of the minds of policymakers in the affected the agency’s “short-term” loans is revealing. nations. The reason, after all, there is any talk Through 1998, for example, 19 nations have or movement toward reform in Asia today is been using IMF aid for at least 30 years; 31 not because the IMF has arrived and suggest- countries have borrowed from it for at least 20 ed that policy changes should be made. Eco- years; and 36 countries have relied on IMF nomic reality is forcing those changes. credit for between ten and 19 years. But can’t the IMF apply strict conditionali- IMF bailouts are harmful because they pro- ty to bailouts? Here again, the Fund has little vide money to governments that created the credibility, and not just because of its record problem to begin with and that have shown of creating long-term dependency. The prob- lem is institutional. A country—especially a lan Vasquez is director of the Project on Global Eco- highly visible one—that does not stick to IMF nomic Liberty at the Cato Institute. conditions risks having its loans suspended, as 600 ===== PAGE 25 ===== 601 has repeatedly occurred in Russia over the receives a warning that a country is facing years. When loans are cut off, recipient gov- financial difficulty, a massive capital outflow ernments tend to become more serious about is likely to occur, in which case crisis preven- reform. Note that the IMF encourages misbe- tion would be out of the question.” having governments to introduce reforms by cutting off its loans. In 1997, for example, ey op: . Yeltsin responded to the suspension of the Credibility Undermined IMF’s $10 billion credit by naming reform- On the other hand, if the IMF perceives minded officials to key government posts. serious financial difficulties in a country and does not disclose that information, then it undermines its credibility as a credit-rating agency for countries. That appears to have Unfortunately, once the expected policy been the case in Thailand, where the IMF now changes are forthcoming, the IMF feels the claims to have privately warned Thai officials need to resume lending. Indeed, the IMF has about the economy before the crisis erupted. a bureaucratic incentive to lend. It simply can- The Fund’s credibility would be further not afford to watch countries reform on their undercut by inherent conflicts of interest: in own because it would risk revealing the IMF’s many cases, it would be evaluating countries irrelevance. The resumption of credit merely in which it had its own money at stake. Only delays the process of reform, unnecessarily by ceasing to lend could the agency increase prolonging a country’s economic problems. its integrity; at that point, however, its country The IMF’s bureaucratic incentive to lend is evaluations would merely replicate a service well known by both the Fund and recipient already available in the market. governments, making its conditionality that As it stands, the IMF is actually undermin- much less credible. ing the market, which would provide less- Can the IMF be expected at least to detect expensive solutions to currency crises. Absent ominous financial developments and offer the Fund’s intervention, creditors and debtors timely warnings? Rubin and others suggest would do what they always do in cases of that the world badly needs better economic insolvency or illiquidity—they would renego- surveillance. The Fund, says IMF chief tiate their debts or enter into bankruptcy pro- Michael Camdessus, should fill that role. cedures. In a world without an IME, both par- Never mind that the IMF was already charged ties would have an incentive to do so quickly with that mission and it failed to alert anyone because the alternative, to do nothing, would about problems in Mexico, Thailand, South mean a complete loss. Thus, not only does the Korea, or Indonesia. Instead, the IMF praised Fund discourage rapid policy reform, it hin- all of those economies right up to the out- ders a fast and more just resolution of private- break of crisis. sector payments problems. The superficially appealing answer might The IMF is not the correct institution to be that IMF should strengthen its role as a solve problems in today’s increasingly liberal watchdog agency that provides an “early global economy. Dramatically changed world warning” system in case of potential financial conditions are not making the IMF less troubles. Yet it is unclear how such a mecha- relevant than when the agency was founded, nism would work. As economist Raymond they are merely making the Fund’s irrele- Mikesell asks, “Who would be warned and vance—and its potential for harm-—much when? As soon as the financial community more evident. [J Bureaucratic Incentive ===== PAGE 26 ===== Potomac Principles by Doug Bandow The Folly of Economic Warfare BELGRADE, YUGOSLAVIA—“What we say But the economy has since collapsed; the goes,” was George Bush’s famous remark country’s industrial production has fallen to after the Gulf War. That remains American 1952 levels. Yugoslavs are poorer even than policy, and U.S. policymakers are increasing- the Bosnians, who only recently emerged ly using economic sanctions to enforce their from the horrors of civil war. will. Burma, Cuba, Iraq, and North Korea are Sanctions were only one reason for ongoing targets. An odd coalition of religious Yugoslavia’s economic implosion—the disin- conservatives and human-rights activists tegration of the multi-ethnic state, the effects wants to hit China with huge trade barriers. of war, and the end of the Communist Come- And Washington is threatening to reimpose con market were others—but they are an restrictions on Yugoslavia unless it abandons important one. In that sense, they weakened its crackdown in the province of Kosovo. the Yugoslav state. But Yugoslavia demonstrates the limits of However, sanctions had no discernible sanctions. The United States and Western impact on Belgrade’s policy. allies isolated the Serb-dominated state dur- But sanctions are not merely ineffective; ing the lengthy Bosnian civil war without they are usually counterproductive. President effect. They imposed bans on air travel, Slobodan Milosevic has so far escaped wide- investment, and trade. But nationalism proved spread blame for the economic chaos. He’s to be more powerful than economics. Only the “Teflon president,” explains one American exhaustion and threatened Western military observer. Indeed, sanctions actually strength- intervention on behalf of the Muslims led to ened the Milosevic regime. “The government the Dayton Accord and the preservation of a loves sanctions,” explains Filip David, editor united Bosnia hated by all three resident eth- of the magazine The Right to Pictures and nic groups. Words. Democratic leaders in Yugoslavia, Yugoslavia was once the most advanced despite often difficult dealings with each nation in Eastern Europe, the state with the other, agree that Western economic controls freest economy and greatest autonomy from benefit the oppressive regime and make their the Soviet Union. In the late 1980s it “was a opposition more difficult. model of economic development for Eastern Western economic restrictions without Europe,” says Slobodan Brkic, a British- doubt enriched those in power. Average peo- trained analyst with the Yugoslav Democratic ple suffered from mass unemployment and Party. underemployment, hyperinflation, and finan- — : Co cial chaos, but smuggling and black-market Doug Bandow, a nationally syndicated columnist, is a Co. . senior fellow at the Cato Institute and the author and activities provided enormous profits for the editor of several books, including Tripwire: Korea well-connected. With sanctions “the gold is and U.S. Foreign Policy in a Changed World. everywhere. They control the black market 602° ===== PAGE 27 ===== 603 completely,” says David. “People become president of the Civic Alliance of Serbia. enormously rich.” He adds that the people in Throughout the Bosnian civil war, sanc- the regime “don’t need a good economy, they tions helped the Milosevic government rally need the black market.” support. “It seemed unpatriotic to attack The beneficiaries were Milosevic’s family Milosevic,” explains one American in Bel- and friends, who sent their money abroad, say grade. And now there is “this feeling that he’s opposition activists. This economic elite even defending Yugoslavia against outside pres- used the sanctions to justify that conduct, sure.” Pesic says the sentiment is widespread observes David. that “someone is torturing us. They don’t want Sanctions also concentrated economic to be Western slaves.” Nationalism succeeds power in the hands of the government. Zoran because, as Dragoljub Micunovic, president Djindjic, a leading opposition figure, explains of the Democratic Center Party, observes, that “sanctions lead to centralization of the “unfortunately, we are not dealing with any management of the economy.” That obviously kind of rational elements.” strengthens the state. Central control re- Having recently been relieved of the burden inforces the people’s dependence on the of Western sanctions, Yugoslavia is no longer regime. And dependence cripples opposition on the economic brink—ten-Dinar notes are activities. Djindjic notes that independent back in circulation, replacing the ten-billion- businesses and professionals have disap- Dinar notes issued during the hyperinflation peared. “Our only support is from people who of the early 1990s. Belgrade has cracked the are independent in their businesses” since door open for a bit of foreign investment, and they are least subject to government pressure, goods are far more plentiful than they were Djindjic says. four or five years ago. Indeed, economic war from the West large- At the same time, democratic currents are ly eliminated the indispensable constituency stirring: opposition leaders led massive for liberalization: “The middle class is com- protests that overturned electoral fraud in pletely destroyed,” says David. “It doesn’t municipal elections in 1996, and a Milosevic exist. Professors at universities, doctors can’t antagonist has won the presidency of the survive.” Brkic goes so far as to argue that Yugoslav Republic of Montenegro. Police are “Milosevic’s path to power was paved with the refusing to serve in Kosovo, and parents are destruction of the middle class.” protesting the stationing of their conscript Thus impoverishing people for the actions sons in that province. A bloody debacle in of their rulers is not just bad moral policy. It Kosovo could spark dramatic change. is also bad politics. Notes Djindjic, sanctions Reimposition of sanctions—Western states “damage the democratic opposition.” As peo- are currently planning to block new invest- ple are made poor they tend to concentrate on ment and revoke landing rights for JAT, trying to survive rather than on promoting Yugoslavia’s national airline—would do more political reform. “All classes of civil society harm to the opposition than to Milosevic. He are ruined,” he says. Djindjic says that his will appeal to Serbian pride by “saying no to party has even had to pay for the gasoline of America, to the outside world,” says Pesic. party members so they can attend meetings, “Now the situation is a bit better,” worries since they can’t afford to do so. Djindjic, “but soon it could get worse.” Finally, and perhaps most important, sanc- Micunovic says new sanctions would “defi- tions have given Milosevic a convenient nitely retard the development of anything scapegoat for the impact of his policies— progressive.” his “continual campaign for a lesser Solutions for Kosovo are hard to come by, Serbia,” as one wag in Kosovo, now under but launching a new economic war on pressure from secessionists, puts it. “Whatev- Yugoslavia is not one of them. Unfortunately, er the problem—health, education, etc.— observes Filip David, “if we are not ready and his response was that it resulted from the capable of changing things here, then no one undeserved sanctions,” explains Vesna Pesic, outside can.” Ol ===== PAGE 28 ===== E FREEMAN Ideas On Liberty Dr. Andrew Ure: Pioneer Free Trader by John Chodes n 1846 England became the first major temperature and greatly advanced the stan- industrial country to end its centuries-old dardization of textiles. protectionist policies against imports from In the 1830s Ure wrote two remarkable other nations. This was a revolutionary move. books, The Philosophy of Manufactures Free trade was much more than an economic (1835) and The Cotton Manufacture of policy. It reflected the philosophy of justice Great Britain (1836). His books drew an and limited government. Breaking down bar- inescapable conclusion: by repealing protec- riers to trade helped break down the barriers tionism, England would become vastly of class and the obstacles to civil liberty. wealthier, benefiting all her citizens and bet- For 85 years free trade reigned as England’s tering relations with her European neighbors national policy, influencing all the commer- and the United States. In contrast, protection- cial nations of the world. Most of the credit ism caused antagonisms that often led to war. for this radical change has gone to Richard Aimed at Britain’s legislators, the books were Cobden, John Bright, and their Anti-Corn filled with charts and data on the industrial Law League based in Manchester. They spent productivity of nations, wages, profits, and nearly a decade of zealous effort smashing more. Also included were blueprints of the those outdated trade obstacles. astonishing new machines that were creating Yet there was a lesser-known advocate of this wealth. Ure’s purpose was to make it as free trade who made an impact: Dr. Andrew easy as possible for Parliament to deregulate Ure (1778-1857), a lonely pioneer who pro- commerce. moted the great advantages of international “Foreign competition should always be per- free trade and its corollary, unregulated inter- mitted, to urge on, like an impelling spring, nal industry. Ure was a medical doctor and a the movements of our own industry,” Ure chemist. He was also a passionate advocate of wrote. “Free trade consists in the entire the factory system and its new steam-driven absence of restrictions of any kind on the machines. This led him to become an impor- export or import of merchandise.” tant inventor. Textile mills needed a constant Protectionism, on the other hand, was “nec- temperature to produce uniform goods, but essarily very complex, being entangled with this was difficult to achieve, and so the quali- numberless springs and counterchecks.” ty of products fluctuated. Ure patented the Encouraging one industry, like wool, he thermostat, which automatically regulated the believed, put the cotton, silk, and linen manu- facturers at a competitive disadvantage. This forced each branch to fight one another in John Chodes is the communications director for the Parliament for government subsidies, regula- Libertarian Party of New York City. tory aid, or higher tariffs. Since human intel- 604 ===== PAGE 29 ===== 605 ligence could never reconcile these opposing The explorer’s compensation was “disgrace, interests by government control, justice poverty and prison.”3 required that trade be left free until that “lib- Before Ure’s time, most European countries erty be proved dangerous to others.”! had erected high trade barriers. In the seven- Free trade benefited working people dra- teenth century, France’s King Louis XIV matically by lowering the cost of consumer wished to aggrandize commerce through products. Ure gave a graphic example. When royal patronage. His minister, Jean Baptiste the tariff on printed calicos was repealed, it Colbert, carried out the policy. Ure described caused a tremendous celebration in Manches- the intent of their self-destructive folly: “Col- ter, the center of the industrial revolution. The bert’s avowed purpose was to render France as two delegates who helped push the repeal bill much mistress of the civilized world in manu- through Parliament were greeted like heroes facturing as he thought her to be in military with a seven-mile long procession and an glory.” To make France independent of other inscribed silver cup. “Repeal enables the con- nations, Colbert subsidized any adventurer sumer to get the articles from thirty to forty who would advance his scheme. Industry percent cheaper and females of the lower flourished first, then withered and died, ranks to clothe themselves in handsome, com- unable to be sustained by the artificial chan- fortable dresses,” Ure wrote. Repeal also nels scooped out by the government. freed business from the espionage of tax col- To show the degree of havoc that Colbert lectors who previously could be bribed to generated, Ure produced statistics revealing steal trade secrets.2 that France, in the half century between 1787 and 1830, had nearly doubled its popula- Arkwright and Columbus: tion but its gross national product remained static. Voluntary Aid vs. State Grants Ure saw that the misguided policy of pro- Ure greatly admired Richard Arkwright, tection created a natural antidote: smuggling. one of the major early innovators of the indus- “Governments may, indeed, enact absurd trial revolution. His “water frame” spinning laws, but they cannot compel mankind to jenny, patented in 1769, was a big step toward obey them,” he wrote. “The smuggler the mass production of textiles. Ure saw becomes the corrector of faulty legislation, Arkwright as a revolutionary, another Isaac and the vindicator of human rights.”s Newton. Switzerland, the only other free-trade coun- To demonstrate the advantages of the free try in Europe, verified this principle by reap- market over government subsidy, Ure point- ing the benefits through a black-market policy ed to Arkwright’s struggle to invent the by which her people received goods cheaply water frame and Christopher Columbus’s and then “smuggled them with advantage into begging for funds from the Spanish throne. the territories of her neighbors.””6 “It required a man of Napoleonic nerve and ambition,” Ure wrote, to overcome the irreg- Protectionists Falsely ular work habits of the early mill hands and Charge Business the “prejudice, passion and envy” of his g rivals. Ure added that “with the cooperation In the nineteenth century the factories were of two or three spirited citizens, he [Ark- condemned as “satanic mills.” The outside wright] advanced with unfaltering energy world was informed that the workers labored toward his object, living in affluence and under dangerous, inhuman conditions and dying in honor.” Arkwright, concluded Ure, contracted fatal diseases. Mostly this is false. “has forever affixed his name to a great era It was the propaganda of threatened aristo- in the annals of mankind.” Columbus, on the crats, who used any tactic, fair or foul, to other hand, wasted years pleading with thwart free-trade legislation. Ure focused on kings before obtaining only paltry equip- the reason for their falsehoods when he said ment for his heroic expedition, Ure said. that the hatred of factories proceeded “more ===== PAGE 30 ===== 606 THE FREEMAN e OCTOBER 1998 from the envy of one ancient and powerful The commission alleged that children were order of the Commonwealth [the aristocrats] beaten by the factory supervisors or owners as toward another suddenly grown into political they worked at the “Slubbing Billy,” a importance [the industrialists].”” machine used in wool mills to reduce rolls of The famous Sadler Commission was the wool into a continuous cord. The children main source of the fabrications. It conducted were called “pieceners” because they pieced hearings in London in 1832 and produced 600 together the porous rolls. Ure pointed out that pages of damning testimony against the cot- the pieceners did not work for the factories ton-mill owners. The data was used by Parlia- but rather for independent contractors called ment to enact the first major industrial regula- “slubbers,” or overseers. Moreover, the slub- tions, which later led to the nationalization of bers were often the fathers of the pieceners. some British industries. Later, the pieceners’ work was automated, Ure was one of the few who had the eliminating the need for the children and courage and insight to see the consequences hence the potential for abuse.!0 of the Sadler Commission and publicly state The commission claimed that the owners that the charges were lies. “Of 89 witnesses, employed mostly children in the “dangerous, only 3 came from Manchester, although it is disease-ridden” factories; again the charge was the largest manufacturing town . . . . [O]ne an attempt to promote legislation to control pri- was a convicted rapist. [Another] would not vate enterprise. And once again, Ure shattered take the oath.” When the regulatory bills were the charge. Using data from an impartial study debated in Parliament, Ure called them “wor- of 43 major cotton mills in Manchester, he thy of the darkest ages.”® demonstrated that children constituted an Countering the Sadler Commissions insignificant portion of the work force. Only charge of widespread disease among mill 1.7 percent of mill workers were between 9 and employees, Ure reproduced a letter by E. Car- 10 years old; 3.2 percent were 10 to 12. Togeth- butt, the physician to the Royal Manchester er this represented a small percent of all those Infirmary, which stated that most of the doc- employed. As automation increased, these tors who testified before the commission had numbers declined further.!! neither been inside a mill nor examined a fac- Andrew Ure performed a great service for tory worker. The doctors attributed scrofula his countrymen. Though his accomplishments (tuberculosis of the lymph nodes) and cholera have been widely ignored, it should be noted epidemics to industrial labor. But this was that one German exile in nineteenth-century untrue. Because of the controlled environ- London found Ure’s work utterly distasteful. ment of the factories, Carbutt wrote, “the mill None other than Karl Marx chided Ure for his workers enjoyed a remarkable immunity.” “apotheosis of large-scale industry.” [J 1. Andrew Ure, The Philosophy of Manufactures (London: . o Charles Knight, 1835), p. 446. Misleading Charges of 2. Andrew Ure, The Cotton Manufacture of Great Britain 3 Charles Knight, 1836), p. xvi. Child-Labor Abuse Od reg OP Lo . 4. The Philosophy of Manufactures, p. 459. The Sadler Commission concentrated its 5. Ibid., p. 449. : : : 6. The Cotton Manufacture of Great Britain, p. xxi. attention on child labor, knowing that the 7. The Philosophy of Mansfectures. p. 6. charge of abuse by ‘heartless capitalists 8. Ibid., pp. 291, 297. : 9. Quoted in ibid., p. 376. would provoke such a public outrage that 10. Ibid. p. 179. restrictive legislation would be easier to pass. 11. Ibid., p. 307. ===== PAGE 31 ===== FREEMAN deas On (ideas On Liberty) Whose Kids Are They? by David Boaz ereading The Twelve-Year Sentence a have simply changed the particular morality Re entny after it was first pub- they seek to impose on impressionable young lished is an interesting experience. By many minds. In the mid-1990s, one of the latest measures it would seem that the time is even educational innovations is to require “com- more ripe to discuss the problems with com- munity service” for high school graduation. pulsory schooling. Not a week goes by with- (The advocates have learned to avoid the out another report on the declining or inade- Orwellian term “mandatory volunteerism.”) quate quality of the government schools. Polls So the compulsion is compounded; not only show that public dissatisfaction continues to are children forced to attend school, ostensi- grow. Even as the schools fail to teach chil- bly in order to prepare themselves for the dren reading, writing, and arithmetic, they are adult world, now they are forced to labor on expanding their warrant into new areas. behalf of others. Education theorists explain that we can no The compulsion is also compounded in the longer teach morality in the government 1990s as a result of teachers’ apparent inabil- schools because not all Americans hold the ity to make their classes interesting. In the era same moral values. Fair enough. But this of the therapeutic state, when children—espe- turns out to be mere cover for a very different cially young boys—are bored and restless in position: that the schools shouldn’t teach #ra- class, the solution is to declare them victims ditional morality, that is, the values of patrio- of attention-deficit disorder (ADD) and drug tism, free enterprise, sexual restraint, and them with Ritalin. It makes me think there especially traditional religion. In fact, today’s may be a great deal of wisdom in the words of schools—especially in large metropolitan an experienced teacher profiled on television: areas and university towns—vigorously push “We don’t need to get kids ready for school, such politically charged moral values as anti- we need to get schools ready for kids.” business environmentalism, welfare statism, multiculturalism, anti-racism, anti-sexism, Agitation for Change safe sex,” victimology, and faith in big gov- ernment. The schools have not in fact become In response to many of these problems, value-neutral, as bad as that would be; they much agitation for educational change has -_ arisen. Parents in many cities and states have David Boaz is executive vice president of the Cato demanded the right to send their children to Institute and author of Libertarianism: A Primer any school, government or independent, that (Free Press). This article is adapted from his fore- . . word to the new edition of The Twelve-Year Sen- they choose, without having to pay extra for tence: Radical Views of Compulsory Schooling edi- non-government education. A handful of leg- ed by William F. Rickenbacker (Fox and Wilkes). islatures have responded with “voucher,” or 607 ===== PAGE 32 ===== 608 THE FREEMAN e OCTOBER 1998 “school choice,” programs, and more are like- must do more than criticize the existing sys- ly to do so in the near future. Other activists tem and offer policy reforms. They must have tried to create more diversity within the exhort parents to exercise their responsibility government school system, with charter for their children’s well-being. It can’t be schools, magnet schools, and “public-school enough to send one’s children to school, or choice.” For-profit companies have undertaken even to move to a suburb with a reputation for to run some government schools. An uncertain good schools. Parents need to investigate number of children—perhaps as many as a whether the local schools are adequately million—are being educated outside of any preparing children for adulthood and are well formal school, as “homeschooling” has caught suited to their children’s particular needs, and the imagination of hundreds of thousands of then consider other options if necessary. parents. A movement has even arisen to make Along with “talk to your children about education as independent of government as drugs,” we need public-service campaigns religion is. Sheldon Richman published Sepa- urging parents: “talk to your children about rating School and State: How to Liberate their schools; are they learning anything?” America’s Families in 1994, and about that time (but independently) the Separation of School and State Alliance was created. But a few problems confront the enthusiast The papers in The Twelve-Year Sentence for educational freedom. First, despite all the were prepared in 1972 and published in 1974, agitation for reform, the government school at the end of a heady decade of political and system goes merrily on its way, collecting cultural turmoil. The prospects for radical more tax dollars every year even in the face of change, even in such a pillar of the welfare swelling criticism. Second, few education state as compulsory schooling, must have reformers even think of challenging some- seemed very real at the time. Today, in an era thing as fundamental as compulsory school- of peace and prosperity, radical change seems ing laws. To school critics of 25 years ago, unlikely. But events have a way of surprising today’s reforms would seem like rearranging us, and economic and cultural changes often deck chairs on the Titanic. Third, and most swamp mere politics. The globalization of the disconcertingly, despite all the concerns about economy has forced new efficiencies on most declining quality and moral values in the gov- of our industries, and it may yet demand that ernment schools, they continue to enroll American workers and entrepreneurs find a about 88 percent of American children, with decent education one way or another. Technol- about 11 percent attending private schools ogy is revolutionizing every form of informa- and 1 percent being homeschooled. tion transfer except schooling (and of course Given everything we have heard about the the U.S. Postal Service), and it’s likely that the quality of government schools, why do the schools won’t be impervious to change forev- overwhelming majority of parents continue to er. In Schools Out: Hyperlearning, the New send their children to them? Yes, it’s true that Technology, and the End of Education, Lewis polls show most people think the nation’s J. Perelman suggests that trying to improve the schools are bad, but their own are pretty good. government school system in the 1990s is like - (But why do they think that?) And yes, people a great national effort to improve horses in the who are taxed to pay for a “free” service have 1890s: it completely misses the revolutionary less money available to purchase the service changes that are going to make schools obso- elsewhere. Even so, people who care about lete in the near future. their children’s education ought to be inclined Still, there are important philosophical to sacrifice for it. Instead, the percentage of issues at stake in the debate over compulsory parents using private schools has remained schooling that should not be simply ignored virtually stable for 30 years. as technology and economic change make the It seems that advocates of educational free- laws increasingly irrelevant. There have dom—and indeed advocates of education— always been those who regarded children as Prospects for Radical Change ===== PAGE 33 ===== The Foundation for Economic Education Irvington-on-Hudson, New York 10533 Tel. (914) 591-7230 Fax (914) 591-8910 E-mail: freeman @fee.org October 1998 Why Honorable People Avoid Politics upporters of campaign-finance ment’s coercive power to achieve for inter- Geom” mening supporters of est groups what these groups cannot or will greater government financing and cen- | not achieve peacefully on the market. A tral planning of electoral campaigns—rou- politician seeking office gets his funds by tinely lament the fact that politicos must begging no more than an accountant or an raise large sums of money to run for office. architect gets his funds by begging. Like the This requirement not only risks making accountant and architect, the politician elected officials indebted to the interest offers a quid pro quo in exchange for cam- groups that fund their campaigns, but it paign contributions. The difference, of also is said to dissuade honorable people course, is that the quid pro quo supplied by from pursuing political office. Even George | the accountant or architect—unlike that Melloan of the Wall Street Journal wrote (in supplied by most politicians—isn’t a the August 4, 1998, edition of that newspa- promise to reduce the liberties or confiscate per) that “[s]ome very capable persons who | the wealth of innocent third parties. would make admirable public servants are Third, and very importantly, raising turned off by this requirement” to “spend a funds is commonplace in reality and not (as great deal of time with begging bowl in proponents of campaign-finance “reform” hand.” insinuate) unique to electoral politics. As Melloan is wrong. FEE’s president, I raise funds by convincing First and least importantly, describing contributors that monies given to FEE will politicians as public servants is inaccurate. be used wisely to promote a free society. Does anyone really believe that the typical The same is true for fund-raisers at the Cato politician seeks office, not to enjoy the fame Institute, the Reason Foundation, and other and career opportunities afforded by elect- free-market organizations. The president of ed office, but mainly to help the public? General Motors raises funds whenever his Call me cynical, but I rank such a belief on firm borrows money, issues new stock, or an intellectual par with belief in levitating sells any of its automobiles. Banks raise swamis and in messages sent from the funds by offering attractive interest rates to beyond by Princess Di. depositors. Novell raises funds by develop- Second, politicians don’t beg for money; ing and selling software. they sell a service—namely, use of govern- In a very real way, the entire commercial ===== PAGE 34 ===== society is one immense fund-raising enter- suaded from pursuing political office prise. The particular means of fund raising because of the need to raise campaign differ from enterprise to enterprise, just as funds. Again, honorable people raise funds the specific purposes for which these funds all the time. More likely, honorable people are raised differ from enterprise to enter- steer clear of politics for the following two prise. But everyone who makes a living in reasons. The first is that honorable people the market must persuade others voluntari- | have no taste for minding other people’s ly to part with some of their money. business or for living off of the fruits of Politicians, however, don’t make their other people’s earnings. Nor do honorable livings in the market. They are in the coer- people enjoy the kinds of public attention cion business and, as such, are unaccus- given to politicians. tomed to the voluntary nature of peaceful H.L. Mencken was exactly correct when market relationships. Their salaries are paid he observed that “[t]he typical politician is out of funds forcibly extracted from taxpay- | not only a rascal but also a jackass, so he ers, and their careers are spent drafting and greatly values the puerile notoriety and debating prospective statutes that diminish adulation that sensible men try to avoid.” the freedoms of innocent people. The second reason that honorable people In general, the kinds of men and women avoid politics is that they could not stomach attracted to politics are precisely the kinds having to utter all that politicians must of men and women who disdain the reci- utter to win office. Judging from modern procities required for success in the market. American practice, successful pursuit and Market relationships are inherently co- maintenance of political office require the equal: Because I can buy my car from utterance of an unending stream of state- Toyota or Ford, General Motors has no ments that are silly, vapid, or false. No hon- power over me. When I walk into an auto- orable man or woman would say to an mobile dealership (or a supermarket, or a audience of millions “I feel your pain” or “I department store, or a restaurant, or abank, | didn’tinhale” or any of the countless other or a brokerage firm, or a hardware store, or lunacies that spew daily from the mouths of any private firm that enjoys no government politicians of every party. privileges) I walk into an establishment that Honorable people value their reputations has no power to coerce me. The conse- and their integrity too highly to sacrifice quence is that the owners of that establish- these for the dubious distinction of elected ment treat me with respect, for if they don’t, | office. Again, Mencken saw matters clearly. I spend my money elsewhere. In contrast, I have no real choice but to He is willing to embrace any issue, however obey whatever commands are dictated to idiotic, that will get him votes, and he is me by politicians. Any class of people willing to sacrifice any principle, however accustomed to issuing commands that are sound, that will lose them for him. I do not enforced with threats of coercion is a class describe the democratic politician at his inor- of people who regard as degrading any dinate worst; I describe him as he is encoun- need on their part to resort to persuasion tered in the full sunshine of normalcy. rather than force as a means of getting what they want. Honorable people avoid political careers The need to raise campaign funds is one not because of the need to raise funds. of the few areas of a politician's life where Rather, honorable people avoid politics he must actually persuade others voluntarily | because they are revolted by the prospect of to give to him; he cannot (yet) steal these behaving indecently. funds. Is it any wonder, then, that many in the political class are attempting to use gov- Om75 ernment to spare them the necessity of rdieof hawking for campaign funds? I am, therefore, unpersuaded by the argument that honorable people are dis- Donald J. Boudreaux ===== PAGE 35 ===== MISES SALE his month we feature for sale the works of the great Austrian economist Ludwig von Mises, who died 25 years ago this month. Mises was a relentless advocate of free markets and individual liberty and served as FEE’s economic adviser for many years. Mises was also an impassioned warrior in the fight against socialism. His works belong on the shelves of liberty’s friends. Human Action, 4th ed.—Rose Wilder Lane praised this book as “unquestionably the most powerful product of the human mind in our time, and I believe it will change human life for the better during the coming centuries as pro- foundly as Marxism has changed our lives for the worse in this century.” Mises’s great work, which provides a classic defense of capitalism, discusses the essential character- istic of human action — that it is purposeful — and important economic concepts such as the market, value, and prices. Interest, credit expansion, and trade cycles are addressed, as are taxation and currency manipulation. The Wall Street Journal said this book “ought to be on the bookshelf of every thinking man.” Why not add it to yours? 906 pages, cloth $4995 Sale: $24.95 — save 50%! Deluxe leather $9995 Sale: $49.95 — save 50%! Socialism—A fatal shot across socialism’s bow. Originally written in 1922, revised edi- tion 1981, this work makes the definitive case that socialism cannot succeed. An essen- tial work for anyone interested in the history of liberalism, in defending the market economy, or in understanding why twentieth-century socialist governments collapsed. Highly recommended. 591 pages, paper $1495 Sale: $8.95 Liberalism—FEE President Dr. Don Boudreaux says this is “truly a great book.” Liberalism explores in depth the nature and benefits of the classical-liberal policy of strictly limited government, in both domestic and foreign arenas. The following is an excerpt: [A]s soon as we surrender the principle that the state should not interfere in any questions touching on the individual's mode of life, we end by regulating and restricting the latter down to the smallest detail. A superb companion to Henry Hazlitt’s Foundations of Morality. 227 pages, paper $3495 Sale: $6.95 Critique of Interventionism—Throughout these six essays Mises argues for the superi- ority of a deregulated, decentralized private-property order over a command-and-con- trol economy. This heroic, groundbreaking work warns that “middle-of-the-road” interventionist/ regulatory policies inevitably lead to socialism. 132 pages, paper $1295 Sale: $6.95 The Anti-Capitalistic Mentality—Why are so many people, from businessmen/women to intellectuals hostile to capitalism? In this accessible work, Mises explains why those who gain most from the free market often want to kill the goose that laid the golden egg. A penetrating look at the mindset of statists. 96 pages, paper $895 Sale: $6.95 Sale ends October 31, 1998 Postage and Handling: Please add $3.00 per order of $25.00 or less; $4.00 per order of $25.00 to $50.00; $5.00 per order of more than $50.00. Send your order, with a check or money order to FEE, 30 South Broadway, Irvington-on-Hudson, NYY 10533. Credit card telephone orders — $10.00 minimum please — (Visa and Mastercard only) or fax orders are welcomed. Please call 800-452-3518, or fax us at 914-591-8910. ===== PAGE 36 ===== Handsome New Paperback Edition! THE CLASSIC BLUEPRINT FOR A JUST SOCIETY HE LAW BY FREDERIC BASTIAT New Introduction by WALTER E. WILLIAMS Foreword by SHELDON RICHMAN “Phenomenal! An amazing and timeless treatment of the cost of using government to solve problems.” — Russell Roberts, author of The Choice Published in the last year of his brief, embattled life, THE L4w is Bastiat’s most famous work—and justly so. A masterpiece of style, brevity and common sense, THE LAW concisely presents the classic moral case for liberty and limited government. With persuasive power and enduring impact, it ranks with the great essays of John Stuart Mill and Thomas Paine. For more than a century, THE Law has been changing the thinking of thousands about the relationship of man and state. Here again is Frederic Bastiat’s ringing challenge to the dominant political forces of his day. And our own. FREDERIC BASTIAT (1801-1850) was a French economist, statesman and writer. His uncompromising defenses of free trade, the market economy and individual liberty pitted him against politicians both right and left. His writings include Economic Sophisms, which championed free trade, Economic Harmonies, a treatise on economic principles, plus a host of essays, including “The State,” and “What Is Seen and What Is Not Seen.” To this day, his witty aphorisms and incisive arguments are quoted by public figures, speakers, and writers everywhere. Single copy: $2.95 4 copies for $10.00 96 pages with index, paperback (quantity discounts available) Hardcover edition: $12.95 Please send check or money order to: FEE, 30 South Broadway, Irvington-on-Hudson, NY 10533 (Add $3.00 for postage) Visa and MasterCard orders ($10.00 minimum, please): 1-800-452-3518 (Also available from FEE: Bastiat’s Economic Sophisms and Economic Harmonies) ===== PAGE 37 ===== WHOSE KIDS ARE THEY? 609 collective property, to be shaped and molded the same rights as adults. So for the purposes according to the state’s needs. Benjamin of our discussion here, there are some crucial Rush, a signer of the Declaration of Indepen- questions to be answered. Do children have dence, is often quoted in this regard: “Let our the right to decide whether to go to school? At pupil be taught that he does not belong to what age? If they have such a right, should it himself, but that he is public property. Let him require a positive check-off—that is, children be taught to love his family, but let him be go to school unless they assert their right not taught at the same time that he must forsake to? And, conversely, do children have a right and even forget them when the welfare of his to be educated? If so, against whom is that country requires it” German thinkers from right directed? Their parents? The state? And Luther to Fichte to the Prussian monarchs how much education are they entitled to? developed a theory and practice of compulso- A good philosophical case against compul- ry government schooling to serve the state. sory education must rest on answers to such Horace Mann and other architects of the questions. Of course, many educational liber- American compulsory-schooling system were tarians would point out that a good utilitarian admirers of the Prussian approach. case against compulsory schooling can be Today one rarely hears educators being as constructed without developing a full philo- blunt as Rush, but his theme is still there. In sophical case. E. G. West has demonstrated, 1981 William H. Seawell, a professor of edu- here and elsewhere, that before public school- cation at the University of Virginia, told a ing almost all children in Great Britain and the crowd that “public schools promote civic United States were being educated, and surely rather than individual pursuits” and that “each there is a presumption against state action child belongs to the state.” A Michigan school when the need hasn’t been proved. H. George district more recently objected to a child's Resch would point to the difficulty of design- being allowed to “escape” from his own dis- ing an adequate one-size-fits-all education for trict and attend a government school in a myriad diverse children. Joel Spring would neighboring district. argue that state education will necessarily And the will to power involved in the com- serve the state and its ruling elites. Economists bination of compulsory schooling and gov- would point out the dismal record of monopo- ernment-run schools may have been summed lies and captive customers compared with up by Winnie Mandela, campaigning in 1994 competitive markets and consumers who are in South Africa’s first all-races election. She free to choose. Many educational critics would promised “free and compulsory education” agree that, theory aside, in practice compulso- for all, then added, “Parents not sending their ry schooling has by no means produced uni- children to school will be the first prisoners of versal education. A very practical argument the ANC [African National Congress] gov- against compulsory schooling for teenagers ernment.” That would be a party-state that has been raised recently by the sociologist took indoctrination seriously. Jackson Toby: keeping in school students who don’t want to be there often leads to disruption Needed: A Theory of and even violence, creating an atmosphere in . '. Ii which even the diligent students find it diffi- Children’s Rights cult to learn. Educational libertarians can easily reject But perhaps the best argument against the claim that “each child belongs to the compulsory schooling is the one raised by state.” But neither libertarianism nor any Isabel Paterson in The God of the Machine, in other political philosophy seems to have a the form of a question to educators who sup- well-thought-out theory of children’s rights. port compulsion: “Do you think nobody Few would argue that children have no rights, would willingly entrust his children to you or that they can be ignored or abused at will by pay you for teaching them? Why do you have their parents or by any other party. But on the to extort your fees and collect your pupils by other hand few would argue that children have compulsion?” ===== PAGE 38 ===== Peripatetics by Sheldon Richman The Seen and Unseen in Gun Control he heinous shootings by young people at hurricane or earthquake. Five’ll get you ten public schools around the country have that someone will herald the silver lining: predictably renewed calls for more gun con- reconstruction projects. trol. Advocates of gun bans commit a classic If we look at only obvious, primary conse- fallacy that is usually associated with eco- quences, we will badly misjudge circum- nomic policy. But it fully applies to all gov- stances and any resulting policy will be bad. ernment policy, including gun control. That is one problem with gun control. In the nineteenth century, the French econ- omist Frederic Bastiat explained that in Unseen Gun Sales order to understand the consequences of a policy, you must consider both “what is seen Advocates of gun bans react to a shooting and what is unseen.” This was also the “one by saying that if the assailant had had no lesson” taught by Bastiat’s intellectual access to firearms, that shooting could not descendant, Henry Hazlitt, in his famous have occurred. Of course, that is true: the book Economics in One Lesson. Hazlitt shooting required a gun. But this proves identified the “persistent tendency of men to much less than the controllers think. It does- see only the immediate effects of a given n’t mean that had the killer not been able to policy, or its effects only on a special group, get a gun legally, he couldn’t have gotten one and to neglect to inquire what the long- at all. Fans of the Brady law, which requires a run effects of that policy will be not only waiting period and background check for gun on that special group but on all groups. It buyers, rejoice that tens of thousands of peo- is the fallacy of overlooking secondary ple have had gun applications turned down. consequences.” (Most were not violent criminals.) But that’s The famous case of neglecting the unseen, not the end of the story. Will a thug who is of course, is the broken shop window. turned away from a gun shop give up so eas- Observers are likely to notice that a glass ily? Or is he apt to go into the black market maker will have new income to spend. They to buy a firearm? Worse, might he not break miss that had the glass not been broken, the into a gun shop or someone’s home to steal owner of the window could have spent his a gun? money to better his situation rather than mere- Gun control runs aground on this simple ly to restore it. That’s the unseen. fact: people who would use guns to break If you think this is a seldom-committed fal- laws would also break laws to use guns. lacy, just read the newspaper after the next The controllers see the turn-down at the gun counter. They don’t see, and therefore they don’t take account of, the alternative Sheldon Richman is editor of The Freeman. methods of acquiring firearms. 610 ===== PAGE 39 ===== 611 Unseen Victims Thus, more may die at the hands of criminals than do today. The failure to look for the unseen does not We can demonstrate this negatively with a stop there. After each mass shooting, we hear real incident. Some years ago, George Hen- recited the statistics on how many people are nard, Jr., walked into Luby’s Cafeteria in murdered by gunshot each year. The implica- Killeen, Texas, and opened fire, killing 23 tion is that without guns, the total murder rate patrons and wounding 28 others. Suzanne would be reduced by that number. We are also Gratia Hupp was having lunch there with her reminded of how many accidental shootings parents and saw them murdered. It so happens occur (the firearms accident rate, however, that this woman usually carried a handgun in has been falling), and are led to believe that if her purse (which at the time was illegal to do). legal gun possession were severely restricted, But on this day, fearing revocation of a recent- fewer people would die each year from gun- ly received occupational license, she left the shots. Not true. gun in her car when she and her parents went To be sure, some people who were killed into the cafeteria. She is convinced that if she might be alive today. But some who were not had taken the gun with her, she would have killed might have been. How so? It might stopped the shooter. Her parents, and others, come as a surprise, because it gets no public- might have been spared. They can be counted ity, but people use guns defensively (often among the victims of gun control. without firing them) two and a half million There is still another kind of “unseen” in times each year. As John Lott of the Universi- the issue of gun control. A majority of states ty of Chicago Law School points out, this has now legalized the concealed carry of number includes incidents in which mass handguns for citizens who satisfy a few objec- shootings are prevented or curtailed and in tive criteria. Formerly, local authorities had which mothers thwart car-jackings when their wide discretion in granting such. permits. children are in the cars. Where concealed carry is allowed, it is the Writes Lott in the July/August 1998 issue criminals who are plagued by the unseen. of The American Enterprise: “On the surface, They can’t know who has a gun and who [school shootings] seem to present a strong doesn’t. This creates a free-rider problem— argument for restricting private gun owner- for the thugs. People who choose not to carry ship. But the truth is, guns wielded by private firearms nevertheless benefit from the fact citizens have saved lives in such incidents, that others may and do carry them. Criminals including some of the recent ones.” He don’t typically like to attack dangerous tar- reminds us that the shooting spree at a Pearl, gets. Since criminals can’t know in advance Mississippi, school earlier this year might who’s carrying and who isn’t carrying a gun, have taken more victims had an assistant they have to assume anyone might be—if not principal not retrieved a gun from his car and the potential victim, then someone nearby. used it to hold the student assailant until the That’s how to create safety on the streets. police appeared. A similar thing happened to A world without any guns would not be safer end the student shooting incident at Edin- than one in which lawful people were free to boro, Pennsylvania. own them. Without guns, bigger, stronger The deaths that do not occur because lawful thugs would have an advantage over smaller, people have guns cannot be seen and there- weaker victims. Women, especially, would suf- fore are not entered in the plus column of the fer. In that world, the unseen would be the vic- ledger. If guns are banned, lawful people, not tims of fatal beatings and stabbings who would criminals, will be denied a key method of have remained alive had they possessed using force—in defense of self and others. firearms with which to defend themselves. [J ===== PAGE 40 ===== FREEMAN deas On Libert The Fine Art of Conservation by Bernie Jackson magine being a fly on the wall in an upscale where he pitches his latest acquisition onto auction house. You witness a parade of the assembly line. In no time flat, the paint is unique, priceless merchandise—items whose stripped from the canvas, which becomes 2.7 value cannot be explained by material useful- pairs of shoes. ness alone. Their value arises from some com- Absurd? Impossible? Ridiculous? You bination of aesthetics, historical importance, would think so; but fear of exactly that sce- pride of ownership, and a sense that they nario is what drives governments all over the should be preserved for all to see. You might world to write regulations that attempt to con- think such exquisite items must be rationed serve natural resources. with care, lest they fall into unappreciative Imagine being a fly on the wall (or on the hands. Yet, auction houses merely sell to the tree) as a precious tract of beautiful, ecologi- highest bidder. cally valuable forest is put up for sale. This You watch as the bidding begins for an land’s true value is tremendous, far beyond its original Picasso. The room is packed, and the material usefulness. Its value arises from bids flow quickly. As the price begins to stabi- some combination of aesthetics, historical lize, a new bidder joins in. Gradually the oth- importance, pride of ownership, a sense that it ers recognize him, and you see their shocked should be preserved for all to see, and—of expressions as his identity registers. He is the course—the overriding need to conserve a notorious Mr. Big, a top executive for a giant healthy environment for future generations. multinational shoe company. As usual, he is All over the world, the biggest fear of govern- here looking for canvas, an important ingredi- ment regulators and conventional environ- ent for many models of his company’s shoes. mentalists is that precious ecological assets With corporate resources at his disposal, might be sold to the highest bidder, who will Mr. Big easily pushes the price beyond the lay them to waste. For some reason, such fear other participants’ means. The others team up, is not widely considered absurd, impossible, pooling their resources to protect their or ridiculous. beloved relic, but Mr. Big’s pockets are too deep. When the final gavel falls, the greedy executive makes off with the artwork, which to his perverted mind is nothing more than a In most areas of life, we rely on a market patch of useful canvas covered by some force called the “price mechanism” to allocate annoying paint. He returns to his factory, resources. Any raw material or commodity has several uses for which it is uniquely suit- Bernie Jackson is an electrical engineer and free- ed, as well as countless incidental uses that lance writer from California. could just as easily accommodate other mate- 612 The Price Mechanism ===== PAGE 41 ===== 613 rials instead. By selling materials on an open “market failure,” caused by something funda- market to the highest bidder, we can rest mentally different about ecological values? assured that each material will tend to be allo- We have already noted the sources of value cated to those parties who appreciate it most. for artistic commodities: a combination of The party willing to outbid all others tends to aesthetics, historical importance, pride of be the party that most understands and values ownership, and the desire to preserve them for that matenal’s unique qualities. future generations. All of these sources of In the case of fine art, aficionados (and their value are also present in ecological assets. imitators) are the only group willing to pay Plus, a healthy ecology is vital to life itself! dearly for paint-covered canvas. There are That certainly ought to add some value. plenty of incidental uses for fine artwork: the There is one important difference, though. canvas might be made into shoes, sails, or Unlike most commodities, ecological assets luggage; the paint might be reclaimed for oil- are highly regulated by many of our world’s based products; the wood frame might be governments out of fear that markets will not burned in a fireplace or made into doorstops; allocate them properly. The typical modern and one can imagine countless other appalling nation’s regulatory system allocates precious examples. Perhaps more believably, an unap- forests to those who manage to wheedle a per- preciative buyer might purchase artwork on a mit from the bureaucracy.! These wheedlers whim, only to neglect and mistreat it after los- are granted the right to buy or lease public ing interest. While some misfortunes are land, or use it for free.2 Prices are determined inevitable, it is really quite remarkable that either by fiat or by a sham of a bidding process fine art is routinely conserved for art lovers, restricted to a few players or a single industry.3 without rules and regulations, simply by sell- Perhaps our world’s governments have ing to the highest bidder. caused ecological destruction by stifling the In other areas of life, we see the same amaz- open markets that work so well at allocating ing system at work. Profit-seeking office- our other resources. Logging companies and supply makers do not turn precious gold into industrialists seek the cheapest resources they paper clips. Dollar-hungry car manufacturers can find, whether they are buying canvas, do not strip down antique autos for their parts steel, land, or timber. If loggers had to outbid and materials. Greed-motivated electric com- nature lovers, environmentalists, wildlife panies do not burn libraries of historic docu- foundations, ecological research groups, ments in their generators. There are no regula- hunters, and quirky billionaires, they would tions preventing these tragedies from occur- quickly give up on such ecological gems as ring, yet capitalists concerned only with the “old growth” forests, turning instead to less bottom line routinely steer clear of them. critical lands, renewable tree farming, syn- Are these corporate profiteers motivated by thetic materials, and currently unforeseeable a transcendent respect for beauty and rarity? innovations. If so, why wouldn't they approach ecological Unfortunately, the majority of citizens assets the same way? If not, then their alleged seem to take for granted the price mechanism tunnel vision will not spell destruction for the that functions every day right under their ecology any more than it has for these other noses. Those who fear market forces fre- resources. quently object that the rich industrialist will always be able to defeat the price mecha- Are Ecological Assets Different? nism’s laissez-faire allocation strategy; with his deep pockets, he can outbid anyone on any Notwithstanding all of this, we constantly resource. But the question is: why would he hear tales of modern industrialists devouring want to? priceless ecological assets for profit all over Remember the opening scenario. Even the world. How can this be, if the price mech- though Mr. Big could afford to buy that Picas- anism is so effective at conserving and allo- so and turn it into 2.7 pairs of shoes, we cating everything else? Is this an example of would be astonished if he actually did so. The ===== PAGE 42 ===== 614 THE FREEMAN ee OCTOBER 1998 more “greedy” we imagine Mr. Big to be, the use that money for something else. less we need to worry that he will blow money In addition, I did not need a room full of on such an inflated commodity. competitive bidders to keep the “Dick and Our species and our planet would be far bet- Jane” reader away from me. The seller only ter off if our ecological assets were sold on an needed to know that collectors were willing to open market—to the highest bidder, period. pay far more than the few dollars I would have offered; knowing that, he could hold out for Taking It Personally the ‘higher price. Similarly, in the case of eco- ogical conservation, there need not be a On a vacation to the California beach town widely attended public auction every time a of Cambria some time ago, I encountered the parcel of land is sold. In fact, an auction may price mechanism in a particularly striking be counterproductive, since the ecological form. While browsing the shelves of a used values of those not present will not be reflect- book store, I found a dingy old school text. It ed in the price. When environmental regula- was in reasonably good shape, though dog- tions allocate precious land to predetermined eared, yellowed, and dusty. By all physical commercial uses, inviting select parties to appearances, it should have cost a few dollars. participate in “competitive bidding,” it is not It was a reading book for grade school from a case of market failure. It is market sabotage. several decades ago. Being curious about the For the sake of our species and our descen- history of public education, I was intrigued dants, we ought to remove our ecological and decided to buy it. Unfortunately, the price resources from governmental stewardship. turned out to be a bit more than I had expect- Let each individual seller research his market ed. The storeowner explained that it was a and hold out for a buyer willing to pay dearly. classic “Dick and Jane” primer, a collectors When selling a precious old-growth forest, item worth nearly $100! I decided it was not leave the unregulated seller free to turn away worth $100 to satisfy my idle curiosity. the industrialist, the logger, and the home- Society should be glad that I did not buy builder, who will be happy with cheaper and that book. In my possession, it would have less remarkable tracts of land. Let him hold gathered dust in my closet or been carelessly out for the nature lovers, environmentalists, mistreated. Instead, it will go to someone hunters, quirky billionaires, wildlife founda- willing to pay its high price: someone who tions, and ecological research groups. They will treasure it, share it with other enthusiasts, are uniquely qualified to conserve the land (or and preserve that bit of history for future gen- to hire those who are), and uniquely motivat- erations. The most remarkable part of this ed to raise serious money for its purchase. [] story, though, is not merely that the price mechanism peacefully prohibited me from _ | ion lo Blutorint Gone Serve. 7 Annua: Report, owning an item I was not qualified to care for. Publics,” under the heading “Provide Opportunities for Environmen- More impressive is that this happened at a re]- !2l¥ Responsible Commercial Activities,” states: “The public lands A . . provide myriad opportunities for commercial activities. . . . Cur- atively low price and without a full-blown rently, BLM administers about 46,000 oil and gas leases, of which auction. 19,650 are producing or producible leases. During the fiscal year, the A Bureau processed 2,795 oil and gas applications for permit to drill. I easily could have afforded to pay $100 for ... The number of active mining claims, down in past years, has : stabilized at about 300,000.” that book. After all, T was on a vacation, 2. According to the BLM (ibid.), “Every year thousands of com- already paying for a few days of food and panies apply to the BLM to obtain right-of-way grants to use public : : lands for roads, pipelines, transmission lines, and communications lodging, gasoline, and even several hundred sites. . . . As of the end of FY 1997, the BLM administered 77,643 dollars for a painting at a local art gallery. rights-of-way grants for electrical transmission lines, communication Like Mr. Big. I had the cash to buy the col- sites, oil and gas pipelines, and other facilities nationwide and was , N g . . y processing 6,148 right-of-way actions.” } lector’s item before me. I just didn’t want to. 3. US.C., Title 43, Section 1713d says, “Sales of public lands mmoditi shall be made at a price not less than their fair market value as deter- To keep Scarce co odities away from those mined by the Secretary.” But in practice, the Secretary can only who do not appreciate them, prices need not assess this “fair market value” after arbitrarily allocating the land to : : a specific legally authorized use and researching prices paid for that be exorbitant. They need only be high enough usage of similar parcels. This defeats the price mechanism, in which that the unappreciative buyer would rather price-setting and allocation are synergistically intertwined. ===== PAGE 43 ===== FREEMAN deas On (ideas On Liberty) Sizing Up Downsizing by Christopher Lee ritics of voluntary cooperation through term “executioners” to describe corporate free markets typically describe one job-cutters.’ aspect of its wealth-creating dynamic as But the term “downsizing” is grossly mis- “downsizing.” They allege that such adjust- leading. More important, the social and eco- ments are, on balance, harmful. nomic adjustments so described provide The news media, as well as explicit market tremendous net benefits. opponents, use “downsizing” to describe the There is an eerie Orwellian flavor to the alleged loss of millions of jobs that have been term “downsizing” that has much more to do sacrificed on the altar of corporate greed. with propaganda than truth. Observe, for According to National Public Radio, the example, that the Amazon Rain Forest is char- 1980s and 1990s witnessed “massive layoffs” acterized by tremendous amounts of water by corporations that pursued short-term prof- evaporation. Indeed, it may be unrivaled in its designed to increase stock values.! The this regard. But it would be seriously mislead- condemnation comes from many quarters, ing to emphasize the evaporation at the even mainstream churches. The Lutheran (the expense of the rain, thereby leaving the incor- publication of the Evangelical Lutheran rect impression that one is describing a desert. Church in America), for example, claimed Bill Gates spends millions of dollars per year. that 43 million jobs were eliminated between Indeed, he may be unrivaled within the Unit- 1979 and 1995—and that economic instabili- ed States in that regard. But it would be seri- ty has destroyed faith in the American dream.2 ously misleading to emphasize the spending The job loss has taken its toll on the at the expense of his wealth creation, thereby incomes, health, and spirit of American citi- leaving the incorrect impression that one is zens, according to the critics and media. Last describing a net consumer. year Reuters reported a Finnish study that One has an ethical duty not to present mis- asserts downsizing harms employee health.3 leading half-truths. (By the way, Tiger Woods Individual self-confidence is supposedly torn has not beaten me in golf for the last three down by the threat of job cuts. Psychologist years.) James Campbell Quick claims that downsiz- ing causes workers to feel mistreated and abandoned. Even Fortune magazine used the The Whole Truth But presenting half-truths is exactly what oo, : ._ critics have been doing. The simple truth is Christopher Lee is associate professor of economics at St. Ambrose University, College of Business, that the free-market economy, on net, creates Davenport, Iowa. He can be reached at clee@ JObS and has done so since its inception. This saunix.sau.edu. has been the case during the 1980s and 1990s, 615 ===== PAGE 44 ===== 616 THE FREEMAN ee OCTOBER 1998 the so-called heyday of downsizing. Even in feel more secure about their jobs. Consumer our hampered economy, more jobs are created confidence numbers reveal a similar picture. than cut. This is an upsizing economy. The Conference Board reported that the According to Federal Reserve data, 1980 December 1997 index of consumer confi- started with total employment at more than dence jumped to 134.5, a 28-year high. 99.8 million. By the beginning of 1985, it had Indeed, consumers should be confident increased to over 106.3 million. On average, because income has generally increased for job creation exceeded job cuts by almost 1.3 all groups of Americans. million jobs each year during the 1980-1985 We are witnessing the continuing restruc- period. By the beginning of 1990, total turing of the American economy in response employment had increased again to over 119 to consumer dollar votes. The downsizing in million. From 1985 to 1990, job creation mature industries is what permits growth exceeded job elimination by an average of industries to acquire workers. If downsizing more than 2.5 million per year. By the begin- had been prohibited, we would still be using ning of 1998 total employment had increased the Pony Express instead of e-mail! again to over 131 million. From 1990 to 1998, Change characterizes free-market economies. job creation exceeded job elimination by an A review of the 1994 Forbes 400 reveals that average of almost 1.5 million jobs per year. opportunity still characterizes the American Over the entire 1980-1998 period, net job cre- economy. Four-fifths of the richest Americans ation was nearly 2 million jobs per year.® The earned rather than inherited their wealth. This economic rain forest is hardly becoming an represented an increase from three-fifths in economic desert! 1984. They earned their wealth in technology, The U.S. experience contrasts sharply with retailing, and finance. Those dropped from the that of the European Union (EU). During the list got their money from inherited wealth, 25-year period ending with 1995, EU coun- real estate, oil and gas, heavy manufacturing, tries added 8.5 million jobs while the United media, and agriculture.!! States added 46 million jobs, even though the While the people on the Forbes list repre- EU has about one-third more people.’ sent spectacular examples of economic suc- Not only has total employment increased, cess, it is also true that the gains have been but the percentage of the population in the spread throughout the American economy. work force (those with jobs or actively seek- This rising tide indeed has lifted all boats. All ing jobs) has increased, rising from 64 percent income groups, including the poor, have in January 1980 to 67.3 percent in January of improved their position over time. 1998.8 The current numbers are all-time records. Who Are the “Poor”? s 10 It is important to remember that the “poor” Loss of Faith? is not a fixed group of individuals. Defining Even though the detractors of the market the poor as those in the bottom 20 percent in economy claim that workers have lost faith in income means that poverty will never be elim- the American dream, many data present a inated. There will always be a lowest 20 per- contrary view. They indicate, for example, cent! But this does not mean that those who that individuals are healthier than ever. were previously the poor are still poor. They According to the Centers for Disease Control have generally moved up to higher incomes, and Prevention, 1996 U.S. life expectancy and their places have been taken in part by was at its all-time high of 76.1 years. Since those who were previously in higher income life expectancy in 1900 was only 43.7 years, groups. More typically, they are replaced by it has increased substantially during this new entrants into the labor market, essentially century.’ young individuals and immigrants. Furthermore, a nationwide poll by Money To understand how the poor fare over time, magazine reveals that individuals generally one needs a longitudinal sample that tracks ===== PAGE 45 ===== SIZING UP DOWNSIZING 617 the success of the same individuals over time; position relative to others. But the entire con- otherwise, one is measuring an ever-changing stellation of incomes was shifting upward as group. The University of Michigan has col- well. Thus, most people’s purchasing power lected such a sample, which is the subject of a would have improved in absolute terms even Federal Reserve Bank of Dallas study. if their relative position had not changed. This study stands in sharp contrast to the Using a constant benchmark, such as the liv- view of people who claim that the American ing standards prevailing in 1975, we find that dream has been shattered. Over the period 98 percent of the individuals in the bottom 20 1975 to 1991, the poor did not get poorer; percent in 1975 had improved their living instead, they generally got richer! Only 5 per- standards by 1991! About two-thirds of those cent of those in the bottom 20 percent in 1975 in the lowest 20 percent that year had by 1991 remained there in 1991. The other 95 percent achieved a living standard that exceeded what had moved up the ladder. By 1991 roughly 80 the middle class had in 1975. percent of those in the bottom 20 percent in Since all income groups have witnessed 1975 had moved up to the top 60 percent— increases, it follows that today’s poorest 20 middle class or above. Indeed, nearly a third percent are better off than the poorest 20 per- had moved up to the top 20 percent. A poor cent earlier in our history. Consumption pat- person in 1975 was six times more likely tobe terns confirm this conclusion. It is widely rich in 1991 than still to be poor.!2 acknowledged that individuals give priority to All income groups increased their real pur- life’s “necessities” and use additional, discre- chasing power over the period 1975 to 1991. tionary income to purchase less essential But the bottom 20 percent had larger gains items. Food, clothing, and shelter are widely than the top 20 percent. Measured in 1993 considered essentials. In 1920 the poorest 20 dollars, the “poor” had an average gain in percent used 75 percent of their income to income of $25,322 from 1975 to 1991, while purchase those necessities. By 1950 the the top 20 percent had an average gain of only income percentage had decreased to 57 per- $3,974 during the same period. Every group cent. And by 1993 that percentage had increased its real income, but the poor had dropped to 45 percent of total consumption. much larger increases than the rich. This is true even though the homes are larg- These findings are confirmed by a separate er and have better climate control, the food is and independent U.S. Treasury longitudinal more varied and safer, and clothing comes in sample covering 1979 to 1988. The study more variety and in higher quality. That found that 86 percent of the individuals in the today’s poorest individuals spend a smaller lowest income group moved up during that percentage of their total income on necessities period, with 67 percent moving up to the mid- implies that they are better off than their ear- dle class or above. The slightly lower values lier counterparts. Simply put, if one must be for the Treasury study are explained by the in the poorest 20 percent (or in any other fact that it covered a shorter period. income group for that matter), it is better to be Both the Federal Reserve and Treasury there today than in 1975. These are the good studies confirm that a fixed sample of individ- old days! uals improved their relative income position. Assuming that the free market is allowed to work, there is every reason to believe that the Growth and Change individuals now in the bottom 20 percent will The free market’s creative restructuring in also move up the income ladder. The Ameri- response to consumer preferences is not prop- can dream is indeed alive and well. erly characterized as “downsizing.” Growth and change characterize free markets. It is Absolute Improvem ent something of an enigma, to me at least, to see so-called progressive “liberals” propose reac- But these studies underestimate the gains. tionary policies designed to preserve old Individuals in the 1975 sample improved their modes of exchange and production. Policies ===== PAGE 46 ===== 618 THE FREEMAN ee OCTOBER 1998 that prevent firms from responding to chang- I David Molpus, Alex Chadwick, “Downsizing,” Morning Edi- ing consumer wants will serve only to impov- tion NPR, November 14, 1997, www.elibrary.com, April 17, 1998. . . 2. Cheryl Heckler-Feltz, “Broken Promises, Economic Earth- erish Americans. The freer an economy, the quakes Shake American Dream,” The Lutheran, March 1997, pp. 8-9. greater is its average income growth. When 3. Reuters, “Downsizing Threatens Worker Health,” October 17, . . . 1997. government intervenes in the workings of the 4. Nathan Seppa, staff writers, APA Monitor, May 1996, free market, income growth slows. (See, for www.apa.org, April 17, 1998. h . dation’s 799 5S. Kenneth Labich and Erin M. Davies, “Managing: How to Fire example, the Heritage Foundation’s 8 People and Still Sleep at Night,” Fortune, June 10, 1996, pp. 641. Index of Economic Fi reedom.) 6. St. Louis Federal Reserve, www.stls.frb.org/fred/data. . 7. Peter Lynch, “The Upsizing of America,” Wall Street Journal, The view that the market economy has gepemper 2, 1996, p. RV killed the American dream is simply false. 8. St Louis Federal Reserve, www.stls.frb.org/fred/data/employ/ Individuals are healthier than ever. They live 9. US. Bureau of the Census, US. Life Tables 1890 and longer than ever. More jobs are being created 1901-1910, and Centers for Disease Control and Prevention, Vital soe : oe Statistics Rates in the United States, 1940-1960, cited in MedAccess than cut. Individual Incomes are rising over Corporation Table 27. Data are located at website http://www. time. There is great mobility up the income medaccess.com/health93/TABLE027 htm. . 10. Lesley Alderman and Karen Cheney, “Your Worklife: Here’s ladder. The market economy is the greatest Good News about Jobs.” Money magazine, May 5, 1996, p. 110. institution for social cooperation ever devel- The data was obtained at website hitp:/www.elibrary. PUT oh : com/getdoc.cg...burl=http*C*//pathfinder.com/money. oped. Capitalism has accomplished fantastic 11. W. Michael Cox and Richard Alm, “By Our Own Boot- feats in spite of the dead weight of govern- straps” Federal Reserve Bank of Dallas, Annual Report, 1995, : : : pp- 23-23. ment. Imagine what it would do if freed from 12. Ibid., p. 13. Subsequent income data come from this study. that burden. ] Fall Trustees Dinner Celebrating the 100th Anniversary of the Birth of FEE Founder Leonard E. Read An Evening at Lyndhurst— Sunday, October 18, 1998, 5:30 p.m. featured speaker: Edward H. Crane President of the Cato Institute Join the Trustees and staff of FEE for a wonderful evening at Lyndhurst, the Gothic mansion that was once the home of financier Jay Gould. Includes a private tour of the house and grounds, cocktails, and dinner. : Special guests will include Edmund A. Opitz, Bettina Bien Sl AO Greaves, and Roger Ream (former colleagues of Leonard Read) roan and historian Burton W. Folsom, Jr., who will offer insights into = Jay Gould and the “robber baron” era. wf Lyndhurst, situated on 67 picturesque acres overlooking A the Hudson River, is located a mile and a half north of FEE's 1} Irvington headquarters. Edward H. Crane $75 per person/$140 per couple For reservations, please contact Janette Brown at FEE: (800) 452-3518. ===== PAGE 47 ===== Economic Notions by Dwight R. Lee ¥ Economics Demand and Supply N: series on the basic notions of econom- The basic notion behind the supply curve is ics can continue long without introducing that the higher the price of a product, the more demand and supply. These concepts, as illus- of it producers will supply. In other words, as trated with demand and supply curves, are with the curve S in the figure, supply curves fundamental to how economists understand are upward sloping. A justification for this economic behavior. In particular, with the use upward-sloping relationship between price of demand and supply curves, I can supple- and quantity supplied is that the cost of pro- ment in concise and powerful ways my previ- ducing additional units of the product increas- ous discussion of the communication, cooper- es as more is produced. So it takes a higher ation, and coordination of the marketplace. price to motivate additional output. But this is not necessarily the case when there is time for The Basics of Demand new firms to enter an industry, or for existing firms to expand their plant size. Such long- and Supply run adjustments to a higher price can permit Although a complete discussion of demand MmOTe of the product to be made available at and supply curves has to consider a number of the original cost (or even a lower cost), in complexities and qualifications, the essential Which case the supply is horizontal (or nega- notions behind these curves are straightfor- tively sloped). But over periods of time that ward. The demand curve is based on the ¢an extend to several months or more, it is observation that the lower the price of a prod- reasonable to assume that supply curves slope uct, the more of it people will demand. There upward. may be occasional exceptions to this behavior (and indeed economists have developed the theoretical possibility of such an exception), but they are so few and transient that econo- mists refer to the negative relationship between price and quantity demanded as the “law of demand.” Because of the law of demand, demand curves (such as D in the fig- ure) are always shown as downward sloping, with the price on the vertical axis and the quantity demanded (over some period) on the horizontal axis. Py Price Dwight Lee is Ramsey Professor of Economics and Private Enterprise at the University of Georgia. Qg [+3 Q, Quantity 619 ===== PAGE 48 ===== 620 THE FREEMAN ee OCTOBER 1998 Obviously, a lot of things affect the amount until it reaches P* in the figure, the price of a product that will be demanded and sup- determined by the intersection of the demand plied besides its price. But for any set of and supply curves. This price is often called demand and supply curves, all of these other the equilibrium price, because at P* there is influences are held constant, since the pur- no pressure for the price either to increase or pose of the analysis is to allow us to concen- decrease. (Our discussion could have started trate on the effects of the product’s price on at a price greater than P* and the communica- the amount demanded and supplied. tion would have taken the form of price decreases.) At P* we can clearly observe the Communicating through miracle of market communication and coop- the Market eration. Millions of people pursuing their pri- vate advantages as consumers and producers, The simple diagram here allows us to con- with almost no direct knowledge of, or inter- sider the most important insight from demand est in, the concerns and circumstances of oth- and supply analysis, which is how people ers, are led to a completely coordinated pat- coordinate their decisions by communicating tern of decisions by responding to the infor- through market prices. mation contained in market prices. Each Assume that we start off with a price for consumer decides to consume an amount per- denim jeans given by P, in the figure. The fectly compatible with the amounts that all most important thing about that price from an other consumers are deciding to consume and economist’s perspective is that it fails to coor- all producers are deciding to supply. dinate the decisions of suppliers and con- sumers. At price P, suppliers are willing to supply only Qg pairs of jeans, but consumers want to buy Qp pairs. Consumers will be frus- The equilibrium price, along with the equi- trated because they are unable to obtain all the librium quantity Q* in the figure, is typically jeans they want at the prevailing price, and in presented as the most important feature of response to this frustration they will start bid- demand and supply analysis. But seldom do ding up the price of jeans relative to the price real-world markets ever get to equilibrium. of other products. By doing so, they commu- The world is constantly changing, and nicate to suppliers that they want more demand and supply curves constantly shift. resources devoted to the production of addi- Equilibrium is a moving target. The most tional jeans because they are worth more than important insight from demand and supply what those resources are currently producing analysis is that the market process is constant- elsewhere. Suppliers respond appropriately to ly directing people to accommodate one this information by moving up the supply another in ways that move them toward the curve, increasing the availability of jeans. coordination represented by equilibrium, and But the increase in price does more than not just for one product, such as denim jeans, communicate information from consumers to but for thousands of products. Things may not suppliers. It also is the means by which con- stay still long enough for equilibrium to be sumers communicate valuable information to reached in any market. But freedom and mar- one another. As consumers bid up the price of ket communication accomplish a pattern of denim jeans, they are telling each other that cooperation that can never be duplicated by these jeans are in short supply and that every- the coercion of central planning. one should economize on their use, take bet- One of the best ways to appreciate the coor- ter care of the ones they have, use substitute dination and cooperation of market communi- clothing, and so on. And consumers respond cation is by considering the problems that appropriately to this information by backing arise when political authorities censor it with up the demand curve as they reduce the num- price controls. In my next three columns, I’ll ber of jeans they demand. This process con- use the demand-and-supply framework to tinues to increase the price of denim jeans examine those problems in detail. J It’s the Process ===== PAGE 49 ===== FREEMAN deas On (ideas On Liberty) How Big Government Usurped Personal Responsibility by Peter T. Leeson ren’t national summits great? What’s Left to Save? America’s foremost academicians, bankers, and mutual fund managers gathered in early June at the government’s request to devise new ways to encourage a spend-happy public to save more. While the 240 delegates to the National Summit on Retirement Sav- ings agreed that more savings are needed, they were reluctant to suggest policies that would boost savings. It’s always amusing when the government holds these summits. While ostensibly organized to establish why Americans aren’t saving enough for their retirement, the gathering was little more than another opportunity for academics to social- ize and for the government to look like it cared about the public. In actuality, nothing was said that we didn’t already know. The government employs economic advisers who know very well why retirement savings are so puny. At the summit President Clinton called on employers offering 401(k) retirement plans to automatically include their employees in the program unless specifically told not to do so. While this little gem will surely, as Clinton put it, “affect a very large number of people in getting them into the business of saving for their own retirement,” it doesn’t quite seem to get to the root of the problem. The savings problem begins with a lack of funds to save. An active government is an expensive one, and that’s exactly what Ameri- ca has. When federal, state, and local taxes are counted, the government confiscates about 40 percent of America’s income. With only 60 percent of their paychecks at their disposal, wage earners have little left to save after Uncle Sam has lined his pockets with their cash. The second reason people are saving less is the government’s inflationary tendencies. As the Federal Reserve erodes the purchasing power of the dollar over time, the money peo- ple have stored in their savings accounts loses its value, too. The $100 a family saved in 1980 may only have the purchasing power of $80 today. In order to get the greatest bang for their buck, individuals have the incentive to spend their income as fast as possible. Even under the very modest inflationary pressures we are experiencing now, the fading value of savings creates a strong disincentive to pro- vide for the future. The third major reason people don’t save for retirement is that the government ostensi- bly does it for them! Prior to Social Security’s inception in 1935, people were responsible for providing for their own retirement. There was no federal safety net. Either you saved Peter Leeson is an adjunct scholar with the Mackinac for your future; your friends, family, or char- Center for Public Policy, a free-market research and ity supported you; or your future was educational organization in Midland, Michigan. unpleasant. 621 ===== PAGE 50 ===== 622 THE FREEMAN e OCTOBER 1998 When the government entered the picture, it own futures is no easy task, eliminating usurped the responsibility of its citizens to save Social Security and relieving the taxpayer’s for themselves. Individuals came to rely on big burden are steps in the right direction. As government to provide for retirement income. Labor Secretary Alexis Herman said, “The "In fact, they became so dependent that until message to Americans is be prepared.” Now recently they couldn’t even conceive of a sys- let’s provide Americans with the tools they tem whereby they provided for themselves. will need. This is where we find ourselves today. We can begin by abolishing Social Securi- Social Security is failing, as it inevitably had ty. In just 15 years the system will start run- to, and the government is getting worried that ning deficits, meaning massive tax increases the safety net’s holes might be too big to catch if it is to be saved. Instead of raising taxes, impending retirees. why not simply eliminate the program? Free- Now the government is pushing for citizens ing taxpayers from Social Security means to go back to the traditional method of pro- allowing them to keep what they would have viding for retirement—personal savings. But paid in to the faltering system so that they can how? provide for a far better retirement. Workers must bear the burden of the failed Budget cuts in any area would be helpful. Social Security program’s steep costs. The The more cuts that are made, the more money steadily increasing payroll tax needed to fund that is left in the hands of people to save. If the program is like a sack of bricks weighing given the freedom to do so, many Americans down every wage earner who wants to save will invest their savings in the stock market. for himself. In the long run, stocks provide significantly Older earners are accustomed to the idea higher returns than does Social Security and that an active government will provide future are a more secure form of saving for retire- income for them. They are reluctant to save ment. Allowing Americans to keep more of for themselves, and resent the fact that much their money means giving them control of of their income was squandered on Social their futures once again. Security benefits they will never see. Fortu- No summit is needed to decide what to do. nately, many young income earners recognize The government knows the appropriate steps the Social Security fraud and expect to rely as well as you or I. The question is, is the gov- solely on themselves in the future. ernment willing to see its budget and power While getting Americans once again to fall so that Americans can have a secure accept responsibility for saving for their future? Sadly, I predict no. 0 Check Out FEE and The Freeman on the Web! www.fee.org Log on and explore The Foundation’s improved Web site. Several features and attractions have been added to enhance the appearance and content of this invaluable source of information. A complete upgrade of www.fee.org will be online by October 1, 1998. Questions? Contact Karol Boudreaux: kboudreaux @fee.org. A great way to introduce friends and relatives to the wonders of freedom! ===== PAGE 51 ===== E FREEMAN deas On Liberty Gertrude B. Kelly: A Forgotten Feminist by Wendy McElroy ontemporary feminism’s preoccupation country.” From her first article in Liberty with its collectivist past has served to (September 1885) to her bitter split with that silence the voices of early individualist same periodical over its debate on egoism ver- women. A perfect example is Dr. Gertrude B. sus natural rights (August 1887), Gertrude Kelly (1862-1934), whose contributions to Kelly was one of Tucker’s most dynamic writ- women’s rights are long forgotten. Like most ers and, certainly, its most frequent female early individualist feminists, Kelly insisted contributor. She was also a strong champion that individual autonomy and responsibility of natural law. constituted the building blocks of social order In particular, her articles brought a unique and cooperation, both of which would evolve perspective on labor and women, for she was naturally under conditions of freedom. When- one of the few feminists of her time who ever a group of people—a government or a believed “there is, properly speaking, no labor union, for example—used force to woman question, as apart from the question of impose its goals on individuals, social order human right and human liberty.” She looked and cooperation ceased. Then the only forward to a society composed of individuals, method by which true society could be recon- in which such secondary characteristics as sex structed was to return power to the individual. or race had no impact on the equal rights A labor radical who was deeply skeptical of enjoyed by each person. As Kelly phrased it, unions, a medical doctor who opposed state “The woman’s cause is man’s—they rise or licensing of medicine, a staunch anti-statist sink/Together,—dwarfed or god-like—bond who broke with the most prominent individu- or free.” alist anarchists of her day, an ardent feminist The general cause shared by woman and who denied that there were “women’s rights” man was the drive for “universal liberty, as distinct from “human rights” . . . who was equality of rights, individual responsibility” Gertrude B. Kelly, and what specifically did as “the moving principles of societary she fight for? progress.” The specific social injustice on In the opinion of Benjamin Tucker, editor which Kelly focused her considerable energy of the pivotal individualist periodical Liberty, and insight was what she called “the plight of “Gertrude B. Kelly, . . . by her articles in Lib- the working-class.” erty, has placed herself at a single bound among the finest writers of this or any other Concern with Workin g Women Wendy McElroy is a contributing editor to The Free- . : man. Her latest book is The Reasonable Woman; A As a medical doctor who worked in the ten- Guide to Intellectual Survival (Prometheus Books, ¢ments and as the secretary of the Newark 1998). Liberal League, Kelly displayed a special 623 ===== PAGE 52 ===== 624 THE FREEMAN ee OCTOBER 1998 concern for the debilitating effect of poverty individualist Josiah Warren: this version is on the laboring woman. Indeed, her first arti- commonly expressed as “cost is the limit of cle in Liberty, titled “The Root of Prostitu- price.” Second, she shared the popular radical tion,” argued that the inability of women to belief that capitalism was an alliance between make an adequate living through respectable business and government, in which the latter forms of labor was the cause of this profes- guaranteed legal privileges to the rich. In sion. She wrote: “We find all sorts of schemes essence, Kelly considered all forms of capi- for making men moral and women religious, talism to be what contemporary individualists but no scheme which proposes to give woman call “state capitalism.” the fruits of her labor.” The condemnation aired in this article Free Market as Cure expressed two themes that were common to most of Kelly’s analyses of poverty and of Accordingly, she mistakenly believed that women. interest, profit, and rent were usuries through First, women had been oppressed by cultur- which capitalists exploited laborers by usurp- al stereotypes created primarily by men. She ing the product of their labor. Although it declared, “Men . . . have always denied to sounds ironic to modern ears, Kelly—along women the opportunity to think; and, if some with many other early individualist theo- women have had courage enough to dare pub- rists—considered the free market to be a cure lic opinion, and insist upon thinking for them- for capitalism. She considered voluntary selves, they have been so beaten by that most cooperation, unregulated by anything but the powerful weapon in society ’s arsenal, ridicule, laws of economics and the desires of individ- that it has effectively prevented the great uals, to be the solution to this social injustice. majority from making any attempt to come For example, in her article “The Uncon- out of slavery.” She leveled this charge equal- scious Evolution of Mutual Banking,” Kelly ly at the supposedly enlightened men in her suggested a remedy for the state monopoly of own political circle, whom she claimed would money, which caused the usury of “interest”: “immediately change not only the serious top- the establishment of privately controlled cur- ics of conversation, but change the very tones rency (or currencies). She exuded, “the free of their voice” when wives or sisters entered monetary system with its destruction of inter- the room. est and profit, looms up before us! The Second, charitable organizations created by exchange of product against product is inau- the rich were hypocritical in their attitudes gurated! The social revolution accomplishes and behavior toward the poor, who needed to itself!” become self-sufficient and not to be further In other words, to sever the alliance victimized by misguided benevolence. She between government and business that consti- particularly ridiculed the philanthropic tuted capitalism, it was necessary to deny groups so popular in her day in which work- government any power over the economic ing “girls are given lessons in embroidery, art, arrangements of individuals, for “all the laws science, etc., and are incidentally told of the have no other object than to perpetrate injus- evils of trade-unions, the immorality of tice, to support at any price the monopolists in strikes, and of the necessity of being ‘satisfied their plunder.” In her opinion, a free market in with the condition to which it has pleased which individual contracts—and not govern- God to call them.”” ment—set prices would eliminate practices Like most radical individualists of nine- such as charging interest. teenth-century America, Kelly viewed “capi- But what if she were proven wrong? What talism” as the major cause of poverty and if interest and other forms of usury continued social injustice. This conviction sprang from to exist within the framework of a free mar- two other beliefs. First, she accepted a partic- ket? Contributors to Liberty were clear and ular version of the erroneous labor theory of consistent on at least one point. Individuals value that was espoused by the pathbreaking had the absolute right to enter into agreements ===== PAGE 53 ===== GERTRUDE B. KELLY: A FORGOTTEN FEMINIST 625 which Liberty contributors considered to be beef last a family of six persons for three foolish and self-destructive. Any interference weeks.” Only by understanding the daily real- into such voluntary contracts constituted the ities faced by working women with hungry use of force, which was the more primary children could radicals address the needs of evil. As Kelly commented, “[W]e realize the this class of labor. labor question can never be solved by force. In short, Kelly infused the nineteenth- . . . You cannot shoot down or blow up an eco- century individualist dialogue with a refresh- nomic system, but you can destroy it by ceas- ing though harsh dose of women’s reality, ing to support it, as soon as you understand both in her discussion of issues and of events. where its evils lie.” But if a free individual could not be persuaded away from paying interest, then that individual would have to live with the folly of his or her own actions. Kelly’s insistence on principle linked to It is important to understand Kelly's history common sense helped to anchor radical indi- in order to fully appreciate her opposition to vidualism to the goal of nonviolence, espe- usuries such as rent and interest. As an immi- cially when the movement was pressured to grant from Ireland in 1873, Gertrude Kelly’s respond to violent events of its day. Her influ- introduction to individualistic philosophy was ence may be judged by her response to one probably through the columns of “Honorius” particular event, which history calls “the Hay- in Irish World—an organ of the Irish No Rent market Incident.” In the wake of this event movement. Honorius was, in fact, a pseudo- most radicals—including other prominent nym for the American natural-rights advocate feminists and some individualists—cried out Henry Appleton, who contributed frequently for blind vengeance against the State. Kelly to the early issues of Liberty, both under his offered a voice of reason. own name and under the pen name of “X.” On May 4, 1886, a large crowd of laborers Kelly could not have been indifferent to the assembled in the Haymarket Square of Chica- absentee British landlords whose claims to go to protest against recent police brutality. most of Ireland’s fertile soil came from con- As the meeting began to break up peacefully quest and legal privilege. The exorbitant rent due to rain, the police hurried the process and interest they charged the Irish for use of along. From the sidelines, someone threw a land and money were a major cause of that bomb toward the police, who opened fire at country’s poverty. On coming to America, the laborers. The shots were returned. In the Kelly did not seem to think that the differing final count, seven policemen and a number of histories of the two nations required differing protesters—estimated to be as high as 20— economic and political analysis. She applied died. the same principles to both—principles she The police rounded up labor leaders, with had derived partly from reading English clas- no regard to whether they had been involved sical liberals such as Herbert Spencer and in the violence or not. Eventually, seven men John Stuart Mill, both of whom her articles were tried for murder in a court case that has often quoted. been generally accepted as a wholesale trav- In articles that displayed a deep breadth of esty of justice. For example, the jury was not reading that ranged from Proudhon and God- chosen in the normal manner: a bailiff was win to Malthus, Kelly also displayed a level of instructed to go out into the street and select common sense uncommon among political whomever he wished from the passers-by. visionaries. She advised fellow individualists Most feminists responded with shock, out- who wanted to pursue dubious reforms to rage, and bitter pain. For example, on reading ease the immediate problems of female labor a newspaper headline stating that the Hay- and to educate themselves, instead, by listen- market protesters (communist anarchists and ing to the voices of working women. Reform- labor radicals) had thrown a bomb into an ers with grand schemes should take “lessons assembled crowd, the teenaged individualist- from Miss Corson on how to make a neck of feminist Voltairine de Cleyre had exclaimed The Haymarket Incident ===== PAGE 54 ===== 626 THE FREEMAN ee OCTOBER 1998 aloud, “They ought to be hanged!” She keen- funding that sprang from taxes were the sort ly and instantly regretted the words, and of violence against property known as theft. assumed the opposite position with equal . vehemence. Fourteen years later, de Cleyre The Private Funding remained sorely haunted by her words, “For . that ignorant, outrageous, blood-thirsty sen- of Education tence I shall never forgive myself.” Much of On June 1, 1887, Kelly delivered a remark- “de Cleyre’s political activity in the ensuing able speech titled “State Aid to Science” years can be seen as an attempt to expiate her before the Alumnae Association of the sin. Her most passionate addresses were Women’s Medical College of the New York delivered as lectures at the yearly memorials Infirmary for Women and Children, at which to the Haymarket martyrs that she attended. she had studied. It was remarkable because— In Living My Life, the socialist feminist at a time when feminists called out for various Emma Goldman described her reaction to forms of state assistance to educate women— the judgment in the Haymarket trial as a Kelly addressed the destructive consequences result of which five of the men were con- of governmental attempts to promote knowl- demned to death. After becoming hysterical edge. It was also remarkable because Gertrude Goldman was put to bed, where she fell into Kelly was a medical doctor and, as such, she a deep sleep. On awakening, she discovered was expected to tolerate, if not to revere out- something new and wonderful within her right the institutions that conferred social sta- soul. It was “a great ideal, a burning faith, a tus on her profession. determination to dedicate myself to the Published as an article in Liberty, this memory of my martyred comrades, to make speech presented two themes: “first, that their cause my own.” She left her newly wed progress in science is lessened, and ultimately husband and proceeded to New York to pre- destroyed, by state interference; and, second- pare for the task that would consume the rest ly, that even if, through state aid, progress in of her life. science could be promoted, the promotion Against this backdrop of passionate and would be at too great an expense of the best profound reaction among feminists, Kelly interests of the race.” called for a calm and measured response. She Kelly argued for the impossibility of gov- refused to consider retaliation in kind against ernment’s promoting knowledge by pointing the state because force could never be an out that a subsidy “is not and cannot be aid to appropriate means by which to achieve social Science, but to particular doctrines or dog- ends. In an appeal for restraint, she wrote, mas, and that, where this aid is given, it “Oh my brothers! let no blind feelings of requires almost a revolution to introduce a revenge against the state and its tools lead you new idea.” Such an arrangement of govern- to play into its hands by attempting to meet ment patronage creates “a great many big idle force with force. . . . Remember that the queens at the expense of the workers.” employment of force leads to the redevelop- But, even granting for the sake of argument ment of the military spirit, which is totally that state aid could promote knowledge, Kelly opposed to the spirit that must exist in the contended that the cost of this promotion people before anything that we wish for can would enormously outweigh any advantage. be brought about.” The cost would be the violation of property Over and over again, Kelly stressed educa- rights through the taxation that would be nec- tion. Individualists had to rely on enlighten- essary to support the government’s program. ment and persuasion because ignorance was If ordinary people sufficiently valued the ser- their main opponent. Although the content vice being funded by the state, then tax fund- was an essential factor in the process of edu- ing wouldn’t be necessary. If they didn’t value cating people, the method was equally impor- it, then the government had no right to take tant. It not only had to be nonviolent, but also money from the worker to finance officially privately funded since taxation and the public desirable knowledge. “I maintain,” Kelly ===== PAGE 55 ===== GERTRUDE B. KELLY: A FORGOTTEN FEMINIST 627 insisted, “that you have no right to decide Max Stirner, see my article “The Non-Absur- what is happiness or knowledge for him, any dity of Natural Law,” The Freeman, February more than you have to decide what religion he 1998.) Kelly contributed, instead, to the brief must give adherence to. You have no right to journal entitled Nemesis, then began to write take away a single cent of his property with- for the periodical Alarm under the editorship out his consent. Woe to the nation that would of Dyer D. Lum. Her departure from Liberty strive to increase knowledge or happiness at robbed that periodical of an able defender of the expense of justice. It will end by not hav- natural-rights theory and of its most forceful ing morality, or happiness, or knowledge.” voice for women. Using similar logic, Kelly opposed any In like manner, Gertrude B. Kelly’s absence government attempt to license physicians or from the pages of feminist history impover- regulate medicine because government could ishes that movement. Disillusioned with the not guarantee the safety or quality of medical “philosophical individualism” of Liberty, care. It could only create a quasi-union of Kelly went on to express her principles medical elites and block progress. through action and became the director of a On the state funding of education, as in all clinic for the poor in the Chelsea district of issues, Kelly demanded “no compromise” New York City. As an outlet for writing and with the principles of individual autonomy theory, she turned to the cause of women’s and individual responsibility—in short, with suffrage and of Irish independence, becoming the doctrine of individual rights. Indeed, it a prominent member of the Irish Women’s was her devotion to natural law that led her to Council. Ironically, two years after her death depart from Liberty when it became a forum in 1934, Mayor Fiorello La Guardia dedicated for Stirnerite egoism. (For more on the argu- the “Dr. Gertrude B. Kelly Playground” on ment between natural law and the egoism of 21st Street. The Monumental Masterwork of “THE GRAND OLD MAN OF ECONOMICS™”* Considered by many to be the counterweight of Marx's Das Kapital, HUMAN ACTION is the magnum opus of a genius. “Mises is the first to work out economics on a firm foundation on the principle of individual action . . This is the economic bible for the civilized man.’ —Murray N. 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The 4 sample copies will be yours to keep! ===== PAGE 57 ===== 629 Lawrence Reed replies: Government is already deeply involved in legislating labor relations, and much of what it has done in this area has been destructive. It should never have granted labor unions the power by simple majority vote to impose col- lective bargaining on all workers at a site, for instance. Nor should government have given labor unions the power to forcibly extract dues money from unwilling members and then spend some of it on political causes that Should the State those very members oppose. Now that government has done those Legislate Labor Unions? things, would Mr. Schwartz advocate that it walk away from the playing field and pretend that doing so is some kind of “laissez-faire” To the Editor: approach? Why not get the government to Lawrence W. Reed, in his May column undo some of the harm it has already done— (“The Freedom Not to Pay for Other People’s for instance, by stripping the unions of the Politics”), surprised me by writing: coercive power to extract political contribu- “California voters will go to the polls later tions? To do any less would be to validate and this year to decide on a Beck-inspired refer- PerPetuate past intrusions of government. endum. [The measure, Proposition 226, was ~~ 'hen the government grants special favors defeated in June.-Ed.] If it passes, unions in tO Special interests to employ legalized coer- that state could no longer collect or use ¢ion for political purposes, that’s neither money from employees for political purposes ree-market” nor libertarian. When we can without express permission. Millions of dol- 8¢t the government to withdraw the coercive lars will be spent by both sides over the exer- Privilege that it should never have granted in cise of a right that ought to be a given in the the first place—which is what my column land of the free and the home of the brave” ~~ 2dvocated—then we are moving in a free- Is Reed really advocating that the state leg- Market, libertarian direction. islate labor union policy? While I do not like how some labor unions (e.g., the teachers i } unions) collect funds to lobby for causes I find We will print the most Interesting and destructive, I do not want the government dic- provocative letters we receive regarding tating how labor unions are run. Whether the | [7¢eman articles and the issues they raise. union is for employees of a government Brevity is encouraged; longer letters may monopoly should not affect my position, be edited because of space limitations. either. Address your letters to: The Freeman, FEE, I believe Reed’s position is not the true free- 30 S. Broadway, Irvington-on-Hudson, market libertarian position. Am I mistaken? New York 10533; e-mail: freeman@fee.org; — BRIAN SCHWARTZ fax (914) 591-8910. Palo Alto, California CAPITAL LETTERS: ===== PAGE 58 ===== Economics on Trial by Mark Skousen FREEMAN deas On Libert OcToBER 1998 A Golden Comeback, Part 11 “Gold maintains its purchasing power over long periods of time, for example, half-century intervals.” —Roy JASTRAM, The Golden Constant! | B last month’s column, I focused on gold’s book, now out of print, examines gold as an inherent stability as a monetary numeraire. inflation and deflation hedge over a span of Historically, the monetary base under gold 400 years. has neither declined nor increased too rapidly. In short, it has operated very closely to a mon- etarist rule. What about gold as an inflation hedge? In The accompanying two charts are from Jas- this column, I discuss the work of Roy Jas- tram’s book and updated through 1997 by the tram and others who have demonstrated the American Institute for Economic Research in relative stability of gold in terms of its pur- Great Barrington, Massachusetts. They tell a chasing power—its ability to maintain value powerful story: and purchasing power over goods and ser- First, gold always returns to its full pur- vices over the long run. But the emphasis chasing power, although it may take a long must be placed on the “long run.” In the short time to do so; and run, gold’s value depends a great deal on the Second, the price of gold became more rate of inflation and therefore often fails to volatile as the world moved to a fiat money live up to its reputation as an inflation hedge. standard beginning in the 1930s. Note how The classic study on the purchasing power gold has moved up and down sharply as the of gold is The Golden Constant: The English pound and the dollar have lost purchasing and American Experience, 1560-1976, by power since going off the gold standard. Roy W. Jastram, late professor of business at In my economics classes and at investment the University of California, Berkeley. The conferences, I demonstrate the long-term value of gold by holding up a $20 St. Gaudens Dr. Skousen (http://www.mskousen.com; mskousen double-eagle gold coin. Prior to 1933, Ameri- @aol.com) is an economist at Rollins College, cans carried this coin in their pockets as Department of Economics, Winter Park, Florida money. Back then, they could buy a tailor- 32789, a Forbes columnist, and editor of Forecasts & 1. de cuit for one double eagle, or $20. Today Strategies. He is also the author of Economics of a . : 4 Pure Gold Standard, 3rd edition (Foundation for this same coin—which is worth between $400 Economic Education, 1996). He is currently working and $600, depending on its rarity and condi- on his own textbook, Economic Logic. tion—could buy the same tailor-made suit. Of 630 Two Amazing Graphs ===== PAGE 59 ===== 631 can’t hold a candle to the stock 1.0 market’s performance. As the i 1 chart, taken from his book, 1 5a Stocks for the Long Term, Purchasing Power of Gold and of the British Pound, 1560-1997 = 1250 - rd 1 as shows, stocks have far outper- ome sat rh wel rice rte pu 9351545 : 15> formed bonds, T-bills, and eee ces Lg, gold. Why? Because stocks | Purchasing Power of Gold and of the U.S. Dollar, 1792-1997 — represent higher economic 1792=1 y |. growth and productivity over 1 == the long run. Stocks have risen or >> sharply in the twentieth cen- 1 A 2 3 rl I 1 N 1560 B0 1600 20 ‘40 %0 ‘00 1700 ‘20 40 60 BO 100-20 ‘40 60 BO 1300 20 ‘40 60 ‘BO 2000 ‘¥W rise in the standard of living and America’s free-enterprise system. course, the double-eagle coin has numismatic, One final note: Stocks tend to do poorly or rarity, value. A one-ounce gold-bullion and gold shines when price inflation acceler- coin, without numismatic value, is worth only ates. As Siegel states, “Stocks turn out to be around $300 today. Gold has risen substan- great long-term hedges against inflation even tially in dollar terms but has not done as well though they are often poor short-term as numismatic U.S. coins. Courtesy the American Institute for Economic Research FIGURE 1-1 Total Nominal Return Indexes, 1802-1937 Gold as an $10,000,000 — Inflation Hedge 1.000000 Stocks / The price of gold bullion pd was over $800 an ounce in 100000 J 1980 and has steadily declined S000 G10748 in value for nearly two i Bonds 7 Jsasro decades. Does that mean it’s § so <= not a good inflation hedge? !' J ae Bills Indeed, the record shows that ia ps — — os when the inflation rate is $10 ie on steady or declining, gold has _~ do [ol been a poor hedge. The yellow NZ NS metal (and mining shares) typ- ically responds best to accel- Je0s 730 1860 1890 1920 1950 1990 erating inflation. Over the long run, the Midas hedges.” Price inflation is the key indicator: metal has held its own, but should not be When the rate of inflation moves back up, deemed an ideal or perfect hedge. In fact, U.S. watch out. Stocks could flounder and gold stocks have proven to be much profitable than will come back to life. In my next column, I'll gold as an investment. discuss the ability of gold to predict inflation The work of Jeremy Siegel, professor of and interest rates. OJ finance at the Wharton School of the Univer- sity of Pennsylvania, has demonstrated that rove ae va who alise and ric U.S. stocks have far outperformed gold over »p. 132. the past two centuries. Like Jastram, Siegel 2. Jeremy J. Siegel, Stocks for the Long Run: A Guide to Select- , oo. ing Markets for Long-Term Growth (Burr Ridge, Iil.: Irwin, 1994), confirms gold’s long-term stability. Yet gold pp. 11-12. ===== PAGE 60 ===== 632 were ruled from Rome, but they also received BOOKS a large infusion of Roman culture. This led to the founding of cities (Churchill remarked, “The Romans gave us London.”), heated buildings, improved agriculture, and a legal system that facilitated commerce. Unfortu- Conquests and Cultures by Thomas Sowell nately, these advantages were not rooted Basic Books © 1998 493 pages ® $35.00 deeply enough to remain in the culture after - the Romans left, but Roman culture made life Reviewed by George C. Leef a little less Hobbesian while it was dominant. The modern British nation-state would, of onquests and Cultures is the final book in course, become the pre-eminent practitioner of Thomas Sowell’s trilogy exploring the colonization, and Sowell’s analysis of the formation and importance of human culture. effects of British (and other European) colonial The earlier volumes were Race and Culture rule runs counter to the conventional wisdom. (1994) and Migrations and Cultures (1996). Colonies were not generally profitable, absorb- With this volume, Sowell brings this great ing much more wealth than they produced and project to its conclusion. The book is superb, requiring large subsidies from the controlling and the trilogy a monumental achievement. nation’s taxpayers. In other words, colonies Sowell’s topic here is the impact of con- were typical government boondoggles. But the quest on culture. “Cultures,” he writes, “are key point is the transmission of culture, and not museum pieces. They are the working Sowell argues that the impact of Western civi- machinery of everyday life.” For better or for lization on native peoples was largely, although worse, they change over time and conquest is certainly not entirely, beneficial. one of the prime agents of change. Although Literally lifesaving was the determined he refrains from making any direct attack on anti-slavery stand of the British government. the trendy idea that all cultures are equal and Most slaves were captured and sold by other ought to be “celebrated,” Sowell’s work is a Africans, who had been doing that since time crushing refutation of that notion. As we have out of mind and saw nothing wrong in it. The come to expect from him, Sowell is interested British, having widely if incompletely accept- in a dispassionate, scientific examination of ed the Lockean philosophy of individual lib- culture, not in jousts with his caterwauling erty, attacked the slave trade and eventually detractors. slavery itself. We might say that they were The book focuses on four groups—the “imposing their values,” to echo a popular British, the Africans, the Slavs, and the Amer- leftist complaint, but if it had not been for this ican Indians. Rather than moralizing about cultural clash, slavery would have lasted the evils of conquest, which is a worldwide much longer than it did. (Sowell notes that phenomenon not specific to any race or cul- there are still pockets of slavery in Africa to ture, Sowell examines its effects. Subjugation this day.) is rarely beneficial to people in the short run, Another cliché among the American chat- but in the long run, it can have and frequently tering class is that the European discovery of has had a positive impact on them, by bring- the Western hemisphere was an unmitigated ing them into contact with cultures more con- disaster for the native peoples. Columbus Day ducive to progress. is now an occasion for mourning and self- The Britons are a fascinating case study. flagellation. But, Sowell points out, there Invading Roman legions subdued the fierce were benefits as well as costs. Diseases that but technologically and organizationally ravaged the natives were spread by whites— backward Celtic tribes they encountered, and ruthless conquistador and benevolent mis- for more than three centuries, England was an sionary alike—but so was the ability to com- outpost of the Roman Empire. The people bat all disease. Liquor led to much drunken- were denied “self-determination” in that they ness, but European manufactured goods, such ===== PAGE 61 ===== 633 as cloth, were superior to the products the The Roches’ target audience is high-school Indians could produce themselves, and they students, but I learned from this book and gladly traded to get them. There certainly was other adults will, too. It is well written and the inexcusable brutality against the Indians, but, stories are dramatic and uplifting. given the degree of brutality that had existed Some will think it odd that George among Indians for centuries, establishing the Roche—college president, history Ph.D., and Western idea of the rule of law undoubtedly expert on Frederic Bastiat and on trends in reduced the prevalence of violence in the long higher education—is writing biographies for run. high-school students. But this book goes to The fact that cultural contact gave some the core of our national debate on what to benefits to the Indians is no justification for teach and how best to teach it. Education is forced resettlements, reneging on treaties, or not merely the accumulation of facts. It also massacres. Sowell makes no such argument. includes training in values and morality— He merely observes that history is a very what is right and wrong, and how to do what mixed bag of causes and effects. is right when the pressure is on. What makes Conquests and Cultures, and Our Western ancestors, the ancient Greeks indeed all of Sowell’s books, so valuable is his and Romans, took moral training seriously. dogged insistence on looking at things the They concluded that well-chosen stories were way they really are. Intellectual fashions and the best way to teach right and wrong—and emotions are not his concern; facts are. Years also the best way to instill wisdom and ago, when a critic accused him of being indif- courage, so that their young people would ferent to the poor, he remarked, “Before one have the will to keep their societies strong, can be a partisan of the poor, he must first be just, and prosperous. The Iliad and “Horatius a partisan of the truth.” That is the best reason at the Bridge” are two examples of stories that to read the “culture” trilogy—its relentless modeled courage, loyalty, and wisdom for pursuit of the truth, no matter whom it youths in the ancient world. Jesus, in spread- offends. [J ing the gospel message, also chose stories and George Leef is president of Patrick Henry Associ- parables to illustrate his teaching. ates: Liberty Consultants in East Lansing, Michigan, In the United States, for much of our histo- and book review editor of The Freeman. ry, we have followed the Greek and Roman pattern. The New England Primer and espe- cially McGuffey s Readers helped train gener- The Book of Heroes: Great Men and ations of children with stories of how people under pressure acted with courage and virtue. Public education in the last 30 years has Women in American History by George Roche, with Lissa Roche failed, in part at least, because it has removed Regnery Publishing, Inc. ® 1998 © 239 pages moral training through storytelling. Here is © $24.95 where The Book of Heroes comes in. By telling the stories of six American heroes, Roche shows us how men and women of char- acter handle pressure and deal with the chal- eorge Roche, the president of Hillsdale lenges of life that all of us face. College, and his daughter-in-law, Lissa In today’s classroom, many high school stu- Roche, have crafted The Book of Heroes, dents learn “situation ethics.” Here the stu- which includes biographies of George Wash- dents are asked, as a case in point, if a gener- ington, Daniel Boone, Louisa May Alcott, al should steal food to help his starving army. George Washington Carver, Robert E. Lee, There is no real story here, only a problem to and Andrew Carnegie. These six biographical manipulate. Roche, by contrast, tells the story sketches, about 40 pages each, are fascinating of George Washington, who had a starving life stories of courage, perseverance, and army at Valley Forge, and a suggestion from achievement. Congress that he steal food from the Pennsyl- Reviewed by Burton Folsom ===== PAGE 62 ===== 634 THE FREEMAN e OCTOBER 1998 vania farmers nearby. Washington, Roche lite, and Internet services, tempered with a points out, “refused, pointing out that it was few compromises. The book is well worth this kind of abuse of power that had led the reading, particularly for his dramatic conclu- colonists to revolt in the first place.” Washing- sion—that the Constitution has failed. ton led by example, inspired his troops, and Huber begins by telling the story of the they followed his direction—in part because telephone and radio, showing how regulatory they saw his high character and the quality of theory became a self-fulfilling prophecy of his commitment to the army and to the new monopoly for phone markets and “scarcity” nation. of the airwaves for broadcasters. Then cable No classroom discussion of a hypothetical television, satellite, and wireless telephony general contemplating theft to satisfy his brought competition to shatter the old regula- army’s hunger can substitute for a real-life tory paradigms. “The broadcasters,” he says, general who sacrificed his wants—and those “were taken aback, much as someone hum- of his army—for the larger cause of freedom ming in the bath would be taken aback to be with honor. suddenly joined by the massed choirs of the None of Roche’s heroes had comfortable Russian Army.” Regulators often treated new lives or easy decisions to make in pursuing technology as an enemy of the “public inter- their careers. Louisa May Alcott, a graceful est” they were charged with preserving. writer, and George Washington Carver, a In the core of the book, Huber analyzes the determined scientist, had to overcome obsta- problems facing regulators today—price reg- cles against women and blacks, respectively. ulation, universal service subsidies for rural Robert E. Lee and Daniel Boone displayed and low-income consumers, and the duties of character and courage during wartime. the common carriers. Finally, he considers Andrew Carnegie, an impoverished immi- content regulation, from copyright to privacy. grant, made a series of fascinating choices in As he traces this tale of regulatory wrongs life that led him to become the largest steel in compressed but readable fashion, Huber producer in the world. offers an alternative to bureaucratic control. The Book of Heroes is more than a collec- The FCC, he argues, should be abolished. The tion of interesting biographies. It is an out- airwaves should be sold to private owners. standing teaching tool. It provides training in Interference should be a boundary issue to be virtue, models to imitate, and dramatic sto- resolved by common-law courts. Common- ries to capture the minds of readers young law rules should supplant regulation in every and old. [0 sector of the telecommunications industry. Burton Folsom is senior fellow at the Mackinac Cen- Price regulation should be : abandoned. Uni- ter for Public Policy, a free-market think tank in Mid- versal service subsidies are incompatible with land, Michigan. competition, and are futile in any case, since, Huber concludes, “telecom technology is advancing much faster than the Commission Law and Disorder in Cyberspace can make policy. . . . And, ‘most important, unleashing free markets will deliver more by Peter W. Huber goods to more consumers.” Oxford University Press * 1997 « 288 pages + $30.00 But how free would the markets that Huber envisions be? Not entirely. In Huber’s view, antitrust law is part of the “common law.” Thus, any telecommunications carrier would he subtitle of Peter Huber’s Law and Dis- be subject to the guiding hand of the Depart- order in Cyberspace proudly proclaims ment of Justice. This recalls the days when the the book’s main theme: “Abolish the FCC and Bell companies, the local phone companies Let Common Law Rule the Telecosm.” Huber formed after the breakup of AT&T in 1984, proposes a free-market revolution for tele- needed a judge’s approval for new ventures— phone, broadcasting, cable television, satel- leading to delays of months or years—under Reviewed by Solveig Singleton ===== PAGE 63 ===== BOOKS 635 the consent decree negotiated between AT&T for defeating the government’s efforts to con- and the DOJ. For Huber, antitrust scrutiny by trol the telecommunications market. J courts 1s prefer able to the FCC regulation. Solveig Singleton is director of information studies at Huber’s view of antitrust squarely presents she Caro Institute. the old problem (for classical liberals) of whether markets should be defined by com- po 4 10 of the Pendulum: A Philosophy mon law or by more pure theories of exclusive . property rights. Common law, especially as for Government in the 21st Century broadened and twisted by statute, can subvert by Charles Stewart Goodwin markets, but Huber does not address this University Press of America ® 1996 ® 190 pages problem. The economic and philosophical * $54.00 cloth; $34.00 paperback case for antitrust, however, is weak. - Huber agrees that common law is “uncer- Reviewed by Randall G. Holcombe tain,” but believes that the cautious case-by- case proceedings of judges is preferable to n The Arc of the Pendulum, Charles Stewart bureaucratic regulation. Cable companies, Goodwin advocates moving government whose rates were regulated in the *70s, dereg- power from the national to the local level and ulated in 1984, reregulated in 1992, deregu- narrowing the scope of government at all lev- lated again in 1996, and now which are threat- els. He calls this philosophy antifederalism, ened with further regulation by the FCC, after the philosophy of those who opposed would probably agree. ratification of the U.S. Constitution on In Huber’s discussion of content controls, grounds that the central government would be he argues that the problem of censorship will too powerful. (It is ironic, of course, that the be solved by giving audiences more technical call for a weak central government and rela- control over what they view. He explains that tively stronger state and local governments a consenting audience cannot complain about was labeled “antifederalism.”) Goodwin iden- content they have agreed to receive. This con- tifies Thomas Jefferson as the intellectual clusion is too optimistic. People do complain father of antifederalism, and credits Andrew bitterly about content they have consented to Jackson for articulating a vision of the philos- view—and legislators listen. Even the courts ophy that can be carried forward into the 21st rationalize censorship by saying that broad- century. Yet, Goodwin’s antifederalism devi- casters (for example) invade our homes with ates sharply from the Jeffersonian vision and their programming, though common sense beyond a doubt, Jefferson himself would be protests that turning a radio or television set on appalled at the broad scope of activities that is an invitation to the broadcast content. Gov- Goodwin would leave to government. ernment power over media content will be Goodwin envisions local republics of about defeated by the sheer amount of content that 2,000 to 3,000 persons as the main units of can now be carried point-to-point or broadcast. government. They would constitute a confed- This leads us to Huber’s astounding and eration and would create towns, counties, and saddening conclusion. We must, he believes, states. But the federal government would still put our trust in a common-law “people’s con- have plenty to do. It would administer a stitution,” because the Constitution has failed. national energy policy, engage in some eco- With respect to telecommunications law, he is nomic planning, and, though he says Social correct. The Constitution has done little to Security will be privatized, aid the elderly and check the FCC’s growing power and broad indigent. Goodwin never clearly delineates discretion over the years. As Huber probably a philosophical basis for deciding what gov- understands but does not say, technology has ernment should or should not do or what done more, far more, to erode the power of functions belong at what levels of govern- government. The battle now is to preserve the ment. His policy recommendations are common-law framework that permits innova- marked with an overwhelming number of tion to continue. Innovation is our best hope seeming inconsistencies. ===== PAGE 64 ===== 636 THE FREEMAN e OCTOBER 1998 Three chapters are devoted to specific exam- Ultimately, however, another problem ples of how his antifederalist ideas could be put lurks. Our current system of government is a into action. The first applies antifederalism to product of the political process, and even the education. He calls for local control rather than limited changes Goodwin advocates would federal involvement, but offers no real sugges- require a substantial restructuring of Ameri- tions for implementation; nor, tellingly, does he can politics. He never discusses any concrete question the case for government improvement institutional changes that would be necessary in education at all. By his own admission, he to realize his vision. raises more questions than he answers. Goodwin’s ideas rest on a solid antifederal- Goodwin’s second example is taxation. ist foundation, but his often vague and incon- Ironically, the chapter is devoted almost sistent arguments create a philosophical entirely to an analysis of federal taxes, even superstructure much less substantial than the though local governments would require more foundation on which it rests. ] revenue if Goodwin's antifederalism were Randall Holcombe is DeVoe Moore Professor of realized. Where would they get it, especially Economics at Florida State University. since the federal and state governments are currently their largest source of funds? Entitlements are the third example. Good- win argues that the federal government has overcommitted itself and advocates devolu- bY Paul Ballonoff tion of entitlement programs to local govern- Cato Institute ® 1997 ® 125 pages ® $18.95 cloth; ments. At the same time, however, he wants to ~~ $9.95 paperback retain a substantial federal program of entitle- Energy: Ending the Never-Ending Crisis ments. He evidently is not convinced of his Reviewed by Jerry Ellig own antifederalist case. Readers may question whether this recommendation is even remote- his highly readable book undermines ly consistent with Jeffersonianism. both the economic and constitutional Goodwin cites the Americans With Disabil- rationales for federal regulation of energy ities Act (ADA) as an example of misguided markets. The truly amazing thing is the sheer federal policy, illustrating its side effects and amount of information the author packs into noting its “crushing financial burdens.” But is 125 pages. it inconsistent with the role of the federal gov- The economics of energy regulation take ernment under his antifederalist philosophy? up just a little more than half of the book, but He says government should act to protect Paul Ballonoff, an attorney and president of a individual rights, but proponents of the ADA consulting firm that specializes in energy will argue that it does precisely that. Good- issues, covers a wide range of free-market win’s philosophy provides no clear way to scholarship that supports his position. For the answer that claim. past 100 years, U.S. energy firms have been Goodwin’s book has interesting ideas scat- regulated for two conflicting reasons: to pre- tered throughout, but ultimately it has too vent monopolists from charging too much, many inconsistencies and irrelevant detours and to prevent excessive use of fossil fuels to make a solid case for 21st-century anti- whose prices are supposedly too low. Bal- federalism. This is a shame, because a strong lonoff presents arguments and evidence that argument for a true “antifederalism” can and attack both assumptions. should be made. If the role of the federal gov- In the petroleum industry, for example, ernment were reduced, and the scope of other there is virtually no evidence of monopoly by government narrowed to mere order-keeping any measure. The industry does not fit the sta- functions, the common interest would be tic model of perfect competition found in eco- served and factionalism would be eliminated. nomics textbooks, because some firms do This would foster the idealism and volun- seem to enjoy superior profit margins. But tarism that Goodwin says we need. such profits, Ballonoff argues, are a sign of ===== PAGE 65 ===== BOOKS 637 dynamic competition; firms that are especial- rights of way—gas companies, electric com- ly skillful at locating or producing oil tend to panies, telephone companies, cable TV com- earn superior returns as a reward. panies, and so forth. If indeed the right of way Nor do doomsayers’ common assertions that is the principal fixed cost, then competition we are running out of fossil fuels hold up to would be quite feasible if government grants scrutiny. The real, economic limit to fuel sup- of monopoly were removed. plies is not the amount in the ground, but the Even if some energy utilities are natural human know-how employed in finding, pro- monopolies, Ballonoff presents ample evi- ducing, and using oil, gas, coal, and other fuels. dence that regulation in practice actually leads “Each advance in computer processing to higher, not lower, prices. capability,” Ballonoff argues, “causes the sup- The author offers three policy conclusions ply curves for petroleum exploration, devel- based on his analysis. First, all monopoly reg- opment, and production to fall by a noticeable ulation of energy companies should be percentage.” Productivity figures support this repealed. Second, if some degree of regula- assertion. Between 1970 and 1990, for exam- tion must be retained, regulatory commissions ple, the number of barrels of oil found per should function solely as specialized antitrust foot of well drilled doubled! Even falling courts with a duty to promote competition, reserves are not evidence that we are running not protect monopoly. And finally, policymak- out of oil, because new technology makes it ers should avoid “regulatory restructuring,” easier and cheaper to add to reserves when such as occurred in the natural-gas and tele- needed. In effect, oil companies are practicing com industries and is proposed for the electric something like “just in time” inventory man- industry. agement for their raw material, substituting No doubt these conclusions will be hotly better information technology for expensive debated. Even the staunchest supporters of drilling. free markets can honestly disagree over The author applies similar types of argu- whether regulatory restructuring is a step ments to the gas and electric utilities. The toward deregulation. But such disagreements traditional rationale for regulation in these should not detract from the truth of Bal- industries is “natural monopoly”—because of lonoff’s central thesis, which is restated most high fixed and sunk costs, it is less expensive forcefully in the book’s conclusion: “Many of for one firm to serve the entire market, and so the ideas that justify and govern traditional consumers get cheaper service when the gov- American energy regulation are simply ernment grants a monopoly to one firm and wrong.” He’s right. OJ then regulates its rates. . Jerry Ellig is a professor of economics at George Ballonoff grapples with the natural- Aason University, Fairfax, Virginia. monopoly dragon, but never quite slays it. He notes that annual depreciation accounts for less than 20 percent of the total costs of 835 Big Trouble and electric transmission and distribution, implying that fixed costs are not nearly as by J. Anthony Lukas high as most people assume. But the relevant Simon & Schuster 1997 © 875 pages ® $32.50 measure of fixed costs is the total cost of fixed : ; : capital, not the annual amount that is charged Reviewed by David Kendrick off each year as depreciation. Another, more original argument he offers J 2bor-union violence directed at business is much more persuasive. A significant part of owners, independent-minded workers, the fixed cost of providing utility service is and political leaders who believe in the rule of the cost of the right of way, not the poles or law has a long, sorry history. Big Trouble is a wires or pipes. Natural monopoly or not, most revealing look at one episode. homes are already served by as many as six The focus of Pulitzer Prize-winner J. different utility providers using their own Anthony Lukas’s Big Trouble is the death of ===== PAGE 66 ===== 638 THE FREEMAN ¢ OCTOBER 1998 former Idaho governor Frank Steunenberg, hatred of his former allies in organized labor. killed by a bomb as he opened the gate to his Indeed, after his death, union official and home on December 30, 1905. Although the Socialist party leader Eugene Debs argued author is in the thrall of the false idea that that Steunenberg had “simply reaped what he labor is pitted in a struggle against “capital,” sowed.” he honestly reports the facts of the story. An The WFM’s headquarters were in Denver. intriguing story it is. The union’s penchant for threats, assaults, and Within days of Steunenberg’s murder, murders perpetrated against non-union min- detectives closed in on Thomas Hogan, in ers, combined with its political domination of whose hotel room they found traces of bomb- the local mining areas, was so pervasive that, making material. Investigators discovered that according to Lukas, juries couldn’t be found he had been active with the Western Federa- that would convict a union man of any serious tion of Miners (WFM) in Idaho, using the offense. Eventually, the three union officials name Harry Orchard. Under the skilled inter- were extradited to Idaho in a midnight raid rogation of the Pinkertons’ most famous and put on trial for Steunenberg’s murder. detective, James McParland, Orchard con- They then turned to Clarence Darrow, who fessed to the Steunenberg murder and pointed had gained national fame as a defense lawyer to the chief conspirators, WFM President by his appeal to “larger” issues while skim- Charles Moyer, adviser George Pettibone, and ming over his clients’ actual guilt or inno- the WFM’ bombastic secretary-treasury, cence of the specific charges. “Big Bill” Haywood. Their apparent motiva- Defending Haywood, the first of the troika tion stemmed from their violent confrontation to be tried, Darrow employed the same tactic. . with Governor Steunenberg in 1899. “I don’t care how many wrongs they [unions] The battle had begun in 1892, when union have committed—I don’t care how often they militants called a strike, then rode through the fail, how many brutalities they are guilty of. I mining district warning managers to dismiss know their cause is just.” To the jury of Idaho non-union labor or see their valuable machin- farmers “removed from the men who work in ery blown sky-high. Soldiers soon restored industrial affairs,” Darrow proclaimed, “had it order, but out of this initial loss the WFM was not been for the trade unions of the world . . . born. Seven years later, the WFM hierarchy you today would be serfs instead of free men.” rejected a wage increase and struck the Whether moved by Darrow’s oratory, or Bunker Hill & Sullivan company’s mines, fearful of retaliation by the WFM, the jury demanding recognition as the only representa- acquitted Haywood. Afterward, the cases tive of all the miners. Frank Steunenberg was against Moyer and Pettibone fell apart. Not the governor, and because he had been elect- for the first time, nor the last, the argument ed on the Populist-Democrat ticket, the union that it is permissible to use vicious means in leaders presumed he would be sympathetic to the pursuit of supposedly virtuous ends them. triumphed. Some 150 union militants, many of them Knowledge that they can—in this case lit- armed, turned workers away from the mines erally—get away with murder has been a fac- with dire threats, while another group seized tor in the self-interest calculations of union the tramway carrying ore from mine to mill. organizers and bosses throughout much of our Hundreds more unionists commandeered a history. This meticulous book gives us a close train in nearby Canyon Creek, drove it to look at the ugly phenomenon of union vio- Bunker Hill, and blew up a huge concentrator lence and the readiness with which many costing about $250,000. intellectuals excuse it. O Convinced that the local sheriff was collud- : ; : David Kendrick is program director for the Nation- the WF n r : progr ing with the M (a conclusion endorsed by al Institute for Labor Relations Research, a charita- Lukas), Steunenberg finally asked President ble organization providing research and analysis on William McKinley to send federal troops to the social and economic inequities of compulsory restore order. For this, Steunenberg earned the unionism. ===== PAGE 67 ===== The Pursuit of Happiness by Walter E. Williams ¥ Economics/Ethics Fairness: Results Versus Process hose of us who support liberty, limited ers, referees, and timekeepers, or the result of government, and rule of law will never superior ability. prevail in the public arena until we can com- pellingly make the case that free markets and voluntary exchange are inherently fairer than alternative forms of social organization. Prov- The justice, or fairness, of any outcome can ing that economic freedom leads to higher liv- only be meaningfully determined by examin- ing standards and greater personal liberty is ing the process that produced it. To determine not nearly so persuasive as proving that it is whether the Bulls’ domination of the league is morally superior. fair or not, one must ask process questions Interventionists make their case for social such as: (1) Did the players play according to controls and income redistribution based on the rules of the game; that is, did they obey the unfairness of outcomes such as differ- basketball “law”? (2) Did referees apply those ences in income, education, and wealth. Most rules in an unbiased fashion and were penal- people find that argument persuasive. After ties evenly exacted for infractions? (3) Was all, how can the game of life possibly be fair participation voluntary? If the answers are when some people’s yearly income totals hun- yes, then any outcome is consistent with bas- dreds of thousands, even millions, of dollars, ketball fairness and justice. while many others scarcely earn ten or twenty Suppose we forsake the process approach thousand dollars? Our response to the inter- and take a results-oriented approach. Based ventionist’s claim of unfairness should be that on the outcome—the Bulls’ disproportionate results cannot possibly determine fairness. wins—something should be done to create Here’s one way to think about it. The Chica- basketball justice. A Board of Game Deciders go Bulls have won the NBA championship six could be created to control the distribution of times in the last eight years. There are 20 championships. Team owners and coaches teams in the league. Is it fair that one team might present their cases to the Board. Wash- wins so often? By simply knowing the results, ington Wizards coach Bernie Bickerstaff can anyone give an unambiguous answer as to might argue that his team has not won the whether there’s been basketball justice? The NBA championship in 20 years and is truly answer is no. Chicago’s victories might be a deserving of a win in 1999. He might result of a collusion between the Bulls play- strengthen his argument by pointing out how hard his players worked both during the sea- Walter Williams is the John M. Olin Distinguished son and in the off-season. Moreover, Bicker- Professor of Economics and chairman of the eco- staff might ask the Board to consider the great nomics department at George Mason University in PSychological damage his players face being Fairfax, Virginia. seen as perennial losers. 639 Look to the Process ===== PAGE 68 ===== 640 THE FREEMAN e OCTOBER 1998 One can well imagine the resulting conflict ed the producers of slide rules. My marriage and rancor that would develop over which to Mrs. Williams produced a disappointing team is most deserving of the NBA champi- outcome for other women. In each instance, onship. Decent people would become bitter and millions more, the actions taken by one enemies over who had the more just and per- person or group produced undesirable out- suasive case. comes for others. In fact, NBA and other championship Therefore, to begin to say anything mean- games are played every year with little or no ingful about fairness and just conduct, we bitterness. How is it that people with such have to ask: did the participants play accord- conflicting interests play a game, agree with ing to commonly agreed-on rules? But ques- the outcome, and walk away good sports? It is tions about justice cannot be fully settled sim- a minor miracle of sorts. ply by asking whether people conducted The miracle is that it is far easier to reach themselves according to rules. All societies agreement about the rules of a game than its have rules. In the United States before the outcomes. Even basketball teams in the cellar Civil War, the rules held that blacks could be will conclude that their long-run interests lie owned as slaves. In Nazi Germany, the rules in rules that are durable and evenhanded. If a held that Jews could be relocated to concen- coach yearns for an NBA championship, he tration camps. In the former Soviet Union, the can recruit and train superior talent and hire rules held that a citizen could not emigrate assistant coaches to get the best out of players. freely. Conduct in accordance with rules or On the other hand, if the outcome is to be pre- laws alone can never be the sole criterion for determined, a team owner, instead of trying to establishing fairness. We must think about the raise productivity, will lobby the Board of nature of just rules and laws. Game Deciders and bring lawsuits against When we discuss just rules for. our market biased Board decisions. There would be at relationships, we find that they are not sub- least two predictable negative results. Prede- stantively different from the rules in basket- termined outcomes would lower the skills and ball and other sorts of rules. In the market- fitness of all players and lower the overall place, just rules surely include the right to quality of the sport. What would team pro- property and its transference by consent, and ductivity have to do with winning? And, pre- the right to engage in peaceable, voluntary determined outcomes would heighten the exchange. If these rights are protected, any potential for conflict. result is just and fair, including the outcome that some people are very rich and others are On Rules Very poor, Thus, we who cherish liberty must focus We should not evaluate rules in terms of the our arguments on the rules of the game. In likely outcomes they will produce for certain doing so, we should make the case that today people-specific circumstances. As Nobel Lau- there is unfairness in the rules governing our reate F.A. Hayek argued, “It is the ignorance market relationships. That unfairness masks of the future outcome which makes possible itself as social compassion in the form of laws agreement on rules which serve as common that restrict the right to property and volun- means for a variety of purposes.” tary exchange such as: occupational and busi- Many people may deem it undesirable for ness licensing, regulation of economic activi- the Chicago Bulls to dominate the league. ty, and legalized theft. However, despite that consensus, we cannot Even though we libertarians share some call the outcome unfair. If we deem disap- goals of the interventionists, such as greater pointing outcomes unfair, then the term “fair” wealth for our fellow man, we differ on the has no meaning whatsoever, because virtually means. We look to process and they look to all human actions and outcomes produce a results as a criterion for justice. If we could disappointing outcome for someone else. argue our case more effectively and eliminate Mass production of automobiles disap- unfair rules, both libertarians and interven- pointed the buggy manufacturers and their tionists would be pleased with the results: employees. Hand-held calculators disappoint- greater prosperity for all. OJ