===== PAGE 1 ===== Ideas On Cldeas On Liberty January 1999 Vol. 49, No. 1 © [REMAN FEATURES ¥ 6 Why the War on Poverty Failed by James Payne 11 Recruiting Rural Physicians: Small-Town Socialism by William E. Pike 16 The Other Tobacco War by Aaron Lukas 18 Artistic Freedom Requires Economic Freedom by Tyler Cowen 24 Flags, Flames, and Property by Andrew I. Cohen ¥ 29 Elijah McCoy and Berry Gordy: Ingenuity Overcomes by Burton Folsom Sr 32 Sudden Impact: The Collision of Ethics and Air Bag Mandates by Loren E. Lomasky 38 Libertarianism in Japan by David Boaz 40 Can Government Deliver the Goods? by Hugh Macaulay i 45 Markets in Time: The Rise, Fall, and Revival of Swiss Watchmaking A by Anthony Young ~ S51 Let’s Pierce the Government Veil by Karen Selick COLUMNS Center NOTES from FEE—The Grateful Pedestrian by Donald J. Boudreaux 14 IDEAS and CONSEQUENCES—The Poverty of the United Nations by Lawrence W. Reed 27 POTOMAC PRINCIPLES—Public Failure, Private Response by Doug Bandow 36 PERIPATETICS—The Art of Plunder by Sheldon Richman ao ECONOMIC NOTIONS—Censoring Pleas for Help by Dwight R. Lee 53 ECONOMICS on TRIAL—Are Financial Markets Inherently Unstable? by Mark Skousen Yes THE PURSUIT of HAPPINESS~The Civil War’s Tragic Legacy by Walter E. Williams DEDPA RTMENTS Perspective—Pragmatic Collectivism by Sheldon Richman 4 Market Worship? It Just Ain’t So! by Russell Roberts 55 Book Reviews *Titan: The Life of John D. Rockefeller, Sr., by Ron Chernow, reviewed by D.T. Armentano; The Great Betrayal: How American Sovereignty and Social Justice Are Being Sacrificed to the Gods of the Global Economy by Patrick Buchanan, reviewed by James Bovard; Politics By Principle, Not Interest: Towards Nondiscriminatory Democracy by James M. Buchanan and Roger D. Congleton, reviewed by William H. Peterson; Written on the Heart: The Case for Natural Law by J. Budziszewski, reviewed by Robert Batemarco; The Commanding Heights: The Battle Between Government and the Marketplace That Is Remaking the World by Daniel Yergin and Joseph Stanislaw, reviewed by David L. Littmann; Beyond All Reason: The Radical Assault on Truth in American Law by Daniel A. Farber and Suzanna Sherry, reviewed by Lauren S. Bain. ===== PAGE 2 ===== [REMAN ~~ remsreeme Published b ge A The Fowation for Economic Education Do we individualists exaggerate when we Irvington-on-Hudson, NY 10533 condemn our ideological opponents as collec- Phone (914) 591-7230 FAX (914) 591-8910 tivists? That word isn’t merely a term of E-mail: freeman@fee.org . .\- FEE Home Page: http://www. fee.org abuse. It is a spot-on label for the political President: Donald J. Boudreaux philosophy of those who would give govern- Editor: Sheldon Richman ment a prominent economic and social role. Managing Editor: Beth A. Hoffman The philosophy holds that society (or some Editor Emeritus other group) is superior to the expendable Paul L. Poirot individuals who comprise it and that govern- Book Review Editor ment should act on its behalf. Government George C. Leef . . . . . oo . carries out the social will, which has little or Editorial Assistant . . . . Mary Ann Murphy nothing to do with the will of persons, since Columnists that only reflects narrow self-interest. Charles W. Baird Collectivism can be detected in certain Doug Bandow i nd wealth. Whil h Dwight R. Les views on property a ealth. ile muc Lawrence W. Reed variation is possible, today’s pragmatic collec- Mark Skousen tivists are willing to permit a semblance of Walter Williams private property, until it clashes with their Contributing Editors lofty aspirations. Few people today favor out- Clarence B. Carson right and total collectivization of the means of Thomas J. DiLorenzo production. But all collectivists are ready to Burton W. Folsom, Jr. summon the constabulary when a nominal Joseph S. Fulda property owner does something they don’t Bettina Bien Greaves like. Ultimately, all property belongs to the Robert Higgs . John Hospers collective. Raymond J. Keating You can spot a good collectivist by his Daniel B. Klein choice of words. Recently, former New York ny Governor Mario Cuomo, the quintessential ibor R. Mac . . . . ——— pragmatic collectivist, was defending Presi- Edmund A. Opitz dent Clinton against his critics who favor James L. Payne impeachment or resignation. Cuomo said that William H. Peterson although Clinton had done wrong, he’s doing Jane S. Shaw a good job as president. “The job of the pres- Richard H. Timberlake . . . £ cay Lawrence H. White ident is to run the United States o America, , — \ Cuomo said. Not just the government, mind The Freeman is the monthly publication of The Foundation for Eco- . nomic Education, Inc., Irvington-on-Hudson, NY 10533. FEE, you. The whole United States. established in 1946 by Leonard E. Read, is a non-political, educational . . . champion of private property, the free market, and limited government. A few minutes later he pressed his point: FEE is classified as a 26 USC 501(c)(3) tax-exempt organization. ’ . . Copyright © 1999 by The Foundation for Economic Education. Per- Who cares that we can’t believe the President mission is granted to reprint any article in this issue except “The Arts in : : a Market Economy,” “Libertarianism in Japan,” and “Let’s Pierce the on a certain personal matter? The important Government Veil” provided credit is given and two copies of the reprint- : : 6 : re sen to FEE. thing is that “we do believe he knows what to The costs of Foundation projects and services are met through dona- 1 1 dd tions, which are invited in any amount. Donors of $30.00 or more do with the wealth of this country. receive a subscription to The Freeman. For foreign delivery, a donation That’s collectivism. 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. Additional copies of this issue of The Freeman are $3.00 each. * kk Bound volumes of The Freeman are available from The Foundation for calendar years 1972 to date. The Freeman is available in microform from University Microfilms, 300 N. Zeeb Rd., Ann Arbor, MI 48106. Cover: Detail from The Sower by Vincent van Gogh ===== PAGE 3 ===== There is no longer a legal entitlement to Lomasky takes a philosophical look at this welfare, and almost everyone now acknowl- episode of Government Knows Best. edges that America’s long experience with The publication in Japanese of Libertarian- handouts for the poor was a failure. James ism: A Primer gave David Boaz the opportu- Payne explains why the $5 trillion war on nity to contemplate the universality of liberty poverty had no chance of success. in a new introduction to that edition of his State and local governments spend a signif- book. We are pleased to reprint it here. icant amount of cash trying to get doctors to There are two ways to provide goods: the set up practices in rural areas. Is this a good market (consent) and the government (coer- idea? William Pike says it’s not only unneces- cion). Hugh Macaulay compares the two sary, it’s especially bad for the residents of methods in his mission to discover which is those areas. superior. The government’s offensive against tobacco For many years the Swiss had no rivals is well known. But as Aaron Lukas reminds among watchmakers. Then along came the us, the feds for over 30 years have waged a quartz revolution in timekeeping. The entre- war against one particular kind of tobacco: preneurial Swiss were down, but they didn’t the kind grown and rolled into cigars in Cuba. give up. Anthony Young has the story. Can the arts flourish under capitalism when Government is often petitioned to compen- writers, painters, and composers have to sate individuals and groups for injuries inflict- worry about mundane things like making a ed at the hands of bureaucrats and politicians. living? Critics of the market have long But as Karen Selick points out, whenever a answered no. A new book by economist Tyler victim is compensated, a whole new set of Cowen, excerpted herein, says the arts can victims is created. and do flourish in such circumstances. In this month’s columns, Lawrence Reed A new move is afoot to amend the U.S. Con- sets the record straight on America’s “over- stitution to permit prohibition of the burning of consumption,” Doug Bandow sees hope for the American flag. Andrew Cohen surveys the education in the growing private scholarship standard arguments pro and con before asking movement, Dwight Lee argues that laws the overlooked question: whose flag is it? against profiteering during natural disasters Advocates of quotas, set-asides, and other are a form of censorship, Mark Skousen takes government-mandated discrimination don’t a look at financial markets, and Walter seem to realize that those measures assume Williams takes a fresh look at the War that the targeted groups can’t succeed on their Between the States. To Robert Kuttner’s com- own in the free market. Burton Folsom says plaint that the world economy suffers from history disputes that assumption and offers “market worship,” Russell Roberts says, It two cases of entrepreneurial determination to Just Ain’t So! prove his point. Our reviewers dissect books on John D. When the government required air bags in Rockefeller, radical legal philosophy, natural all automobiles some years ago, the regulators law, democracy, environmental entrepreneur- and “consumer advocates” said the mandate ship, and the twentieth-century battle between would save lives. They didn’t say it would also capitalism and socialism. take lives—but that’s what happened. Loren —SHELDON RICHMAN ===== PAGE 4 ===== FREEMAN Ideas On Liberty . J) come from technological change and global- Market Worship { ization. Alas, there is no free lunch. Innova- tion displaces established firms. A factory LI | opens in Malaysia and one in the United It Just Ain t So! States closes. Financial markets in Asia swirl with rumor and speculation affecting our markets as well. Russia teeters on the edge, it AS we approach the millennium, the pace seems, of chaos. of economic change quickens. Con- Who is in charge here? The desire to take sumers have always wanted better products at control, to improve the system via some lower prices. But in today’s economy, the mar- “third way” is always tempting. Chaos and ket delivers “better and cheaper” more quick- uncertainty are never pleasant. The natural ly than at any time in human history. The time response is to try and hold back the forces of between product improvements gets shorter innovation or reduce the sway of global mar- and shorter. Competition drives prices lower. kets. After all, are these not the cause of the It’s a wonderful time to be a consumer. For confusion? entrepreneurs and business leaders, it is feast and famine at the same time. The opportuni- “Market Worship” ties are unprecedented, but the risks are for- midable. Even Bill Gates doesn’t sleep well. In a recent piece in the Washington Post, Today’s genius can be out of business tomor- economics writer Robert Kuttner blames the row because of technological advances we chaos on a naive worship of free markets. He cannot dream of. New business starts are at blames speculators for the problems of Asia. extraordinary levels, but more of these ven- He blames the United States for encouraging tures fail than succeed. Competition is fiercer capitalism in Russia then failing to help out and more unforgiving than ever before. when capitalism fails. Kuttner is not alone. Two fundamental forces drive the pace of Numerous commentators see the current state economic change. The first is technological of world markets as an indictment of capital- innovation, particularly in handling and dis- ism and free markets. seminating information. Computers get more Yet much of the chaos comes from previous powerful, smaller, and cheaper. The Internet government attempts to meddle with the sys- expands the reach of customers in ways that tem or control it. In Asia, government tinker- are just beginning to be explored. And in tra- ing with capital markets is endemic. Special ditional markets such as retailing, the applica- interests get favors, and markets react. Specu- tion of information technology pushes prices lation is not the cause of Asia’s economic down and pressures those who do not keep problems; it’s the result. Government policy pace. cannot stand in a vacuum; speculation is the The second fundamental force driving market's judgement of the wisdom of the change is the increasing accessibility of glob- policymakers. al markets. The increase in international In Russia, policymakers have partially dis- opportunity means new markets for products mantled socialism without putting property and workers and greater economies of scale. rights in place to allow markets to work. You We like the wealth and opportunity that cannot buy and sell land freely. Banks cannot ===== PAGE 5 ===== 5 enforce mortgages, so home equity cannot be college freshmen, I like to ask them whether converted into capital for new businesses. The they want the same careers as their parents. tax code is capricious. Too many people still Inevitably, only a few want to pursue the work in government-controlled firms where careers of either of their parents. The next wages are determined by politics rather than generation has its own skills and dreams. The market forces. incredibly vibrant marketplace that we live in Many of the current problems in Asia and today allows it to live out those dreams. elsewhere come from the government’s inex- Dealing with the menu of opportunity pre- orable urge to cushion the hardship that sented by free markets is a challenge. It results from bad economic decisions. We see means preparing for those opportunities by the same problems in the United States. We investing in knowledge and skills. It means implicitly bailed out banks that made bad embracing some opportunities and forgoing investments in Mexico. And we had the Fed- others. It means living with the consequences eral Reserve pressuring private investment of our decisions. The marketplace is not kind banks to bail out the Long-Term Capital to all people at all times. But coping with the hedge fund lest it fail. These maneuvers only challenge of opportunity is what allows us to encourage future investors to take more risk feel fully alive. unwarranted by potential returns. There are two ways to cope with the uncer- tainty that comes along with economic oppor- . tunity. One is to lobby the government for Security Through special treatment to insulate your industry, Protectionism’ your job, your lifestyle from market forces. But what about the changes in the market- Whenever this is an option, men and women place that are due not to poor public policy divert energy and resources from the world’s but to the market forces of innovation and Pusiness and instead devote their skills to global competition? As we get wealthier, it is influencing government. This diminishes the natural that we think of ways to reduce risk human enterprise. Using government to pro- and uncertainty. One way is to limit the role of tect one industry always means punishing global competition via protectionism in its another. many forms. Or to soften the blows of com- It is far better to prepare for the economic petition, we can support businesses that fail in adventure that lies before us by investing in the marketplace. Should the government skills and knowledge that can be used in the intervene to reduce the chaos that comes with increasingly competitive marketplace. Coping competition? with the market’s challenge enhances the lives The simple answer is that competition and We lead and, through our efforts, the lives of free markets make us rich, which surely beats others. the alternative. But wealth creation is not the —RUSSELL ROBERTS only reason for allowing free markets to work Director, Management Center their magic. Free markets maximize the menu Olin School of Business of opportunities available to us as individuals. Washington University, St. Louis Whenever I speak to high school students or roberts@mail.olin.wustl.edu ===== PAGE 6 ===== ¥ Government FREEMAN deas On Libert Why the War on Poverty Failed by James L. Payne ell, it’s now official: the war on poverty quotes one resident as saying. “It gave people was a costly, tragic mistake. Ordinary a way to get by without having to do any people have suspected that for decades, of work.” Local officials told him that “many course, but we had to wait for the New York parents urge their children to try to go to spe- Times to decide this news was fit to print— cial education classes at school as a way to which it finally did on February 9, 1998. Ina prove they are eligible for [SSI] disability front-page story on poverty in rural Kentucky, benefits.” (The senior class at the local high Michael Janofsky detailed the failure of this school picked as its motto, “I came, I slept, | effort in the one region that was supposed to graduated.”) be the centerpiece of reform. “Federal and Why did the war on poverty fail? What was state agencies have plowed billions of dollars wrong with the programs under which the into Appalachia,” he wrote, yet the area nation spent over $5 trillion attempting to “looks much as it did 30 years ago, when solve the problems of the poor, only to come President Lyndon B. Johnson declared a war up empty? It’s an important question to ask in on poverty, taking special aim at the rural these days of welfare reform. The first step decay.”! toward a sound policy ought to be to identify Janofsky visited Owsley County, Kentucky, the errors of the past. and found a poverty rate of over 46 percent, Perhaps the best way to answer the question with over half the adults illiterate and half is to take a close look at the book that inspired unemployed. “Feelings of hopelessness have the war on poverty, Michael Harrington’s The become so deeply entrenched,” he reported, Other America, published in 1962. (Harring- “that many residents have long forsaken any ton died in 1989.) Possibly the most influen- expectation of bettering themselves.” For tial policy book in history, The Other America years, the government has been trying to treat was cited again and again by the politicians, the despair with welfare programs: two-thirds activists, and administrators who set up wel- of the inhabitants receive federal assistance, fare programs in the 1960s. In it we find the including food stamps, AFDC, and SSI dis- fallacies that sent reformers down dark and ability payments. This, it now appears, is part tangled paths into today’s social tragedies. of the area’s problems. “The war on poverty was the worst thing Curing Poverty that ever happened to Appalachia,” Janofsky Through Algebra James Payne is the author of Overcoming Welfare: Though social workers and welfare admin- Expecting More from the Poor and from Ourselves 1strators embraced Harrington's account, nei- (Basic Books, 1998). ther he nor they realized how distinctive, even ===== PAGE 7 ===== 7 bizarre, was the theory of poverty that it con- tive, curing poverty was simple algebra: add tained. Harrington’s premise was that poverty governments x dollars to the poor’s y dollars is a purely economic problem: the needy sim- and the result would be the end to poverty. ply lack the material resources to lead pro- It was a perspective that led to intolerance. ductive, happy lives. Supply these resources, Since poverty was so simple to remedy—the the theory runs, and you will have solved the activists reasoned—it was unethical not to problem of poverty. “The means are at hand,” act. “In a nation with a technology that could declared Harrington, “to fulfill the age-old provide every citizen with a decent life,” Har- dream: poverty can now be abolished.”2 This rington thundered, “it is an outrage and a theme was repeated up and down the welfare scandal that there should be such social mis- establishment. Sargent Shriver, the adminis- ery.” For the activists, welfare programs did tration’s leading anti-poverty warrior, told not involve complex relationships and Congress that the nation had “both the intractable problems about which honest peo- resources and the know-how to eliminate ple could disagree. They were simple moral grinding poverty in the United States.” Presi- imperatives, and anyone who opposed them dent Lyndon Johnson echoed the claim. “For was seen as selfish and insensitive. (This dog- the first time in our history,” he declared, “itis matic view has by no means disappeared from possible to conquer poverty.” so-called liberal circles.) To most people, these claims seemed incredibly naive. While the state of neediness The Ideol ogy of Handouts we call poverty does involve a lack of materi- al resources, it also involves a mass of psy- The simple economic theory of poverty led chological and moral problems, including to a single underlying principle for welfare weak motivation, lack of trust in others, igno- programs. Since the needy just lacked goods rance, irresponsibility, self-destructiveness, and services to become productive members short-sightedness, alcoholism, drug addic- of the community, it followed that all you had tion, promiscuity, and violence. To say that all to do was give them these things. You didn’t these behavioral and psychological problems have to see that they stopped engaging in the can be “abolished” seems a denial of the com- behavior that plunged them into neediness. mon-sense Biblical teaching that the poor will You didn’t have to ask them to apply them- always be with us. selves, or to work, or to save, or to stop using Abolishing poverty did not seem far- drugs, or to stop having babies they couldn’t fetched to the activists, however. Indeed, one support, or to make any other kind of effort to book from that era boldly challenged the Bib- improve themselves. In other words, the wel- lical wisdom with its title: The Poor Ye Need fare programs the war-on-poverty activists Not Have With You. This 1970 volume was designed embodied something-for-nothing written by Robert Levine, who had served in giving, or what we usually call “handouts.” the Office of Economic Opportunity, the fed- The handout feature characterized not only eral government’s anti-poverty agency. His the programs that gave away cash and materi- book was also supported by the Ford Founda- al resources like food and housing; it was also tion and the Urban Institute, two principal incorporated in programs that provided train- backers of the war on poverty. Levine adhered ing, education, and rehabilitation. Recipients to the simple materialistic view of poverty. did not have to make any significant sacrifice “Even a quick look can convince us that to be admitted to them, and they did not have poverty as it is currently defined in the United to make any significant effort to stay in them. States is a completely solvable problem,” he Swept up by the rhetoric of the day, program wrote. “If we were to provide every last poor organizers simply assumed that all that recip- family and individual in the United States ients needed was “opportunity,” especially the with enough income to bring them above the opportunity to learn a trade and to get a job. level of poverty, the required outlay would be Alas, this was mainly untrue. One of the less than $10 billion a year.” In this perspec- first things the needy lack is motivation; that ===== PAGE 8 ===== 8 THE FREEMAN/IDEAS ON LIBERTY ® JANUARY 1999 is, they lack the ability to sacrifice and to dis- as Head Start’s own promoters insist, that par- cipline themselves, to defer present gratifica- ent participation is crucial to the success of tion for future benefit. Most of the recipients early intervention.8 Logically, then, parental in the anti-poverty training and education pro- involvement should be required as a condition grams were poorly motivated, and their lack of the program. Unfortunately, the idea of a of commitment meant that they couldn’t make requirement goes against the agency’s hand- good use of the opportunities put before them. out principle: “Head Start cannot threaten to Worse, they dragged down the morale of dismiss a child for non-performance of either teachers and those recipients prepared to parent or child,” says one pamphlet extolling apply themselves. What were administrators the program. “It can only offer to help.” to do? If they required a strong commitment This indulgent approach has meant that to the task of self-improvement, this would most parents have no significant involvement mean turning away most of the applicants— with the Head Start program, and for them and watching their welfare empires collapse. and their children it is little more than a baby- Not surprisingly, officials were inclined to sitting service. In the Head Start office in relax standards and let education and training Sandpoint, Idaho, I asked a teacher how often programs become giveaways. parents volunteered to be in the classroom For example, in the early 1980s, the Man- with their children. “We'd like them to come power Development Research Corporation in once a month,” she replied. The emphasis (MDRC) ran a number of “supported work” she put on “like” indicated that she under- programs for disadvantaged youths financed stood even this minuscule level of parental by the federal government. The aim, as an involvement was an unrealistic hope. I hap- MDRC vice-president told a Senate subcom- pened to see the roll and time sheet for one mittee, was a program “for instilling positive class: it showed that not one parent of the work habits and attitudes.” To implement this 18 children had volunteered in the entire goal, attendance standards were announced: month. no more than three unexcused absences or five unexcused latenesses in the first ten . weeks of training class. Reporter Ken Auletta The Healthy Way to Give attended one of these courses in New York In adopting the handout approach for their City and discovered that even these modest programs, the war-on-poverty activists failed rules were not being applied. Students were to notice—or failed to care—that they were allowed to come and go as they wished, even ignoring over a century of theory and experi- to sleep or read the newspaper in class. The ence in the social welfare field. Charity lead- trainer in charge explained that if the rules ers of the nineteenth century had lived with were applied, “we'd lose just about everyone the poor and had analyzed the effects of dif- in the class.”” The overall effect of this indul- ferent kinds of aid. They discovered that gent approach in job training programs has almsgiving—that is, something for nothing— been to “train” participants in irresponsibility: actually hurt the poor. First, it weakened them they learn that the world will keep rewarding by undermining their motivation to improve them even when they don’t live up to their themselves. If you kept giving a man food obligations. when he was hungry, you undermined his Head Start is another case where the give- incentive to look for a way to feed himself. away approach has undermined the effective- Second, handouts encouraged self-destructive ness of the program. The original idea behind vices by softening the natural penalties for Head Start was to give poverty-level irresponsible and socially harmful behavior. preschoolers social and educational enrich- If you gave a man coal who had wasted his ment that would help them succeed in school. money on drink, you encouraged him to drink Since the children are in class only a few away next month’s coal money, too. Finally, hours a week, it is vital that anything learned the nineteenth-century experts argued, hand- be reinforced at home by parents. That means, outs were self-defeating. People became ===== PAGE 9 ===== WHY THE WAR ON POVERTY FAILED 9 dependent on them, and new recipients were holics, he never saw his friendship as a plat- attracted to them. So this type of aid could form for mentoring them, as a way of guiding never reduce the size of the needy population. them to recovery. He simply watched these With handouts, the more you gave, the more suffering men go in and out of their drunks, you had to give. and gave them handouts as they went along. The correct way to help the needy, they Summarizing his experience, he concluded said, was to expect something of recipients in that alcoholic poverty was not an economic return for what was given them. Instead of problem but “deeply a matter of personality.” giving poor people what they needed, the In a revealing aside, he added, “One hardly charity leaders organized programs that knows where to begin.”!! enabled the needy to supply their own wants. For someone so ready to hector others They weren’t given money, but were coun- about how easily poverty could be “abol- seled to find employment; they weren't given ished,” Harrington was astonishingly unre- apartments, but were rented, at cost, healthy flective about his own performance. His fail- dwellings managed by charities; they weren’t ure as a social worker among the homeless given food, but learned to grow their own never led him to question his handout food at garden clubs developed for that pur- approach, and his personal knowledge that pose. The great English charity leader Octavia poverty was not an economic problem never Hill, who worked all her life among the poor, shook his ideological conviction that it was. summed up the nineteenth-century social The rest, as they say, is history. The man who workers’ position on handouts: “I proclaim “hardly knew where to begin” in treating the that I myself have no belief whatever in the problems of poverty—and who failed when poor being one atom richer or better for the he tried—became the guru for a massive array alms that reach them, that they are very dis- of government handout programs that, as even tinctly worse, and that I give literally no such the New York Times now concedes, only deep- alms myself’10 ened the culture of poverty. Failing in the Field The Road Back to The war-on-poverty activists not only Common Sense ignored the lessons of the past on the subject In the 1996 welfare reform, the nation of handouts; they also ignored their own began to undo the damage caused by the war experience with the poor. The case of Har- on poverty’s misguided approach. Most law- rington himself is especially revealing. makers finally grasped the point that handout In the early 1950s Harrington worked at the programs are harmful and self-defeating. St. Joseph’s House of Hospitality, a shelter for They began to see that welfare programs need the homeless in New York’s Bowery district. requirements, that recipients have to be asked The philosophy of the shelter was pure hand- to take steps toward self-improvement and out. Beds, food, and clothing were given out, self-sufficiency. as Harrington proudly reported, on a “first It has not been easy to implement this con- come, first served” basis. The shelter didn’t cept, however. Lawmakers have yet to discov- require anything in return: not small amounts er that government agencies are ill-suited to of money, not work, not any effort at self- carry out the subtle task of personal uplift. improvement. In The Other America Harring- This mission requires helpers who become ton described at length the tragic lives of the personally involved in the lives of their alcoholics served by the shelter, the degrada- clients. It requires that helpers be mentors tion, exposure, disease, theft, and violence who project healthy values. It also requires that made up their lives. Yet he didn’t report treating each client as an individual, subject to having any strategy to uplift them, and didn’t a different set of expectations and rewards. report rehabilitating a single one. Though he All this runs against the grain in government, became friendly with some of the street alco- where the pressures of law and regulation ===== PAGE 10 ===== 10 THE FREEMAN/IDEAS ON LIBERTY ® JANUARY 1999 push agencies toward behaving in an imper- thing but handouts. It remains for future gen- sonal, value-free, and uniform manner. In the erations to lay the government programs long run, this leads to handout programs, entirely aside and to promote the personal, because handouts are impersonal, value-free, voluntary arrangements that make for truly and uniform. effective social assistance. a The nineteenth-centur y charity leaders 1. Michael Janofsky, “Pessimism Retains Grip on Region Shaped were familiar with the drawbacks of govern- by War on Poverty,” New York Times, February 9, 1998, p. Al. : : 2. Michael Harrington, The Other America: Poverty in the Unit- ment assistance. Mary Richmond, one of the or © New York: Macmillan, 1969 (1962), p. 174, founders of American social work, con- 3. Robert A. Levine, The Poor Ye Need Not Have With You: demned public relief in no uncertain terms: Toor: from the War on Poverty (Cambridge, Mass.: M.L.T. Press, . . , p. 6. “The most experienced charity workers 4. Harrington, p. 17. regard it as a source of demoralization both to ._ oe " Ren Avleus Toe Undoreiass (Now Yorks Resdom the poor and the charitable. No public agency 6. Ibid., pp. 57, 120, 121, 122. : . : 7. Ibid., p. 65. can supply the devoted, friendly, and Intense 8. Edward Zigler, Sally J. Styfco, and Elizabeth Gilman, “The ly personal relation so necessary in charity. It National Head Start Program for Disadvantaged Preschoolers,” in : : Zigler and Styfco, eds., Head Start and Beyond: A National Plan for can Sup ply the gift, but it cannot Sup ply he Extended Childhood Intervention (New Haven: Yale University giver, for the giver is a compulsory tax rate.”12 press, 1993), p. 4. The 1996 welfare reform was therefore just 9. Tim Nolan, What Really Makes Head Start Work? (Milwau- . . kee: Institute for Innovation in Human Services, 1991), p. 8. a first step in undoing the harmful anti- 10. Octavia Hill, The Befriending Leader: Social Assistance HI. fq: without Dependency, ed. James L. Payne (Sandpoint, Idaho: Lytton poverty policies of the 1960s. It did introduce Publishing Co., 1997), p. 57. the idea that handouts are wrong. But it 11. Harrington, p. 94. : : : 12. Mary E. Richmond, Friendly Visiting Among the Poor: A missed the deeper point that, in the long run, Handbook for Charity Workers (Montclair, N.J.: Patterson Smith: government agencies aren’t very good at any- 1969 [1899]), pp. 151-52. The Foundations of Morality by Henry Hazlitt In this impressive work Hazlitt explores the proper foundation of morality. It would give the game away to reveal his conclusion, but suffice it to say that Hazlitt conducts a detailed and scholarly inquiry into the many possibilities. Leland B. Yeager, noted economist, has written a new foreword to the book, in which he says that The Foundations of Morality “provides (in my view) the soundest philosophical basis for the humane society that is the ideal of classical liberals.” This challenging work on ethics fits in the great tradition of Adam Smith’s Theory of Moral Sentiments and David Hume's Treatise of Human Nature. It is a well-reasoned, tightly argued book that amply rewards its readers. 398 pages Regular Price: $3895 Sale Price: $14.95 ===== PAGE 11 ===== FREEMAN (ideas On Liberty) On Libert Recruiting Rural Physicians: Small-Town Socialism by William E. Pike A s the supreme defender of the status quo, (Government Response the state often feels a necessity to react whenever a broad market or social change is taking place. Lawmakers and bureaucrats are rarely satisfied to let new trends work them- selves out for the public good in a free- market society. Such has certainly been the : : © < case with health care in America over the last © recruit and retain rural physicians. Politi- decade. cally, such programs are easily defended as Through the 1980s and into the 1990s, as absolutely necessary, in the words of Ten- health-care costs grew, society saw a shift in nessee’s rural health office, “to improve and provider demographics. Two conflicting enhance the accessibility, availability, and things occurred during this period. First, ris- 2ffordability of quality health care.” Few vot- ing physician salaries in specialties such as ©; and certainly few legislators, are willing radiology and anesthesiology drew more and to argue with such a mission. However, are more medical students away from traditional such agencies really efficient in the face of general practice. Second, managed care [ree-market alternatives? became increasingly prominent. Managed HOW do government agencies recruit physi- care, of course, relies on general practitioners, cians for rural communities? The foremost or primary care physicians, as gatekeepers device is money. Many states lure doctors to between patients and more expensive special- ural practice by paying all or part of the cost ized care. of their medical education. In some cases the As the ranks of primary care physicians state contracts with new physicians to work in grew smaller, such doctors began to get 2 rural area for a specific amount of time in lucrative offers from large urban managed return for payment of debts at the end of that care organizations. These trends left an obvi- Service. In other, less effective programs, stu- ous void—a shortage of rural primary care dents sign agreements promising to work in a physicians. A survey of medical school rural area after completion of medical school, seniors taken in 1979 showed that only 59 Which the state pays for in the meantime. percent preferred a large or moderate city Obviously, this arrangement is prone to practice. By 1989 that number had grown to exploitation by students who, their education 80 percent.! paid for and degrees in hand, decide not to practice rural medicine, or at least not to ful- William Pike is a fiscal analyst for the South Dakota fill their entire obligation. In either case, citi- Legislative Research Council. zens pay heavily. 11 Local, state, and federal government agen- cies moved to check this shortage by spend- ing tax dollars and manipulating the market. Now most states maintain some sort of pro- gram, at a cost of millions of dollars a year, ===== PAGE 12 ===== 12 THE FREEMAN/IDEAS ON LIBERTY ® JANUARY 1999 Other recruitment methods also exist. economy, urban and rural. Consider the States have sponsored programs to interest advice of one publication written as a guide rural high school students in medical careers. for those working in the field of rural physi- They have also set up residency training pro- cian recruitment: grams in rural hospitals to give medical stu- dents the chance to experience rural life first- Develop a recruitment fund with dona- hand. Some of these programs have succeed- tions from the hospital, businesses, and ed in bringing doctors to rural areas. In 1971 community events, e.g., cake sales and the University of Minnesota opened the Rural high school car washes. Be prepared to Physician Associate Program, a nine-month spend several years of hard work develop- elective available to third-year medical stu- ing the fund. dents. According to the university, “Students Consider developing a community finance live and train in non-metropolitan communi- plan to help new doctors purchase equip- ties under the supervision of family practice ment or repay their educational debts.3 and other physicians called preceptors.” Over 800 medical students have participated, and Imagine a community accepting such of those, 65 percent now practice in rural advice for the recruitment of bankers or areas. Eighty-two percent of the participants lawyers. It wouldn’t happen. We do not hear chose primary care.? of severe shortages of bankers or lawyers in In addition, state-sponsored recruitment rural America, not because there are necessar- agencies attempt to lure practicing physicians ily too many of them, but because the free to rural hospitals and communities. For market offers a place for practitioners of these instance, Oregon sponsors the Healthcare professions in small towns as well as in large Experts for Rural Oregon (HERO) program, cities. Advocates of state-sponsored rural which works with rural communities to attract physician recruitment are bound to argue that compatible physicians, offering bonuses such physicians cannot be compared to bankers or as a state income tax credit of $5,000 forup to lawyers. But in fact, none can exist without ten years. the others. All three, along with grocers, cus- todians, restaurateurs, teachers, carpenters, Is State Recruitment Nec essary? and a host of other workers and entrepreneurs are intertwined into any local economy, and Government-sponsored recruitment is cer- none should be singled out for special treat- tainly a departure from free-market princi- ment. When special treatment is accorded to ples. However, it is not the kind of govern- one occupation, the population is bound to ment intervention that is likely to draw much suffer through both the cost and quality of the criticism. The state would respond that it is service offered. Lopsided dependence is no fulfilling its proper role by helping rural com- base on which to build any segment of an munities find the physicians they need for economy. quality care. The subject isn’t quite that sim- Just as government interference creates a ple, however, and the outcomes aren’t always culture of dependence among rural residents, SO TOSY. it also creates a culture of transience in the The emphasis placed on recruiting physi- rural health-care community. In the free mar- cians helps contribute to a dangerous culture ket, physicians take up practice in a commu- of dependence among residents of rural areas. nity because they want to live there and Rural communities come to see themselves as because they feel that good opportunities “charity cases,” unworthy of having a physi- exist for them. Some are bound to move on, cian except at the start of his career and not but many will stay and pursue their dreams. able to support or attract a physician without When physicians are lured to a community state help. That culture subverts the free- through state loan repayments, tax breaks, market principle of voluntary exchange for and other perks, a sense of transience is mutual benefit that rules other aspects of our almost expected. One North Carolina study ===== PAGE 13 ===== RECRUITING RURAL PHYSICIANS: SMALL-TOWN SOCIALISM 13 found that 19 percent of newly recruited rural In the meantime, rural hospitals and com- physicians planned to leave, even when they munities should be encouraged to use private first arrived. Fewer than half planned to stay.4 recruiting agents or cooperative recruiting Though some physicians will remain in an efforts, rather than state-supported recruiting area for a long time, others will move on to mechanisms. Such efforts are more realistic still greener pastures when their obligations and efficient—and more satisfying in match- are fulfilled or when they realize that their ing a doctor to a community. personalities and dreams do not fit the com- In short, we must be careful not to pass off munity in which they were placed. Such tran- any state-sponsored program as helpful or sience is detrimental to quality health care in even as harmless without a full analysis of small communities and merely perpetuates the free-market alternatives. Though wide- the recruitment problem by opening up a ranging government health-care initiatives, vacancy not long after it has been filled. such as the 1993 Clinton plan, are likely to raise the eyebrows of voters, few people will . even notice something as seemingly innocu- Market Alternatives ous as government-sponsored rural physician Nevertheless, primary care physicians are recruitment. On its surface that mission, like few and far between in much of rural Ameri- SO many others, seems to be a proper use of ca, and access to medical care there is often a tax dollars, a beneficial action on behalf of real problem. But this situation must not drive those with little political or economic power. us to conclude that free-market solutions Yet itis in exactly such cases that citizens lose don’t exist. Indeed, trends that have drawn so freedom and independence to the state, a much discussion over the past decade may be trend that is hard to reverse. tl reversing themselves. The growth of managed —:0 1a, ed. Rural Health Challenges in the care organizations, which drew so many gen- 1990s, (Princeton: Robert Wood Johnson Foundation, November eral practitioners to urban areas over the last ae La of Minnesota, Rural Physician Associate Program. several years, is slowing. Profits are shrink- Hup:/www.rpap.umn.edw. May 7, 1997. choice.’ The shortage of primary care physi- 1992, p. K3. into a surplus, as medical students realize Retention, University of North Carolina Rural Health Research Pro- where their best op portunities for work migh t ry Ce tor Suing Health System Change, Issue Brief, Wash- be in the future. Some of these physicians ington, D.C., May 1998. will turn to rural communities on their own, 6. “Survey shows surplus of primary care physicians.” CNN a Interactive, U.S. News Story page, http://www.cnn.com/US/9804/ realizing that markets there are open. 13/doctor.shortage.ap/. April 13, 1998. NEMA JAFEN SLXE] REFRY VEAL AS SA SWRAS SEE ===== PAGE 14 ===== Ideas and Consequences by Lawrence W. Reed The Poverty of the United Nations wenty years ago, a United Nations report posed to be the explanation for this disparity, listed the United States as consuming and the solution offered was for America to 115,540 kilowatt-hours of energy per person spread its wealth in foreign-aid gifts to the per year. At the same time, each person in the less fortunate countries of the world. tiny central African nation of Burundi was Energy, of course, wasn’t (and still isn’t) using up just 120 kilowatt-hours. My guess is the only thing of which America consumes that today, the average American is still con- more than its share of global population. We suming about a thousand times as much ener- also eat more than 6 percent of the world’s gy as the average Burundian. It’s also a safe potato chips and broccoli. We enjoy more than bet that the “experts” at the United Nations 6 percent of the world’s indoor plumbing, want Americans to feel just as guilty about the hearing aids, and baseballs. We operate more disparity today as 20 years ago. than 6 percent of the world’s cars, trucks, Is this something about which Americans hang gliders, tricycles, and skateboards. We should flog themselves in unremitting guilt? listen to more than 6 percent of all lectures Does Burundi use less energy because Amer- and read more than 6 percent of the world’s ica uses too much? Is world energy a fixed books. And we probably put up with more pie, with America greedily hogging more than than our share of nonsense too. its quota at the expense of the Burundis of the The fact is that Americans consume more planet? Would Burundi be better off if Amer- because Americans produce more. That’s ica impoverished itself? Questions like these right—more than 6 percent of the world’s were answered definitively by free-market potato chips, baseballs, skateboards, and economists decades ago, but like a nagging countless other things. If we didn’t first pro- mother-in-law, the questions just never go duce, we wouldn’t have it to consume or to away. trade for what we really wanted. How can You’ve heard this international class war- such an elementary point, such a basic princi- fare stuff before, from many sources besides ple of life and economics, be lost on anyone the United Nations. A few years ago, the who doesn’t have to sign his name with an mantra of the international statist communi- “X*? ty—repeated endlessly in the media—was Unfortunately, the UN. is at it again. Last this: “Americans are only 6 percent of the September it issued a document called “The world’s population but they consume 40 per- Human Development Report 1998.” The rich- cent of the world’s energy.” Greed was sup- est fifth of the world’s nations, declares the Lawrence Reed is president of the Mackinac Center report, accounts for 86p ercent of privise con- Jor Public Policy (www.mackinac.org), a free-market sumption. Never mind the inherently dubious research and educational organization in Midland, nature of adding up “private consumption” in Michigan, and chairman of FEE'’s Board of Trustees. almost 200 different countries. 14 ===== PAGE 15 ===== 15 The report is yet another lamentation about that. And it’s no coincidence that reports to how the rich have it and the poor don’t: the the contrary come forth from a world body in richest fifth purchase nine times as much meat, which the ranks of the benighted are legion. have access to nearly 50 times as many tele- What poor nations need to do is to create phones, and use more than 80 times the paper the enlightened political and cultural condi- products and motorized vehicles than the poor- tions whereby capital investment and the est fifth. While two billion people worldwide resulting production are encouraged instead supposedly go without schools and toilets, self- of suppressed. This is not new information. indulgent Americans are painting themselves It’s the same formula by which America with $8 billion in cosmetics and Europeans are emerged from the status of 13 poor backwater feasting on $11 billion in ice cream. To reduce colonies to the wealthiest nation on the globe. these horrid inequalities, the report recom- With a relatively free economy, America has mends that “consumption levels among the shown the world how to go from Model T's to poor” be increased to “basic” levels. space shuttles in less time than most peoples Think about that. The poor nations don’t have taken to get from dirt paths to gravel consume much now, and the U.N. tells us that roads. Other countries from England to Hong the answer is for them to consume more. How Kong can boast similar accomplishments as are the poor nations to get more? Change their well, and for similar reasons. ways? Produce more, perhaps? If the UN. It is no disgrace that Americans consume thinks that poor nations’ low productivity is at 40 percent of the world’s energy, or whatever fault here, there’s little sign of it. As the New the number may really be. Rather, it is a trib- York Times revealed, “the report only skirts ute to our ingenuity, creativity, and enterprise. the issue of what role the poorest nations We've put our God-given abilities to work themselves play in this predicament.” within a system that even with all its govern- The sad fact is that in those poor countries ment intervention is still infinitely more hos- like Burundi, indigenous political and cultur- pitable to production than Burundi’s. If we al barriers to production constitute the over- restricted our energy consumption to just 6 whelming if not exclusive source of poverty. percent of the total world supply, our lives Routinely, the chronically destitute nations of would be shorter, less healthy, and a lot more the world are the ones that make war on pri- painful. There would be fewer of us, and not vate property, keep out foreign investment, by choice. The rest of the world would be impose viciously punitive taxes and regula- worse off too because poor people cannot tions, spend inordinate sums on the military, materially do much to help other poor people squander resources on corruption and public through trade. works boondoggles, and in general, penalize People who are interested in ending pover- or even kill anybody with enough spunk to ty and really solving economic problems start a business. These nations don’t consume would do well to read Adam Smiths The much because, as a result of these barriers, Wealth of Nations and ignore any report that they don’t produce much. It’s as simple as comes out of the United Nations. J The apple icon @ identifies Freeman articles that are appropriate for teaching high- school students several major subjects—including economics, history, government, phi- losophy, and current issues. We also provide sample lesson plans for these articles on our Web site www.fee.org and in written form. Teachers and homeschooling parents need only to visit our Web site or request written lesson plans to take advantage of this unique service. ===== PAGE 16 ===== FREEMAN deas On Liberty The Other Tobacco War by Aaron Lukas he U.S. Customs Service recently mount- which grants presidents the authority to pro- ed a major offensive in the federal gov- hibit the import of property from specified ernment’s latest brainchild: the war on Cuban foreign countries. Federal law has banned cigars. Agents swept through exclusive Man- most imports from Cuba since July 8, 1963, hattan clubs and restaurants, arresting man- shortly after President John F. Kennedy agers and patrons alike. Once again, law- ordered press secretary Pierre Salinger to go abiding New Yorkers are free to stroll down out and buy as many of his favorite H. Park Avenue without fear of encountering a Upmann Petit Coronas as possible. contraband Cohiba. News reports evoked images of grim- . . faced, Prohibition-era G-men busting up Sanctions Codified speakeasies: “[Agents] searched the upscale In 1996 the Helms-Burton Act codified restaurant Patroon and arrested its cigar room many of the unilateral economic sanctions manager Alex Hasbany,” reported the Reuters against Cuba that the United States had main- news wire. “The restaurant’s owner, Kenneth tained under the Trading with the Enemy Act. Aretsky, former president of New York’s It also added noxious new provisions, such as famous ‘21 Club’ surrendered to authorities extraterritorial boycotts of foreign companies on Thursday.” that do business in Cuba. Good thing Aretsky went peacefully—gun Such laws offer massive potential for abuse battles in expensive restaurants were all the because enforcement is nearly impossible. rage in the days of cigar-smoking crime boss Prominent businessmen have been nabbed, Al Capone, but are passé today. but how many members of Congress have Federal prosecutors reported seizing sever- occasionally indulged in a fine Havana Mon- al hundred thousand dollars’ worth of the tecristo or Cohiba Esplendidos? Don’t expect prized stogies. At least nine people were to see agents raiding Capitol Hill offices any- arrested, including the head of U.S. securities time soon. at Chase Securities, Inc., a unit of Chase Man- Besides, is Cuba really our enemy? With hattan Bank. the collapse of the Soviet Union and the sub- All of this suggests the question: doesn’t sequent end of subsidies to Cuba in the early customs have anything useful to do? 1990s, the Cuban security threat virtually The raids were conducted under the aus- ceased to exist. Now we isolate Cuba not to pices of the Trading with the Enemy Act, enhance security, but to “help” the Cuban people. Aaron Lukas is an analyst at the Cato Institute's Cen- It’s difficult to see how commando raids ter for Trade Policy Studies. on American citizens will promote freedom 16 ===== PAGE 17 ===== 17 abroad. In any case, it’s bad policy. Our smuggling will occur; oppression in Cuba government was established to protect the will continue, however, just as it has during life, liberty, and property of the people of nearly four decades of U.S. isolation. the United States. We shouldn’t allow our Sadly, the cigar sting is only the most rights to be compromised, even for seem- recent embarrassment in America’s failed ingly noble goals. The example of a free policy toward Cuba. Ongoing U.S. antago- and prosperous America is a more powerful nism is a major reason that Castro remains so force for change than any embargo will ever firmly in power, despite the Cuban economy’s be. deterioration. Nevertheless, Customs has dramatically If Congress and the Clinton administration stepped up its enforcement efforts against are serious about encouraging liberalization, Cuban cigars. The agency reported confiscat- they should allow Americans to trade freely ing $3.1 million worth last year alone, in with Cuba. The Cuban embargo—and the 3,700 separate seizures. As is the case with cigar wars—should be consigned to the ash illegal narcotics, prices will rise and more heap of history. OJ It's Time to Privatize Social Security or six decades Americans have relied on Social Security for retire- ] ment income. But in just a few years, Social Security will be deeply The essential tool in the red and will be unable to provide promised benefits without for educating the enormous tax increases on young workers. Future generations of workers public on the actually face the prospect of getting back less in benefits than they were importa nce of forced to pay in taxes. privatization This short, easy-to-read guide to the problems of Social Security presents a workable alternative based on private savings and investment. Peter Ferrara and Michael Tanner show how a privatized Social Security system would work and why it would both fulfill current obligations and provide a better retirement future for young people. 1 copy $4.95 . 5 copies $15.00 ~ Order extra copies for 50 copies $100.00 ) friends, neighbors, rela- 100 copies $125.00 © tives, and coworkers— (For prices on more than 100 at bulk discount prices a and Lampo at Send copies of Common Cents, Common Dreams. Total: $ Name 0 My check payable to Cato Institute is endosed. Q Charge my: QVISA QO MasterCard Q Amex Address Account # Exp. Date City, State Zip Signature To order call 1-800-767-1241, fax this coupon to 202-842-3490, or mail it to Cato Institute, 1000 Massachusetts Avenue, N.W., Washington, D.C. 20001 ===== PAGE 18 ===== FREEMAN deas On Libert Artistic Freedom Requires Economic Freedom by Tyler Cowen Pchorcsia motivations, though a dri- as full-time creators has risen steadily for ving force behind many great artworks, centuries. do not operate in a vacuum, independent of Perhaps ironically, the market economy external constraints. Economic circumstances increases the independence of the artist from influence the ability of artists to express their the immediate demands of the culture- aesthetic aspirations. Specifically, artistic consuming public. Capitalism funds alterna- independence requires financial indepen- tive sources of financial support, allowing dence and a strong commercial market. artists to invest in skills, undertake long-term Beethoven wrote: “I am not out to be a musi- projects, pursue the internal logic of their cho- cal usurer as you think, who writes only to sen genre or niche, and develop their market- become rich, by no means! Yet, I love an inde- ing abilities. A commercial society is a pros- pendent life, and this I cannot have without a perous and comfortable society, and offers a small income.” rich variety of niches in which artists can find Capitalism generates the wealth that the means to satisfy their creative desires. enables individuals to support themselves Many artists cannot make a living from through art. The artistic professions, a rela- their craft, and require external sources of tively recent development in human history, financial support. Contrary to many other flourish with economic growth. Increasing commentators, I do not interpret this as a sign levels of wealth and comfort have freed cre- of market failure. Art markets sometimes fail ative individuals from tiresome physical labor to recognize the merits of great creators, but a and have supplied them with the means to wealthy economy, taken as a whole, is more pursue their flights of fancy. Wealthy societies robust to that kind of failure in judgment than usually consume the greatest quantities of is a poor economy. A wealthy economy gives non-pecuniary enjoyments. The ability of artists a greater number of other sources of wealth to fulfill our basic physical needs ele- potential financial support. vates our goals and our interest in the aesthet- Private foundations, universities, bequests ic. In accord with this mechanism, the number from wealthy relatives, and ordinary jobs, that of individuals who can support themselves bane of the artistic impulse, all have support- ed budding creators. Jane Austen lived from the wealth of her family, T. S. Eliot worked in Lloyd’s bank, James Joyce taught languages, Tyler Cowen is a professor of economics at George : : _ Mason University. This article is taken from In Praise Paul pauguin accumulated a financial cush of Commercial Culture, published by Harvard Uni- lon throug 1s work as a stockbro er, versity Press. Copyright © 1998 by the President and Charles Ives was an insurance executive, Vin- Fellows of Harvard College. All rights reserved. cent van Gogh received support from his 18 ===== PAGE 19 ===== 19 brother, William Faulkner worked in a power forms of liberty and inventiveness that are plant and later as a Hollywood screenwriter, unique to the modern world. and Philip Glass drove a taxi in New York City. William Carlos Williams worked as a . . physician in Rutherford, New Jersey, and Pecuniary Incentives wrote poetry between the visits of his Many artists reject the bohemian lifestyle patients. and pursue profits. The artists of the Italian Wallace Stevens, the American poet, pur- Renaissance were businessmen first and fore- sued a full-time career in the insurance indus- most. They produced for profit, wrote com- try. “He was a very imaginative claims man,” mercial contracts, and did not hesitate to walk noted one former colleague. When offered an away from a job if the remuneration was not endowed chair to teach and write poetry at sufficient. Renaissance sculptor Benvenuto Harvard University, Stevens declined. He pre- Cellini, in his autobiography, remarked, “You ferred insurance work to lecturing and did not poor idiots, I’m a poor goldsmith, and I work wish to sacrifice his position in the firm. At for anyone who pays me.” one point a coworker accused Stevens of Bach, Mozart, Haydn, and Beethoven were working on his poetry during company time. all obsessed with earning money through their He replied: “I’m thinking about surety prob- art, as a reading of their letters reveals. lems Saturdays and Sundays when I'm Mozart even wrote: “Believe me, my sole pur- strolling through Elizabeth Park, so it all pose is to make as much money as possible; evens out.” for after good health it is the best thing to Parents and elderly relations have financed have.” When accepting an Academy Award in many an anti-establishment cultural revolu- 1972, Charlie Chaplin remarked: “I went into tion. Most of the leading French artists of the the business for money and the art grew out of nineteenth century lived off family funds— it. If people are disillusioned by that remark, I usually generated by mercantile activity—for can’t help it. It’s the truth.” The massive pecu- at least part of their careers. The list includes niary rewards available to the most successful Delacroix, Corot, Courbet, Seurat, Degas, creators encourage many individuals to try Manet, Monet, Cézanne, Toulouse-Lautrec, their hand at entering the market. and Moreau. French writers Charles Baude- Profits signal where the artist finds the laire, Paul Verlaine, and Gustave Flaubert largest and most enthusiastic audience. went even further in their anti-establishment British “punk violinist” Nigel Kennedy has attitudes, again at their parents’ expense. written: “I think if youre playing music or Even the most seclusive artists sometimes doing art you can in some way measure the rely furtively on capitalist wealth. Marcel amount of communication you are achieving Proust sequestered himself in a cork-lined by how much money it is bringing in for you room to write, covering himself in blankets and for those around you.” Creators desiring and venturing outside no more than 15 min- to communicate a message to others thus pay utes a day. Yet he relied on his family’s wealth, heed to market earnings, even if they have lit- obtained through the Parisian stock exchange. tle intrinsic interest in material riches. The Paul Gauguin left the French art world for the millions earned by Prince and Bruce Spring- tropical island of Tahiti, knowing that his pic- steen indicate how successfully they have tures would appreciate in value in his absence, spread their influence. allowing for a triumphal return. Gauguin Beethoven cared about money as a means never ceased his tireless self-promotion, and of helping others. When approached by a during his Pacific stays he constantly moni- friend in need, he sometimes composed for tored the value of his pictures in France. money: “I have only to sit down at my desk Wealth and financial security give artists and in a short time help for him is forthcom- the scope to reject societal values. The ing.” Money, as a general medium of bohemian, the avant-garde, and the nihilist are exchange, serves many different ends, not just all products of capitalism. They have pursued greedy or materialistic ones. ===== PAGE 20 ===== 20 THE FREEMAN/IDEAS ON LIBERTY ® JANUARY 1999 Funding Artistic Materials not have managed his very poor lifestyle at an earlier time in history. His nonconformism Artists who chase profits are not always was possible because technological progress accumulating wealth for its own sake. An had lowered the costs of paints and canvas and artist’s income allows him or her to purchase enabled him to persist as an artist. the necessary materials for artistic creation. Female artists, like Berthe Morisot and Budding sculptors must pay for bronze, alu- Mary Cassatt, also took advantage of falling minum, and stone. Writers wish to travel for materials costs to move into the market. In the ideas and background, and musicians need late nineteenth century women suddenly studio time. J. S. Bach used his outside could paint in their spare time without having income, obtained from playing at weddings to spend exorbitant sums on materials. Artis- and funerals, to buy himself out of his com- tic willpower became more important than mitment to teach Latin, so that he would have external financial support. This shift gave vic- more time to compose. Robert Townsend pro- tims of discrimination greater access to the art duced the hit film Hollywood Shuffle by sell- world. The presence of women in the visual ing the use of his credit cards to his friends. arts, literature, and music has risen steadily as Money is a means to the ends of creative capitalism has advanced. expression and artistic communication. Falling costs of materials help explain why Capitalist wealth supports the accouter- art has been able to move away from popular ments of artistic production. Elizabethan the- taste in the twentieth century. In the early his- aters, the venues for Shakespeare’s plays, tory of art, paint and materials were very were run for profit and funded from ticket expensive; artists were constrained by the receipts. For the first time in English history, need to generate immediate commissions and the theater employed full-time professional sales. When these costs fell, artists could aim actors, production companies, and play- more at innovation and personal expression, wrights. Buildings were designed specifically and less at pleasing buyers and critics. Mod- for dramatic productions. Shakespeare, who ern art became possible. The impressionists wrote for money, earned a good living as an did not require immediate acceptance from actor and playwright. the French Salon, and the abstract expression- Pianos, violins, synthesizers, and mixers ists could continue even when Peggy Guggen- have all been falling in price, relative to gener- heim was their only buyer. al inflation, since their invention. With the The artist’s own health and well-being, a advent of the home camcorder, even rudimen- form of “human capital,” provides an espe- tary movie-making equipment is now widely cially important asset. Modernity has available. Photography blossomed in the late improved the health and lengthened the lives nineteenth century with technological innova- of artists. John Keats would not have died at tions. Equipment fell drastically in price and age 26 of tuberculosis with access to modern developing pictures became much easier. Pho- medicine. Paula Modersohn-Becker, one of tographers suddenly were able to work with the most talented painters Germany has pro- hand cameras, and no longer needed to process duced, died from complications following pictures immediately after they were taken. childbirth, at the age of 31. Mozart, Schubert, Photographic equipment no longer weighed Emily Bronté, and many others who never 50 to 70 pounds, and the expense of maintain- even made their start also count as medical ing a traveling darkroom was removed. tragedies who would have survived in the Falling prices for materials have made the modern era. The ability of a wealthy society arts affordable to millions of enthusiasts and to support life for greater numbers of people, would-be professionals. In previous eras, even compared to premodern societies, has provid- paper was costly, limiting the development of ed significant stimulus to both the supply and both writing and drawing skills to relatively demand sides of art markets. well-off families. Vincent van Gogh, an Most advances in health and life expectan- ascetic loner who ignored public taste, could cy have come quite recently. In the United ===== PAGE 21 ===== ARTISTIC FREEDOM REQUIRES ECONOMIC FREEDOM 21 States of 1855, one of the wealthiest and improved the productivity of the symphony healthiest countries in the world at that time, orchestra. Symphonic productions now reach a newly born male child could expect no more millions of listeners more easily than ever than 39 years of life. Yet many of the greatest before. These technological improvements are composers, writers, and painters peak well not once-and-for-all events that only postpone after their fortieth year. the onset of the cost disease. Rather, techno- Birth control technologies, generally avail- logical progress benefits the arts in an ongo- able only for the last few decades, have given ing and cumulative fashion. female creators greater control over their lives The cost disease argument neglects other and domestic conditions. Most of the beneficial aspects of economic growth. The renowned female painters of the past, for var- arts benefit more from technological advances ious intentional or accidental reasons, had than it may at first appear. Production of a either few children or no children at all. symphonic concert, for instance, involves Childbearing responsibilities kept most more than sitting an orchestra in a room and women out of the art world. Today, budding having them play Shostakovich. The players female artists can exercise far greater control must discover each other’s existence, maintain over whether and when they wish to have chil- their health and mental composure, arrange dren. The increasing prominence of women in transportation for rehearsals and concerts, music, literature, and the visual arts provides and receive quality feedback from critics and one of the most compelling arguments for teachers. In each of these regards the modern cultural optimism. For much of human histo- world vastly surpasses the productivity of ear- ry, at least half of the human race has been lier times, largely because of technological shut out from many prominent artistic forms, advances. and women are only beginning to redress the balance. Mechanisms in Support of Artistic Diversi Do the Arts Lag Well-develoned a rt cultural in Productivity? Cll-aevelopea markets suppo cu a diversity. A quick walk through any compact William Baumol and William Bowen, two disc or book superstore belies the view that economists who have analyzed the perform- today’s musical and literary tastes are becom- ing arts, believe that economic growth impos- ing increasingly homogeneous. Retail outlets es a “cost disease” on artistic production. use product selection and diversity as primary They claim that rising productivity causes the strategies for bringing consumers through the arts to increase in relative cost, as a share of door. Even items that do not turn a direct prof- national income. The arts supposedly do not it will help attract business and store visits, enjoy the benefits of technical progress to thereby supporting the ability of the business equal degree. It took 40 minutes to produce a to offer a wide variety of products. Mozart string quartet in 1780, and still takes The available variety of artistic products 40 minutes today. As wages rise in the econo- should come as no surprise. Adam Smith my, the relative cost of supporting the arts will emphasized that the division of labor, and increase, according to this hypothesis. thus the degree of specialization, is limited by Contrary to Baumol and Bowen, the evi- the extent of the market. In the case of art, a dence suggests that the arts benefit greatly large market lowers the costs of creative pur- from technological progress. The printing suits and makes market niches easier to find. press, innovations in paper production, and In the contrary case of a single patron, the now the World Wide Web have increased the artist must meet the tastes of that patron or availability of the written word. The French earn no income. impressionists drew their new colors from Growing markets in music, literature, and innovations in the chemical industry. Record- the fine arts have moved creators away from ing and radio, both capital technologies, have dependence on patronage. A patron, as ===== PAGE 22 ===== 22 THE FREEMAN/IDEAS ON LIBERTY © JANUARY 1999 opposed to a customer, supports an artist with books need not top the bestseller list to remu- his or her own money, without necessarily nerate their authors handsomely. Artists who purchasing the artistic output. Samuel John- believe that they know better than the crowd son, writing in the eighteenth century, can indulge their own tastes and lead fashion. referred to a patron as “a wretch who supports Today it is easier than ever before to make a with insolence, and is paid with flattery.” living by marketing to an artistic niche and Even Johnson, however, did not believe that rejecting mainstream taste. patrons were intrinsically bad; the problem In the realm of culture, market mechanisms arises only when artists are completely depen- do more than simply give consumers what dent upon a single patron. Patronage relation- they want. Markets give producers the great- ships, which today stand at an all-time high, est latitude to educate their audiences. Art have become more beneficial to artistic cre- consists of a continual dialogue between pro- ativity over time. The size and diversity of ducer and consumer; this dialogue helps both modern funding sources gives artists bargain- parties decide what they want. The market ing power to create space for their creative incentive to conclude a profitable sale simul- freedom. taneously provides an incentive to engage Growth of the market has liberated artists, consumers and producers in a process of want not only from the patron, but also from the refinement. Economic growth increases our potential tyranny of mainstream market taste. ability to develop sophisticated and special-. Unlike in the eighteenth century, today’s ized tastes. ] Payola and Cultural Diversity The payola scandals provided a dramatic tice used to promote new products for episode in the clash of musical worlds. many decades. In the case of rhythm and Independent record companies frequently blues, the independents lacked the reputa- used payola to promote rock and roll on tions and marketing power to place their American radio. Payola occurs when a disc artists through name alone, and were jockey is paid by record companies or forced to rely on payola. music publishers to play certain record- Chuck Berry’s “Maybellene,” his first hit ings. This practice, usually considered and still one of his most popular songs, was scandalous, in fact helped new musicians given initial airplay because of payola. gain airplay. Payola combated conformism Leonard Chess of Chess Records (Berry’s and racism in the music business. Nonethe- record company) went to well-known disc less rock and roll opponents succeeded in jockey Alan Freed with a large catalog of making payola a dirty word akin to bribery material. Chess offered Freed partial song- or money laundering. writing credits on any song of his choice, The first documented instances of payola provided that he would play and promote date from England in the 1860s. The pub- the song. Freed now had a stronger incen- lishers of sheet music paid vaudeville tive to pick the best song and to promote it. artists to sing and popularize their songs. After listening to hundreds of recordings, Payment of these fees was a normal mar- Freed picked “Maybellene.” Berry became keting procedure for publishers and a sig- a star, and the Freed estate continues to nificant source of income for performers; receive royalties (check your record label). payola occasioned no political scandal. When record companies believed they had Prior to the payola scandals, payola had a sure-fire hit by an unknown singer, they been an accepted and legal business prac- used payola to buy air-time for the record. ===== PAGE 23 ===== ARTISTIC FREEDOM REQUIRES ECONOMIC FREEDOM 23 Payola does not differ from the ordinary hard music fans, and the followers of rock purchase of advertising time. Instead of and roll—greater influence over station hearing a jingle, we hear a song. The song programming. itself, and the performer, is being adver- The payola scandals were part of the tised. Outlawing payola kept radio stations ASCAP [American Society of Composers, from advertising music, the commodity of Authors, and Publishers] campaign against greatest interest to their audiences. BMI [Broadcast Music Incorporated] and Payola also encouraged disc jockeys, the rock music. After an ASCAP antitrust suit individuals who knew most about music, to against BMI failed, the music publishers discover new talent. The station owners sought another legal weapon to use against were not as well informed as the disc jock- their competitor. ASCAP also wished to eys and did not have the same ground-level strike out against the disc jockeys who had contacts in the musical world, especially neglected to promote their music. In late for rock and roll. The proliferation of inde- 1959, ASCAP persuaded Congress to pendent record companies made new stars launch an investigation of payola for rock harder to find, increasing the importance of and roll, rhythm and blues, and soul music. disc jockey middlemen. If a disc jockey The discriminatory nature of the payola found a new star, the disc jockey would hearings belies their origins. Responding receive some of the benefits in the form of to ASCAP pressure, the House Committee payola income. examined payola for rock and roll only, not Payola income decreased disc jockey payola for classical music. The government favoritism and racial discrimination. When came down much more heavily on “black disc jockeys receive additional income payola” than “white payola.” Alan Freed, from playing the more popular product, the deejay who pushed gritty rock and roll they are less inclined to indulge their own and raucous black music, was prosecuted personal and racial biases, and more and found his entire career ruined. Dick inclined to heed the wishes of consumers. Clark, of American Bandstand fame, used The value of giving airplay to a good song, payola to promote more respectable forms and thus its payola value, is usually higher of white pop. Clark’s “violations” were than the value of promoting a bad song. more striking but he was left with his Record companies were not interested in career and media empire intact. paying to procure airtime for likely duds. At the end of the Committee hearings, Critics of payola argued (correctly) that Congress outlawed payola, with a jail term payola gave a special boost to rock and of up to one year and a $10,000 fine for roll. Outlawing payola increases the impor- convicted offenders. Earlier, the Federal tance of advertisements as a source of Communications Commission had threat- radio station income. The radio station will ened to suspend the license of any radio play music to attract listeners who pur- station found guilty of accepting payola. chase advertised products—middle-class Amazingly, when the payola hearings start- and upper-class Americans. When payola ed, payola was not in violation of any Fed- is legal, the desire to increase payola eral law. The investigations were primarily income encourages the station to attract a witch hunt directed against particular listeners who will buy records. Payola kinds of music that did not meet with uni- gave record buyers—the young, the die- versal approval. —TYLER COWEN ===== PAGE 24 ===== FREEMAN deas On Libert Flags, Flames, and Property by Andrew I. Cohen constitutional amendment that would protesters publicly burning a flag with forbid the desecration of American flags impunity, they may believe that American is again percolating in the nation’s capital. As freedoms are cheap. They may then think that of this writing, the immediate prospects for the nation’s commitment to uphold those free- passage look bleak. But this amendment has a doms is fleeting. Permitting flag burning may way of never fully going away. Many oppo- also undermine a key basis for community nents of the measure trot out free speech argu- among America’s voters. With protesters ments. And although concerns about free burning flags, voters may lose a vision of expression are important, these traditional shared citizenship and be less committed to arguments miss a more central political prin- the American ideal. Flag burning is also sup- ciple that the amendment and resulting laws posedly a slap in the face to all Americans against flag burning would jeopardize: prop- who suffered in wartime to secure freedoms erty rights. The amendment would undermine for everyone. Lastly, foreign observers who key liberties for which the flag stands. see Americans burning their own flag may be less inclined to support America’s interna- tional policies aimed at securing freedom. Arguments for Flag Advocates fear that foreigners will think: if Desecration Laws Americans cannot take their own freedoms Those who uphold laws against flag dese- Seriously, then we need not take seriously the cration typically speak of the important val- moral reasoning they present to the world. ues that the flag symbolizes. They claim that legally allowing flag burning is tantamount to The Free Speech Argument rejecting the freedoms that the flag represents. Against Flag Desecration Laws They say it is vital that we express our respect for human freedom by institutionalizing People who burn flags intend to send a mes- penalties against those who would defile the sage by doing so. This is what makes flag national symbol. burning a form of expression. Some flag proponents continue, sends the wrong mes- eign policy measures. (Recall the nightly sage to Aimerica’s_youth, America’s voters, N€Ws broadcasts last summer showing and observers abroad. When the young see Sudanese burning American flags in Khar- toum after the United States bombed what it deemed a suspicious pharmaceutical factory.) Andrew Cohen teaches philosophy at the University ~SOme individuals may burn flags as a way of of Wisconsin, Stevens Point. saying America is not true to its own values. 24 ===== PAGE 25 ===== 25 Others simply despise American ideals and The Property Rights Argument set the flag aflame. In any case, people who 3 : burn flags do so deliberately in order to send Against Flag Burning a public message of protest. The free speech argument against the pro- The First Amendment to the Constitution posed amendment is powerful; people must reads, “Congress shall make no law . . . be free to offend if free speech is to count for abridging the freedom of speech.” Constitu- anything. There is, however, one time when tional scholars and legal theorists have long flag burning should be against the law: when argued over the meaning of this amendment. it’s someone else’s flag. There 1s, however, a rough consensus on two Suppose you own a flag. Suppose that Chris ideas: (1) the amendment protects peaceful takes your flag without your consent and sets expression, popular or unpopular, but (2) the it on fire in the public square. What Chris has Framers clearly did not intend for it to license done ought to be forbidden (and punished) any and all forms of expression. Consequent- not because he burned a flag, but because he ly, room has been made for laws against libel, burned your flag. Chris ought to be held slander, and obscenity. Contrary to hyperbol- accountable just as if he had taken a sledge- ic op-eds railing against flaming protests, hammer to your concrete garden gnomes burning a flag is not “obscene.” At worst, itis without your permission. He destroyed your despicable. At best, it is a valuable form of property. political speech. People who debate the flag issue often lose The First Amendment protects freedom of sight of this important fact: you cannot burn speech, which in turn protects the liberty to “the American flag” because there is no such say wrong-headed, bigoted, stupid, vicious thing as “the American flag.” There are only things. Such protection is crucial; otherwise flags. The “American flag” is an idea that can- freedom of speech would reduce to the empty not be burned. A particular flag, however, can freedom to say only the right, the true, and the be burned. Whether it is permissible to do so good. That would present a disturbing practi- turns on whose flag it 1s. cal difficulty: some bureaucrat would have to Being a material object, a flag usually decide what is permissible speech, because in comes into the world attached to someone as today’s pluralistic society, there is little con- property. A law against flag burning would sensus on many aspects of the right, the true, forbid you from disposing of your property as and the good. Freedom of speech, however, is you see fit. Let us assume that burning your the freedom to say what one wishes without flag does not pose a threat to public safety having to solicit the permission of anyone first. (that is, you don’t ignite and toss it into an Freedom of speech guarantees a healthy, unsuspecting crowd). In that case, when you open marketplace of ideas. More fundamen- burn your flag, your actions are not impor- tally, it includes the freedom to say things that tantly different from taking your paper and others might not like. Those who are offended your ink to print up pamphlets that say any- should respond with reasoned arguments of thing (or even nothing) at all. The pamphlets their own and not by passing a law. If individ- are your property, and so too is your flag. uals were only free to say things that others Passers-by can take your message or leave it. liked, public and private discussions would be To forbid flag burning is to forbid you from banal, stilted, and oppressed. A law against disposing of your property in ways that offend flag burning forbids a form of expression sim- others. But property rights protect freedom of ply because others do not like the message. action for which one need not solicit the per- Government exists, however, to protect indi- mission of others. A right to your flag guaran- vidual rights. It should not protect citizens tees a right to burn it, stomp on it, spit on it, from being offended. We can stipulate that or turn it into underwear if you so choose. many acts of flag burning are offensive. Sim- Your flag is your property. If someone does ply being offensive, however, does not violate not like what you do with your property, he individual rights. should not lock you up; he should persuade ===== PAGE 26 ===== 26 THE FREEMAN/IDEAS ON LIBERTY ® JANUARY 1999 you to change your ways or he should have business of punishing people for having bad nothing to do with you. Consider the absurdi- thoughts. This is not the mark of a government ty of having rights to use your property only in a free society. in ways others find acceptable. Permissible Flag Burning and What the Flag Means The flag is a symbol of American values Some Problems such as self-determination and freedom from When a flag becomes old and tattered, there oppression. Throughout our history, members is a prescribed way to dispose of it. Part of the of the armed services suffered on behalf of process involves burning it. If flag burning freedom, not on behalf of a piece of fabric. were forbidden, presumably it would not be They did not put their lives on the line so that just any flag burning that would be illegal. It busybodies and bureaucrats could tell us what would only be flag-burning-while-thinking- we can or cannot say and what we can or can- nasty-thoughts-about-the-flag. If persons are not do with our property. to be punished not for what they do, but for No doubt, flag burners are often quite what they think, we will have marched a long vicious, detestable persons whose contempt way from the freedoms on which this nation for American values deserves our contempt. was founded, and headed dangerously closer But the law should not forbid all vicious con- to tyranny. duct. We can privately refuse to have anything There are further difficulties with laws to do with such persons. We can hold them up against flag burning. We all know what an to public scorn. We might display our patriot- American flag is supposed to look like. It has ism to counter the flag-burning demonstra- 50 stars and 13 stripes, all arranged in a cer- tion. Such acts would help solidify the shared tain pattern. Suppose, however, you were to citizenship that flag-burning amendment sew a piece of fabric that looked just like a advocates so often invoke. Those informal current American flag, except that it had 49 responses would also help send the message stars or 50 six-sided stars (instead of five-sided that some matters are best left to private indi- stars), or white stripes on the very top and very viduals and the free choices they make. Those bottom (instead of red), or a blue field that was who take freedom seriously are civilized only six stripes high (instead of seven). Strict- enough to put flag burners in their place with- ly speaking, those pieces of fabric would not out beating them up or locking them up. be American flags. They would be imperfect Supporters of laws to punish people who approximations of American flags. Would a destroy a flag betray their belief that the val- law against flag burning forbid the desecration ues the flag symbolizes cannot prevail on their of any piece of fabric that even looked like an own merits. They seem to think that freedom American flag? What if one takes a big piece demands government-mandated respect. But of white paper and writes in big boldface let- American ideals are sturdy enough to await ters, “THIS IS AN AMERICAN FLAG,” and sets it voluntary respect. Let us repudiate flag burn- on fire? Perhaps the courts would rule that any ers and persuade (not force) individuals to act intended to make onlookers believe that respect the flag. We must not, however, cheap- one was burning an American flag would be en the freedoms the flag represents with an covered by the amendment. Once again, how- amendment that would restrict individual ever, the government would be getting into the rights. UJ ===== PAGE 27 ===== Potomac Principles by Doug Bandow Public Failure, Private Response Presiden Bill Clinton has called for a Mathematics and Science Study, ranked “national crusade” on education. Natural- America 19th out of 21 countries in math, sur- ly, that means spending more money: he passing only Cyprus and South Africa. (No would have Washington hire teachers and Asian nations, whose students typically do build schools. Many states, flush with cash, well, participated.) also plan to spend more. While suburban schools have problems, But the problem of education is monopoly, city schools are in crisis. The Carnegie Foun- not money. Average SAT scores dropped from dation declared a decade ago: “The failure to 980 to 899 between 1963 and 1992, while real educate adequately urban children is a short- per-pupil spending rose 160 percent. In fact, coming of such magnitude that many people real spending per pupil has risen 40 percent a have simply written off city schools as little decade since World War II. more than human storehouses to keep young The past decade of “reforms” has changed people off the streets.” nothing. The 1994 National Assessment of Half of urban kids typically fail to gradu- Education Progress (NAEP) test found that 36 ate. The diplomas for students who do gradu- percent of fourth graders, 39 percent of eighth ate have the value of Czarist bonds. As of graders, and 57 percent of 12th graders failed 1997, reports the NAEP, only 40 percent of to meet basic history standards. In most other fourth- and eighth-graders in urban schools subjects students perform poorly, and, incred- score at the basic level for math, reading, and ibly, do worse the longer they stay in school. science. Last year the journal Education Week called Of course, the educational establishment’s America’s public schools “rife with medioc- mantra remains “more money.” But the public rity,” reporting that “there is no state in which schools are doomed to mediocrity. Admitted at least half the students perform at the ‘profi- the late Albert Shanker, head of the American cient’ level or above.” It refused to give the Federation of Teachers: “It’s no surprise that states grades based on their NAEP results, our school system doesn’t improve; it more since “all would have failed.” resembles the communist economy than our International comparisons tell an equally own market economy.” dismal story, with American students scoring What education needs is more competition. below foreign kids in almost every subject. Private schools cost about half as much as The latest survey, the Third International public ones and achieve significantly better results. -— . . Alas, serious reform has been blocked by Doug Bandow, a nationally syndicated columnist, is the educati | establishment “the Blob.” a senior fellow at the Cato Institute and the author ce luca 1onal establis cn ’ or © 00, and editor of several books, including Tripwire: as William Bennett calls it, which is more Korea and U.S. Foreign Policy in a Changed World. concerned about protecting interest groups 27 ===== PAGE 28 ===== 28 THE FREEMAN/IDEAS ON LIBERTY ® JANUARY 1999 pigging out at the educational trough than entire D.C. student population, applied. children who are drowning in it. The very The Children’s Educational Opportunities people who require the poor to send their kids (CEO) Foundation of Southern California to dangerous schools exercise choice. Mem- supported 799 kids in Los Angeles and bers of city school boards routinely send their Orange counties; 5,000 more were on waiting children to private institutions. Public school lists. The Los Angeles Archdiocese Education teachers are four times as likely as other par- Foundation has been awarding scholarships ents with comparable incomes to send their for its parochial schools since 1988. The children to private schools. Pacific Research Institute of San Francisco A growing number of supporters of educa- plans to award 100 scholarships of $2,000 tional choice have launched a flanking each this year. maneuver around the special interests: private Chicago has four separate private programs. scholarships. Roughly three dozen private One, the FOCUS Fund (Family Options for scholarship programs currently serve some Children Urban Scholarship Fund), offered 30 20,000 students nationwide. Another 42,000 noncompetitive scholarships for any private students are on waiting lists. school last fall. The Daniel Murphy Scholar- Pat Rooney, chairman of the Golden Rule ship Foundation works with 36 schools and Insurance Company, helped spark this move- has provided 80 scholarships this year. Link ment in 1991 by establishing the Educational Unlimited, in operation since 1966, provides Choice Charitable Trust (CHOICE) in Indi- 230 scholarships for Catholic schools. The Big anapolis, which in 1997 offered 1,094 schol- Shoulders Fund works with inner-city arships of up to $800 to low-income families. parochial schools and awards nearly $1 mil- The latest initiative came last April, when the lion in scholarships annually. Children’s Educational Opportunity Founda- There are other programs in Atlanta, tion announced a ten-year, $50 million pro- Austin, Baltimore, Battle Creek, Bridgeport, gram for children in San Antonio’s Edgewood Buffalo, Chicago, Dallas, Dayton, Denver, district. The goal is to provide a scholarship Detroit, Grand Rapids, Houston, Jackson for every one of the nearly 14,000 students, (Mississippi), Jersey City, Knoxville, Little more than half of whom live below the pover- Rock, Midland (Texas), Milwaukee, Newark, ty line. Oakland, Oklahoma City, Orlando, Philadel- In 1997, the School Choice Scholarships phia, Phoenix, Pittsburgh, San Antonio, Foundation, a group of foundations, philan- Schenectady, Seattle, and Washington Heights thropists, and Wall Street firms, offered 1,300 (New York). The opportunities for further scholarships worth $1,400 each, to be distrib- expansion are obviously enormous. In fact, uted by lottery: 22,700 kids applied. The CEO America, headquartered in Bentonville, decade-old Student Sponsor Partnerships pro- Arkansas, assists people and organizations vides full tuition for more than 900 students interested in setting up their own programs. to attend parochial schools, and Operation Such private programs offer a glimmer of Exodus offers 100 scholarships for students in hope to children and families trapped in a fail- New York and other states. The New York ing public monopoly. Political reform remains Catholic Archdiocese’s Inner-City Scholar- important, but advocates of children need not ship Fund helps subsidize a network of wait for politicians to act. Indeed, developing schools that educate largely poor students. successful private scholarship programs will The District of Columbia’s Washington not only help struggling students; it will also Scholarship Fund began in 1993 by aiding 36 make real political change more likely. students in 12 schools. In late 1997 entrepre- Instead of pouring their money and energy neurs Ted Forstmann and John Walton set into failing public schools—as did publisher aside $6 million for an additional 1,000 schol- Walter Annenberg with $500 million in arships to pay half of annual tuition up to 1993—businessmen, foundations, and philan- $1,700. An incredible 7,573 students, one in thropists should develop alternative private every six who is eligible, and one-tenth of the educational options. 0 ===== PAGE 29 ===== REMAN @ History Elijah McCoy and Berry Gordy: Ingenuity Overcomes by Burton Folsom P= of the tragedy of affirmative action is Determined to Achieve its implied premise that intended benefi- ciaries can’t succeed in business unless gov- Despite his training, McCoy was offered ernment grants them special privileges. But the lowly job of locomotive fireman. He history shows that when people have the free- accepted it with a determination to show the dom to succeed, remarkable entrepreneurs railroad that he could accomplish more. and innovators emerge. Two examples sepa- He immediately applied his skills to a rated by a century—Elijah McCoy and Berry major problem: the dangerous overheating of Gordy—show how black innovators changed locomotives. Trains had to stop regularly so American life before the existence of affirma- that their engines could be oiled to reduce tive action, friction. If trains stopped infrequently, the Railroads were one of the greatest inven- overheating could damage parts or start fires. tions of the nineteenth century. One man who If they stopped too often, freight and passen- was indispensable in helping the railroads run gers would be delayed. McCoy invented a efficiently and on time was Elijah McCoy. He lubricating cup that oiled engine parts as the was born in 1843 in Canada, where his par- train was moving. He secured a patent for it in ents had fled from Kentucky to escape slav- 1872 and steadily improved it. ery. In Canada, the McCoys learned that indi- Others tried to imitate McCoy’s invention, vidual freedom and training in the market- but he kept ahead of them with his superior place were keys to opening opportunities for engineering skills. His standard of quality was blacks. so high that the cup became known as “the On reaching manhood, Elijah McCoy went real McCoy,” which many believe to be the to Scotland for training in mechanical engi- origin of the famous phrase. neering. When it came time to apply his The invention helped the Michigan Central industrial skills, the Civil War had ended and run safer and quicker across the state. It was blacks were legally free. McCoy came back to also put to use in stationary engines and even the United States and settled in Ypsilanti, in steamship engines. The grateful manage- Michigan, where he began working for the ment of the Michigan Central promoted Michigan Central Railroad. McCoy and honored him as a teacher and innovator for the railroad. Burton Folsom is senior fellow with the Mackinac McCoy showed remarkable creative energy Center for Public Policy in Midland, Michigan, and during the next 50 years. He received 51 more author of two books on entrepreneurs: The Myth of patents, mostly for lubricating devices. Not the Robber Barons and Empire Builders. even old age dimmed his creative light. When 29 ===== PAGE 30 ===== 30 THE FREEMAN/IDEAS ON LIBERTY ® JANUARY 1999 quarters. His father did the plastering and repairs, and his sister did the bookkeeping. His vocal studio was in the hallway, and his echo chamber was the downstairs bathroom. “We had to post a guard outside the door,” Gordy says, “to make sure no one flushed the toilet while we were recording.” The fact that Gordy started Motown out of his home is more than a quaint historical foot- 8 note. Doing that today in Detroit’s residential € areas would violate the city’s repressive ban © on home-based businesses—a sad comment £ on how stifling Detroit’s regulations and taxes < have become since the 1950s. g Gordy’s success is sometimes ascribed to % his knack for writing and producing hit songs. 2 But there was more than that. As actor Sidney Poitier observed, “Berry Gordy . . . set out to make music for all people, whatever their he was 77, he patented an improved airbrake color or place of origin.” In doing so, Gordy lubricator; when he was 80, he patented a made black music—the Motown sound—part vehicle wheel tire. He founded the Elijah of the mainstream popular culture in America. McCoy Manufacturing Company in Detroit in What an achievement! Gordy had white 1920 to make and sell his inventions. teens all over America humming the catchy Elijah McCoy was one of many black tunes of the Four Tops, the Miracles, and the Americans who after the Civil War improved Temptations. After that he promoted a flurry the American workplace and showed skeptical of black stars including Diana Ross, Michael whites what free, enterprising blacks could Jackson, and Stevie Wonder. Gordy so much accomplish. In the late 1950s, 30 years after wanted their music, and that of other Motown his death, another black American from singers, to reach the larger white audience in Detroit, Berry Gordy, was using the free mar- America that the sign on his headquarters Elijah McCoy ket to transform American music. read, “Hitsville, U.S.A” The impact of Gordy’s remarkable achieve- The Motown Sound ment is worth pondering. At one level, he cre- ated more opportunities for blacks every- Forty years ago, many blacks enjoyed where in the music business—production, rhythm and blues music, but it was routinely nightclubs, recording, and marketing. Beyond unprofitable and often performed in shabby that, in an era of racial tensions, Gordy’ venues. Berry Gordy, a songwriter and assem- music bonded blacks and whites. In 1964 and bly-line worker, had a vision of taking black- 1965, some whites attacked blacks in Oxford, inspired music out of the slums and giving it Mississippi, and Selma, Alabama. But during broad, national appeal as a respectable art this time, many white fans everywhere were form. In 1959, Gordy borrowed $800 from his making number-one hits for Gordy out of the family and risked it to start Motown Record first three songs by the Supremes: “Where Corporation, named for the “motor town” of Did Our Love Go?,” “Baby Love,” and “Come Detroit. See About Me.” Once in business, Gordy hustled musical The Motown sound became mainstream talent from the streets of the city and pinched American music not by law or force, but by pennies to survive. He set up a used two-track choice. It was clever entrepreneurship, not recorder in his small house at 2648 West affirmative action, that persuaded whites to Grand Boulevard that became Motown head- integrate black musicians into their record ===== PAGE 31 ===== ELiAH McCoy AND BERRY GORDY: INGENUITY OVERCOMES 31 collections. Gordy used well-crafted songs to record stores from Liverpool to London and capture not just first place on Billboard's Top forced the bureaucrats to permit the music to 100, but the number two and three slots as be heard on government stations. When Radio well for the whole last month of 1968. Free Europe and The Voice of America began America’s system of private enterprise gave playing Gordy’s records, his empire penetrat- Gordy the chance to air his records on radio ed the Iron Curtain and truly became an inter- stations and have them compete for sales in national force. record stores all over America. But when Success, Gordy explains to this day, starts Gordy tried to expand the Motown sound into with a dream. “That’s what’s wrong with peo- England, he found government standing in his ple,” Gordy said when he started Motown. way. The government stations, especially the “They give up their dreams too soon. I'm British Broadcasting Company, refused to never going to give up mine.” And because he play Motown records and give Gordy the didn’t give up, black Americans have more chance that private enterprise gave him in the opportunities today and American music has United States. “Because we couldn’t get our changed forever. records on the government stations,” Gordy Throughout much of American history, said, “our earliest airplay had come from black entrepreneurs and innovators have been Radio Veronica and Radio Caroline, ‘pirate objects of discrimination. But, as the stories ships’ anchored a few miles off the coasts of of Elijah McCoy and Berry Gordy suggest, England and Holland.” the remedy for discrimination in the past is The Motown music broadcast from those not reverse discrimination in the present, but pirate ships captivated British listeners. Soon the freedom to invent, create, and produce in the demand for Gordy’s records swamped a free market. Cl Handsome New Paperback Edition! THE CLASSIC BLUEPRINT FOR A JUST SOCIETY THE LAW BY FREDERIC BASTIAT New Introduction by WALTER E. WILLIAMS Foreword b SHELDON RICHMAN “Phenomenal! An amazing and timeless treatment of the cost of using government to solve problems.” —~ Russell Roberts, author of The Choice 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, MasterCard, American Express, Discover orders ($10.00 minimum, please): 1-800-452-3518 ===== PAGE 32 ===== FREEMAN deas (ideas On Liberty) Libert Sudden Impact: The Collision of Ethics and Air Bag Mandates by Loren E. Lomasky John Elway forward pass travels toward Any fatality is cause for regret of course, its receiver at over 70 miles per hour; but realism compels us to acknowledge that Randy Johnson's fastball darts from his hand few valuable interventions come altogether at over 90 miles per hour; Pete Sampras’s without cost. People die on operating tables serve booms across the net at 120 miles per during routine surgery, drown while enjoying hour. Unless you know how to play the game, an invigorating swim, get hit by lightning you're advised to stay safely away. But should while out on a golf course. We can and should you find yourself in even a minor fender- try to minimize the occurrence of such tragic bender, you may be on the receiving end of outcomes, but as Milton Friedman famously an air bag deploying at up to 200 miles per observes, there is no such thing as a free hour. lunch. Air bags save on the order of 30 lives For most people most of the time, impact for each one lost. It would seem on first blush with an air bag is benign compared to what that this lopsided ratio is an eloquent testimo- they would have hurtled against had they been nial to the regulatory regime that mandated traveling unprotected. Although the air bag them in all new vehicles. Few public safety affords less protection than the seat belt, the measures, we might say, can claim so enviable air bag is, on balance, a wonderful safeguard. a record of success. Since 1990 over 3,500 lives have been saved and numerous injuries averted, the National . or. Highway Transportation Safety Administra- Identifiable Victims tion says. Complicating the appraisal, however, is the But the air bag’s benefactions do not come fact that air bag fatalities do not occur at ran- free of cost. Although deployment usually dom. Most victims of air bags are children (66 produces nothing worse than soon-healed of the fatalities since 1990), typically infants bruises, a significant minority fares worse: or toddlers traveling in the front seat either over 120 people have been killed by air bag unbuckled or strapped into child carriers. The impact, almost always in low-speed accidents air bag is most forceful as it leaves the dash- from which they otherwise would have board, and carriers, especially backwards- walked away. facing ones for infants, bring their occupants closer to the point of explosion. Already vul- nerable because of their small size, being in a State University, Bowling Green, Ohio, and is the forw ard location heightens their risk. Other- author of Persons, Rights, and the Moral Communi- WISE 1nnocuous collisions produce crushed ty. This article is adapted from a paper published by ~ Skulls, even a reported decapitation in an the Competitive Enterprise Institute. Idaho parking lot. Also at considerable risk 32 Loren Lomasky teaches philosophy at Bowling Green ===== 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 January 1999 The Grateful Pedestrian esterday evening I drove to a nearby occurred during his or her term of office. Y resume On my way I passed sev- | Such claims are preposterous. They are on eral strolling pedestrians. I did not a moral and intellectual par with my claim kill a single one! that I deserve credit for not killing pedes- Please note that I possessed near- trians with my car. absolute ability to do so. A quick and easy No politician creates jobs or prosperity. flick of my wrist on the steering wheel at Jobs and prosperity are created by entre- almost any time on my drive would have. preneurs and business firms whenever the meant certain death for numerous pedes- economy is sufficiently free of government trians. But I refrained from running them meddling. For government to avoid med- over. dling—that is, for government to keep taxes low and to steer clear of regulating al voluntary exchange—is indeed desirable. The above account is true. But to avoid interfering with voluntary Suppose now that you were one of these | exchange is not at all actually to create pedestrians and I solicit from you expres- whatever jobs and prosperity emerge from sions of gratitude for my not running you voluntary exchange. To insist otherwise over. How would you react? Not only would be no different from my insisting would you be indignant at my solicitation, that I, as a driver who did not run over Ms. you'd think me to be demented. And prop- | Jones as she walked back from the super- erly so. I would be insanely brazen to seek market, am responsible for the tasty dinner your gratitude for my not bulldozing you she cooked that evening for her family. with my car. If a car is careening out of control onto a And yet politicians routinely seek—and pedestrian walkway, anyone who leaps receive—praise for actions that differ in no into the car to stop it is a genuine hero. fundamental way from the actions of dri- This person does deserve applause and vers who avoid running down innocent gratitude (while, incidentally, the persons pedestrians. who either intentionally or carelessly We are bombarded by news reports and caused the car to be out of control deserve campaign ads boasting of how this presi- condemnation and, perhaps, jail time). But dent or that governor “created” so-many- even this hero does not take credit for all million new jobs or is responsible for that is created and produced by those who whatever amount of economic growth has would have otherwise been killed. ===== PAGE 34 ===== Whenever that rarest of creatures—an “affect economic events.” But such honorable elected official —actually man- sophistry sneakily erects as the benchmark ages to loosen some part of government's for evaluating government activity the grip on us, that person merits bona fide maximum possible destruction that gov- acclaim. Even he, however, doesn’t ernment could possibly inflict. If the actual deserve credit for whatever economic amount of destruction caused by govern- growth and cultural flourishing follow. ment falls short of what government could Such credit properly belongs to the count- have caused, then government is credited less people who create, innovate, take with producing all that it refrained from risks, save, and work hard to produce destroying. Using such a benchmark is what consumers want. lunacy. The idea that government deserves The Soviet military could have annihilat- credit for all of the benefits produced by ed the United States population with an freedom is a special case of the pernicious atomic attack at almost any time during .deification of government. When deified, the cold war. Should we then credit the government is mistakenly seen as respon- Soviet military for our current prosperity sible for all that happens in society. and our very lives? Does it really make A distressingly large number of writers sense to speak of the Soviet military as contend that what looks like government's | having “affected economic events” by not refusal to intervene is really just a different | launching a nuclear strike against form of government intervention. I offer America? If so, then why not also credit here only two examples. One is left-wing the decision by the British military not to economist Warren Samuels who, in a 1995 launch a nuclear attack against us as a issue of Critical Review, wrote that deregu- cause of our prosperity? lation is simply government regulation Refraining from interfering in other peo- carried out by enforcing private property ple’s affairs is simply the right thing for rights rather than by enforcing bureaucrat- | everyone, including government, to do. ic edicts. When the economy is deregulat- Our praise is properly reserved for people ed, what Samuels sees is that “[o]ne sys- who heroically help others whom they tem or structure of (nominally private) have no duty to help, while our condem- coercive power is substituted for another nation is properly reserved for people who by the very institution, government, which | intrude uninvited into others’ lives. (By the helped establish and/or reinforce the first way, to heroically help another person is one.” According to Samuels, only the to do so voluntarily and with your own unsophisticated believe that when govern- | resources and effort. You're no hero if you ment deregulates it thereby reduces its are coerced into giving aid to another; sway over the economy. you're a slave. Likewise, you're no hero if This view isn’t confined to left-wingers. you coercively confiscate the resources or Louis Hacker, in an otherwise fine essay efforts of third parties to help others; appearing in F. A. Hayek's edited volume you're a thug.) Capitalism and the Historians, insists that Until someone convinces me that | “the idea of laissez faire is a fiction. For the | deserve a ticker-tape parade every time state, by negative action—that is, by refus- that I don’t run down a pedestrian with ing to adopt certain policies—can affect my car, I will find intolerable the misbe- economic events just as significantly as gotten gratitude and applause that politi- when intervention occurs.” Well, yes—in cians receive for not destroying even more the same way that I, by not running my car | of our liberties and wealth than they cur- over pedestrians, can affect events just as rently ravage. significantly as if I do kill pedestrians. Only in the most base materialist sense are Samuels and Hacker correct: insofar as / ) 75) government possesses power to restrict commerce and suffocate industry with its - regulations, any self-restraint by govern- Donald J. Boudreaux ment in its zeal to regulate can be said to President ===== PAGE 35 ===== January Book Sale H:= Hazlitt was uniquely gifted and uniquely generous. His intellectual gifts are clearly evident in his many newspaper columns and magazine articles — and in his books. Much like Frederic Bastiat, the great 19th-century French journalist, Hazlitt had a special talent for explaining economic principles in an easy-to- understand and informative style. But Hazlitt should be remembered for his generosity also. A member of FEE’s Board of Trustees from 1946 until his death in 1993, Hazlitt bequeathed both his personal library and a portion of his estate to the Foundation. He was a very special friend of FEE, and a very special friend of freedom. This month, we recommend Hazlitt’s fine works for your consideration. The Conquest of Poverty — “The history of poverty is almost the history of mankind.” The key word in the sentence is “almost.” Thanks to capitalism, poverty isn’t the whole story of humankind. What this book does is to demonstrate the incredible capacity of free markets and free people to overcome the affiliction of want. Hazlitt unearths historical examples of poverty programs, debunks myths of the welfare state, and talks about why socialism just won't work. He ends with a refreshingly direct suggestion for curing poverty: “[bjasically each individual — or at least each family — must solve its own problem of poverty.” Individuals acting responsibly within a market economy — this is the secret to ending human want. Paper, 240 pages $16.95 Sale: $7.00 The Failure of the “New Economics” — Think Keynesianism is dead? Think again — Asian nations outlaw “dangerous speculation” while American steel manufacturers take out full-page ads calling for mercantilist policies. Sadly, the ghost of Keynes lives. Keynes's magnum opus, General Theory of Employment, Interest and Money, is thoroughly analyzed and, well, destroyed in this insightful and prescient book. Hazlitt exposes the many confusions in Keynes's work and dissects Keynesian theories of consumption, interest, and capital. Arguing throughout that no important doctrines in General Theory are both true and original, Hazlitt does a masterful job of knocking Keynes off his pedestal. Excellent ammunition to counter the intellectually challenged proponents of the welfare state. Paper, 458 pages $16.95 Sale: $7.00 The Critics of Keynesian Economics — Another of Hazlitt’s provocative excursions into macroeconomic theory. This edited volume collects twenty-two essays that take the ideas of Keynesian economics to task. Among the writers represented in this work: Frank Knight, F.A. Hayek, L. Albert Hahn, Ludwig von Mises, and W.H. Hutt. Hazlitt also provides readers with Say’s Law (which Keynes refuted) and John Stuart Mill on consumption. This anthology is a most helpful research tool and resource for advocates of limited government and free markets. Cloth, 427 pages $24.95 Sale: $7.00 The Wisdom of Henry Hazlitt — This unique collection includes tributes to Hazlitt from Mises as well as FEE Trustees Bettina Bien Greaves and Edmund Opitz. The book captures Hazlitt’s insights about the marvels of free markets, the problems of poverty and how these problems are exacerbated by welfare-state policies, and the need to remain vigilant in the defense of individual liberty and voluntary exchange. This engaging grouping of Hazlitt articles provides an excellent introduction to Hazlitt’s philosophy. Paper, 356 pages $16.95 Sale: $7.00 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, NY 10533. Credit card orders — $10.00 minimum please: Visa, MC, Discover, American Express, or fax orders are welcomed. Please call 800-452-3518, or fax us at 914-591-8910. ===== PAGE 36 ===== A Special Message from the President Help FEE Meet the Challenge... A rare opportunity for your support to multiply! I [ER —— rm ee — In November it was my privilege to announce that FEE had received a major new challenge grant from two anonymous contributors. If FEE raises $150,000 in new money (gifts received and deposited by March 31, 1999), these supporters will give FEE an additional $100,000. Put another way, if we meet this challenge every three dollars you help us to raise will yield an additional two dollars! “New money” is any money from people who have never before given to FEE, as well as contribu- tions by existing donors above the level of their last contribution. With your help, we can meet this challenge and do more than ever to bring liberty to life in 1999. Order Donald J. Boudreaux President Contributions can be made by telephoning (800) 452-3518 and using your Visa, MasterCard, American Express, or Discover Card, or by using the reply envelope included in this issue. For those who have recently contributed, a heartfelt thanks from the entire FEE staff and Board of Trustees. ===== PAGE 37 ===== 33 are the very old, the very frail, and short dri- nent of paternal government to be disturbed vers who seat themselves close to the steering by regulations that protect us from ourselves. column. For them the air bag is not a friendly Thats because they contravene broadly bodyguard but potentially a weapon that shared moral principles that address the maims and kills. acceptability of forced tradeoffs across per- By requiring manufacturers to install air sons and that govern the relationship between bags in all new cars, the federal government a liberal government and its citizens. is, then, not simply mandating a policy that confers substantial benefits on the population Ends in Themselves at large, albeit tempered by occasional harms. Rather, governmental policy deliberately and There is no more fundamental principle of knowingly enhances the safety of one identi- ethics than the proposition that human beings fiable group of citizens at the expense of are special. Each person manifests a unique- another. It literally has redistributed expected ness that confers a dignity that no mere thing life years between these two classes. possesses. They are not interchangeable com- Last fall, the government sought to address ponents of a social whole who may be this problem in its characteristic way. Instead plugged in and plugged out like chips in a of permitting freedom of choice so people computer. In the Western tradition of moral can select safety features tailored to their own reflection, this understanding has been circumstances, it proposed fine-tuning the expressed in many forms. One is the theory of rules to take into account that small and basic human rights that establish zones of unbelted bodies may be in the seats. The auto limited sovereignty within which individuals industry fears the newly mandated air bags may act without interference so long as they will be as dangerous as the first generation of respect the similar liberty of others. Another bags that threatened children and small, frail is the traditional natural-law doctrine which adults. Even if this attempt at central planning insists that no otherwise good state of affairs of technology works, it won’t take effect until can be pursued if doing so requires acting 2006. (Earlier, the government tried to with injustice toward another human being. address the danger by allowing qualifying cit- Yet another version is the Hippocratic Oath’s izens to have a disabling switch installed.) insistence, “First, do no harm.” But this moral Some observers find troubling all govern- insight was perhaps best expressed by the mental edicts designed to protect people German philosopher Immanuel Kant when he against themselves, to force them “for their insisted that human beings, whether oneself own good” to act in ways they less prefer or or another, are not to be used as mere means that attempt to engineer compliance by subsi- for someone’s projects but rather must always dizing officially approved behavior and laying be treated as ends in themselves. Although it taxes and other penalties on that which is dis- is not altogether certain what this dictum approved. For one who takes the free society comes to, there are clear cases of its applica- seriously, this sort of governmental paternal- tion to which there is general assent. They ism is odious. I confess I am troubled by these spotlight what is morally distinctive about incursions on individual choice. If people persons. Let me offer a few simple examples. wish to drive around in their cars unbelted or Although it is entirely reasonable to take dispense with helmets while motorcycling, apart one auto to salvage parts that will choose to smoke cigarettes or consume slabs restore five other vehicles to operability, it is of marbled beef followed by gooey chocolate strictly impermissible to mine one healthy desserts, I may regard their decisions as person’s body for organs that could be trans- imprudent. But if those engaging in these planted to save five other individuals. Similar- behaviors are competent adults I do not see ly, it is unacceptable to frame an innocent per- that [—or anyone—enjoys the prerogative of son in a kangaroo court so as to mollify the constraining them to do otherwise. mob milling ominously about. Fraud and One need not be a dyed-in-the-wool oppo- deceit evince a willingness to manipulate the ===== PAGE 38 ===== 34 THE FREEMAN/IDEAS ON LIBERTY ® JANUARY 1999 beliefs and desires of others so as to render ment could have obviated. There is, then, a them instruments for one’s own designs; tradeoff implicit in the regulation as it stands: assault and rape run roughshod over the it affords greater protection to the lazy and essential embodiedness of persons; theft is the imprudent at the expense of babies and oth- action of treating someone as a resource one ers. Make no mistake about it; there is noth- may freely plunder for one’s own ends; mur- ing in the technology that renders this tradeoff der is literally the obliteration of personhood. unavoidable, and the government says it’s now Using others as mere means achieves its most interested in air bags with adjustable deploy- fully developed institutional form in the prac- ment speeds. But today’s dangerous air bag tice of slavery. was deliberately engineered through govern- It seems hard to avoid the conclusion that mental mandates. insofar as current air bag policy knowingly If all air bags could be disabled via a stan- advances the life prospects of one group of cit- dard switch, then foolish or unwise drivers izens at the expense of another, it violates this might forgo protection that they would be bet- most fundamental of moral precepts. It also ter off having. To protect them against them- puts in jeopardy the bedrock principle of liber- selves, parents are impeded in their efforts to al democratic government, political neutrality. better protect their children. Can anyone rea- Briefly, this is the requirement that the state not sonably deny that these examples of regulato- take sides concerning the projects and pursuits ry partiality are morally bizarre? of its citizens. Individuals acting in their pri- One response that the National Highway vate capacity are free, of course, to be passion- Traffic Safety Administration has offered in ately partisan with regard to their religious the wake of revelations about air bag injuries creeds, ideological convictions, aesthetic and fatalities is that children under 13 should tastes, and conceptions of the good life; the not, whether in car seats or otherwise, be state, though, is not permitted to anoint win- placed in the front seat. The intended impli- ners and losers in these disputations. Rather, its cation is that children are not so much the role is to be the fair and impartial enforcer of victims of air bags as they are of parental the rules under which individuals operate, an malfeasance. umpire rather than a player in the game. The point is, to an extent, well taken. To If air bags were options that car buyers assign credit or blame to regulators does not could select if they desired, but forgo if their absolve parents of responsibility. However, individual circumstances so dictated, then no this response hardly gets the regulators off the class of individuals would be forced to be the moral hook. First, it does not address the issue unwitting instruments of others’ ends; the of other vulnerable populations such as short government would not be acting with partial- drivers and the elderly. Second, it sometimes ity toward some at the expense of others. Note is impossible or impracticable to place all that even those who qualify for the disabling child passengers in the back seat. And third, it switch are nevertheless financially penalized is in tension with a regulatory structure that is by the mandate. Do we really believe it predicated on the assumption that individuals acceptable for the government to penalize are not competent enough to be left to make those who wish to safeguard the health and their own choices. At the very least, then, it is lives of their loved ones? a piece of bad faith to downplay the enormity of the human costs air bags impose by protest- Protection for the Impru dent ing that they would be lower if people were generally more provident. As noted at the outset, air bags burst out at speeds of up to 200 miles per hour. If they were less forceful they would still adequately protect motorists who are belted in, but those What will the regulators say in defense of who neglect to use seat belts will sometimes their position? They might argue that to suffer injuries that high-speed air bag deploy- impose on social policy the condition that it Unrealistic Demand? ===== PAGE 39 ===== SUDDEN IMPACT: THE COLLISION OF ETHICS AND AIR BAG MANDATES 35 produce only winners and no losers is unreal- price.) For example, they may not be able to istically idealistic, indeed unworldly. Virtually afford to get their vehicles serviced as often as nothing could traverse so high a barrier. For they otherwise could. Perhaps they will be example, polio vaccination has mostly elimi- forced to drive around longer in older, rela- nated in this country what was once a deadly tively unsafe automobiles rather than pur- scourge. Yet each year some individuals come chase newer, relatively safe ones. Or with the down with polio, in almost every instance money freed up by not purchasing an air bag, from the vaccine itself. Should we allow the consumers could purchase larger vehicles that return of polio epidemics rather than accede better withstand crashes. (At least they could to these very occasional instances of harm if the government did not discourage manu- due to inoculation? facture of big cars that burn more gas than lit- That objection misfires because the analogy tle cars. This is yet another irony transfixed on which it rests breaks down. To be sure, like a hapless fly in the regulatory web.) It is some individuals who are vaccinated would also the case that individuals differ in the have been better off had they not received the strength of their needs and desires for vaccine. However, we cannot tell in advance enhanced safety. Someone who drives defen- which ones they are. For each person getting sively and who routinely uses his seat and the vaccine, the ex ante probability of a polio- shoulder belts may quite reasonably judge free life is augmented. Probabilities are not that the increment of safety afforded at the certainties, so ex post some will find that they margin by an air bag does not justify its cost. have pulled the short straw and are worse off. These grounds for opposing mandatory That’s too bad for those who lose, but it does air bags commonly pop up in the policy not falsify the proposition that for all players debate. Each is essentially based on an eco- it was a good bet to take. nomic way of thinking that bids us to be Such is not the case, however, with air bags. aware not only of the benefits that we pro- Babies and small adults are placed in jeop- cure through our expenditures but also their ardy so that those older and larger can be associated costs. In calling these reasons afforded greater protection. The regulators economic I do not mean thereby to dispar- know this now, and the record indicates that age them. To the contrary: such efficiency they knew it back in the late 70s when air bag considerations are central to rational policy- regulations were initially being promulgated. making. However, they often spawn a So a closer analogy would be to a world in response to the effect that issues of public which vaccine is produced by knowingly and safety transcend dollars-and-cents calcula- deliberately inflicting some with full-blown tions. Life is too precious, it will be said, to polio so that their tissues can be harvested and be stuffed into Procrustean cost-benefit used to confer immunity on others. Would we computations; morality ought to trump mere regard that as acceptable social policy? monetary considerations. I could not agree more. This discussion has Cp . insisted that morality does indeed matter. It Regulation S Opportunity Costs has, however, seriously called into question There are numerous other grounds for whether federal bureaucrats and so-called questioning the federal government’s air bag consumer advocates genuinely do occupy the mandates. Insistence on universal employ- moral high ground. The fact that air bags on ment of this one safety device precludes balance save lives does not necessarily secure experimentation that might generate better for them this position. There are other criteria alternative safety measures. If cars are made that must be met, criteria such as treating indi- more expensive by the requirement that they viduals as ends in themselves and not bending carry air bags, then car owners will have less the technology of governance to the service of money available to spend on other safety- some classes of citizens at the expense of oth- enhancing measures. (The new generation of ers. It is simply unacceptable to save lives by bags might add as much as $160 to the car’s knowingly forfeiting others. 0 ===== PAGE 40 ===== Peripatetics by Sheldon Richman The Art of Plunder hen the Washington Post recently hon- endowments subsided largely because ored Sidney Yates, 89, on the occasion wealthy old-line Republicans feared losing of his retirement, the headline emphasized the prestige they get from sitting on boards of that he “Made His Mark on the Arts.” symphony orchestras and community cultural Is Sidney Yates a composer? Musician? organizations that receive federal grants. Painter? Poet? Writer? In the silly world of Washington, if you None of the above. favor forcing the taxpayers to finance artists He was a congressman. (including those whom they find repulsive), Don’t laugh. In Washington, you can make you are a champion of the arts. If you oppose your mark on the arts by chairing the subcom- compulsion, you are an enemy of the arts, not mittee that oversees appropriations for the to mention of free speech and all other forms national endowments of the arts and humani- of civilization. By any objective standard, that ties. From that vantage point, Yates, as he him- is of course nonsense. What do tax subsidies self modestly put it, “help[ed] the arts and the have to do with the artistic vitality of the humanities be the pride of the country.” American people? As for freedom of speech, After 24 terms in the U.S. House of Repre- forcing people to finance expression that they sentatives (no advocate of term limits he!), wouldn’t voluntarily support surely violates the Illinois Democrat gave up his office. His the First Amendment. retirement was taken as a blow to American To hear the instde-the-beltway crowd tell it, culture because he has been, according to the you'd think that before the endowments were Post, such a “fierce defender of the arts.” His set up in the mid-1960s, America was a cul- claim to that title lies in his unflagging belief tural tundra. It takes prodigious oversight to that the taxpayers should be forced to finance believe that. You'd have ignore such innova- artistic activity—and jailed if they refuse. tions as jazz, the Broadway musical, modern (Okay, the second part is never pronounced in dance, rhythm and blues, rock and roll, blue- polite company; but we all know the score.) grass, several schools of painting, and lots of For Yates, the greatest threat to American fiction and poetry. Somehow, the originators art came in the 1980s when Republicans of those minor contributions managed to get talked about cutting the funding of the endow- along without state beneficence. Many art ments. There were even murmurs of abolition. forms that are today considered mainstream “Talked” is the operative word here. They were so on the edge in their early days that the didn’t do anything. (A treatise on Republican arts bureaucrats probably wouldn’t have low- dismantling of the welfare state would be ered their noses long enough to notice them. titted Human Inaction.) The jeopardy to the Have government subsidies produced any- thing approaching the greatness of the unsub- Sheldon Richman is editor of The Freeman. sidized American arts and letters? Besides, 36 ===== PAGE 41 ===== 37 “performance art,” the delight of lovers of As Mayor Daley once said, there are times chocolate and gore everywhere, it is hard to when it is necessary to rise above principle. think of anything. The endowments’ backers resolve the Great and good art doesn’t need help from aforementioned contradiction by pointing out the government. (Even a lot of bad art thrives that the money provides leverage to summon without subsidy.) The freedom of citizens not forth big private donations. It’s the multiplier to support art is not only consistent with cul- effect. The prestige of taxpayer largess appar- tural vitality, it is the key to it. How odd that ently so impresses arts patrons, they can’t the so-called champions of the arts have so lit- help but write checks. If so, that’s an excellent tle confidence that they would flourish if the reason to abolish the endowments with dis- taxpayers were not harnessed in their service. patch. If bureaucrats are able to channel not Those champions are caught in their own just taxpayer money but also private benefac- hopeless contradiction, however: while they tions to their favorite artistic causes, that is insist that without taxpayer support America more power than a free society should toler- would turn philistine, they simultaneously ate. Of all places, the United States should not insist that the amount government spends is be proud that the government aspires to pick minuscule, surely too little for the troglodytes cultural winners. You'd think that people who to furrow their eyebrow ridges over. Truth to were regarded as competent to pick their tell, taxpayer support is a tiny percentage of political officeholders would also be able to the federal budget. But in a $1.7 tee-nillion allocate their own income when it comes to budget, that’s true of lots of things. The subsi- the arts. dies are also a small percentage of what What the advocates of subsidy don’t appre- Americans spend privately on the arts. ciate is that culture, like language, is a sponta- So why the fuss? neous and undesigned institution. No central To begin with, there is the little matter of planner is required or desirable. Government principle. Imagine if someone proposed a subsidy designed to nudge private patrons in small subsidy to religious institutions—no one direction or another is a step toward cen- more than 64 cents per man, woman, and tralization that arts lovers should deplore. The child—the price of two stamps before the lat- color of government is mediocrity; why would est postal increase. Would the quasi-socialists we want it anywhere near the arts? who are mistaken for liberals accept the argu- Throughout history the arts have flourished ment that the amount of the subsidy is too when artists were at liberty to offer their prod- small to bother about? One suspects that they ucts to the broad or narrow market of their would invoke the principle of church-state choosing and when art consumers were at lib- separation regardless of the paucity of the erty to accept or reject those products. alms. When it comes to their pet projects, a Artistic freedom is for both buyer and pro- similar commitment to principle is scorned. ducer. The endowments must go. ===== PAGE 42 ===== FREEMAN Ideas On Libert Libertarianism in Japan by David Boaz he publication of a primer on libertarian- Japanese consumers have not always reaped ism in Japan is another sign of two heart- the benefits of economic growth, and deregu- ening developments: the continuing process lation of retailing—particularly a repeal of the of the world’s people being drawn closer laws that impede the opening of large dis- together, and the worldwide spread of the count stores—might allow them to achieve ideas of peace and freedom at the end of a standards of living commensurate with their century of war and statism. productivity. But none of this should obscure Americans, and especially American liber- the real achievement of the Japanese in dra- tarians, find much to admire in the Japanese matically increasing their living standard in people: their strong families, their commitment scarcely a generation through productive to education, their strong sense of individual enterprise in a system based on low taxes, free responsibility, their peaceful and democratic trade, and the rule of law. society, and their productive entrepreneurship The libertarian philosophy has much to that has given the world so much material offer Japan as we move into a global millen- progress over the past 50 years. The Japanese nium. But an obvious question may occur to can take much pride in their economic success, Japanese readers: Are these just American and they certainly don’t deserve the criticism ideas, or at most Western ideas? Do they have they have received from protectionists in the any relevance to the people of Japan and United States and Europe who don’t want to Asia? compete in a global economy. But recent economic problems in Japan and Universal Values its Asian neighbors indicate that there are problems with the region’s economic policies. Some Asian leaders have criticized liberal- An economy largely based on private proper- ism and proposed “Asian values” as an alter- ty, individual initiative, and free markets has native. Singapore’s leader, Lee Kuan Yew, has been hampered by too much state allocation said that his country does not “need the kind of capital and too much of what Americans of free-for-all libertarianism that we see in call “crony capitalism.” These policy mistakes America.” But the values of individual rights, have led to the need for currency reform limited government, and free markets are uni- (mostly in Asian countries other than Japan) versal values. The principles of science are and deregulation of financial services. Also, universal, even though so much of the discov- — h ientific principles took place i David Boaz is executive vice president of the Cato ery of those scie principles toox piace in Institute. This is adapted from the preface for the the West. No one would arguc today that Japanese edition of his book Libertarianism: A mathematics and physics are “Western” ideas Primer. or that Asians cannot participate in the scien- 38 ===== PAGE 43 ===== 39 tific enterprise. Liberalism, now known as lib- I jberalize to Prosper ertarianism, developed in the West, but it speaks to all people. The largest trends in the world reflect liber- But Westerners steeped in the ideas of John tarian values. Communism is virtually gone, Locke and Adam Smith can learn much from and few people still defend state socialism. Asians who study the traditions of Confucius Eastern Europe is struggling to achieve soci- and Lao-Tzu. Lao-Tzu, who wrote that “with- eties based on property rights, markets, and out law or compulsion, men would dwell in the rule of law. Honest observers throughout harmony” and who taught that harmony can the developed world understand that the emerge from competition, may well have been middle-class welfare states are unsustainable the world’s first libertarian. A similar concept and will have to be radically reformed. The can be found in Zen. information revolution is empowering indi- Today the Asian emphasis on strong fami- viduals and small groups and undermining lies and personal responsibility fits better with the authority of centralized power. libertarian political philosophy than does the Perhaps most importantly, the increasing unfortunate trend in Europe and the United globalization of the world economy means States toward personal irresponsibility, a that countries that want to prosper will have to sense of entitlement, and reliance on the state. adopt a decentralized, deregulated, market- Indeed, Japan and America have more to learn oriented economic model. You can’t avoid from each other than either of us has to learn world markets in the 21st century; or if you from the failing welfare states of Europe or do, you will be left out of the phenomenal the statist model of France. economic growth that global markets and Libertarianism is sometimes perceived as a technological development will deliver. radical philosophy, even in its American So one reason that Japanese readers should home. But in fact it is the fundamental phi- be interested in libertarianism is very simple losophy of the modern world: liberty, equali- and practical: these are the ideas that drive the ty, enterprise, the rule of law, constitutional modern world, and you need to know about government. These ideas have become so them. The other reason is that libertarianism commonplace that we forget how radical they offers to every country the promise of peace, were at one time. Libertarians want to apply economic growth, and social harmony. I hope those principles more consistently than do the Japanese readers will join American libertari- adherents of other ideologies. But few people ans in working to restrain state power and lib- in the modern world would want to reject lib- erate individuals, families, associations, and ertarian ideas wholesale. enterprises. Ol 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 is now online. Questions? Contact Karol Boudreaux: kboudreaux@fee.org. A great way to introduce friends and relatives to the wonders of freedom! ===== PAGE 44 ===== FREEMAN deas On Libert Can Government Deliver the Goods? by Hugh Macaulay tudents in their first course in economics each system. Then we will use the fundamen- learn that every country faces three prob- tal principles of demand and supply to predict lems that it must resolve. What goods will be outcomes and evaluate results. We hope that produced? How will it produce these goods? from these considerations, the strengths and And, who will get the goods produced? Since weaknesses of each system will be apparent the questions deal with economic matters, itis and each individual will be better able to usually assumed that markets will determine make wiser choices in answering the basic the answers. But political forces in govern- questions cited above. ment can also provide results. Milton Friedman has observed that every Deciding with Votes Versus country answers some aspects of each ques- . 3s . tion through market forces and other aspects Deciding with Money through the political system. The proportions In 1959 Gary Becker, at that time a young vary greatly from country to country. At one professor at the University of Chicago and extreme would be the old Soviet Union and later a Nobel laureate in economics, com- the People’s Republic of China under Mao pared the two ways of producing and allocat- Zedong. At the other extreme would be the ing goods. He noted that a person could take British colony of Hong Kong and the United his money, go into the market, and choose the States before the Great Depression. In goods he wished to obtain. That action would between are all shades. Cuba, Sweden, Ger- determine what goods were produced, how many, the United Kingdom, the United States they were produced, and who got them. Simi- today, Chile, and Taiwan lie along the line arly, a person could take her vote, go to the moving from more government control to polls, cast it for the politician who favors hav- more market control. ing government order the production of goods What can we say about these two systems she liked, made the way she preferred, and for answering the above questions? Each sys- distributed to the people she thought most tem must have some advantages, for each is deserving. The two systems seemed mirror used, though in widely varying proportions. images of each other. But are there features The close relation is shown by the early refer- that make one superior to the other? Becker ence to economics as “political economy.” cited several areas where the two systems dif- To examine the results we can expect from fer We shall discuss three of them. using each of these systems, we will first look First, when a person votes for a representa- at some broad, general forces that operate in tive that person elected will serve for two, Hugh Macaulay is Alumni Professor of Economics four, or six years and cannot be replaced until Emeritus at Clemson University. the term ends. A person may have voted for 40 ===== PAGE 45 ===== 41 Bill Clinton, who promised in 1992 to reduce wants and some she does not. Her choice is taxes, but in the following year raised them the cart or nothing. In government she must markedly. But Mr. Clinton had three more take the representative’s bundle; she cannot years to serve and could not be removed for choose nothing. abandoning his tax-cut promise. In markets, one is not forced to buy all In a market, however, you may enter a Safe- goods from only one supplier. Sears or Wal- way grocery store, based on its promise of Mart will not be the single source of all goods quality products, good service, or a large for any consumer. You can vote for only one inventory. If Safeway fails to deliver to your congressman who will provide you with thou- satisfaction, you may fire it then and there. sands of rules affecting what is produced, how You need never patronize it again. Market it is made, and who gets the goods, but in goods can change rapidly. Government goods markets you can vote for hundreds, if not change slowly. Not only can the politician thousands, of suppliers of private goods. Even remain in office and with power after his ser- in the purchase of food, the consumer may vices are no longer desired, but the bureaucrat buy bread at one store, meat at another, and who administers the laws usually has, in vegetables at a third. In markets a consumer is effect, a lifetime appointment. An example of seldom forced to pay for a good he does not a service tied to long tenure is the provision of want or that is produced in a way he does not justice. It should be swift and sure. Instead, it like; in government purchases, he often is. is interminably slow and often random. Feder- al judges have lifetime tenure. Improving the delivery of justice will take decades, if it can Rational Ignorance be done at all. Professional arbitrators, how- A third difference between government and ever, can be replaced swiftly and their ser- market provision of goods involves what vices reflect this condition. economists call rational ignorance. This can Second, Consumer Reports has long com- be either costly or costless. plained about the “bundling” of features on Because the Congress will take action on automobiles. In order to get the car with the over a thousand bills during a given session, color and power you want, you may have to the typical voter cannot be informed on each buy other equipment that you do not want. and every bill. In fact, he will be completely The product should be “unbundled,” says the ignorant about almost all of these bills. This magazine, so the consumer would receive and does not imply a lack of interest in govern- pay for only the features desired. ment, laziness, or an inability to understand When the voter helps elect a mayor, sena- the bills presented. Rather, the voter is ratio- tor, or other official, that officeholder will rep- nally ignorant about these proposals, for he resent the voter on a large number of issues. has his own life to lead, family to care for, job The voter may like her congressman’s posi- to pursue, church to attend, sports team to tion on the minimum wage, but vigorously enjoy and support, and a thousand other oppose his position on most-favored-nation things to occupy his time and attention. There treatment for China. A congressman will rep- is little left over to be spent on these peripher- resent his constituents on about a thousand al political issues, many of which may not pieces of legislation during his two-year term. interest him. Further, even should he pause Many constituents, even those who actively and study any issue and try to urge his repre- favored him, will support his position on sentative to vote on it intelligently, his voice is some of these bills but strongly oppose him likely to be lost among those of the thousands on others. The congressman is a bundled of others also affected. He will be ignorant of good, and the voter will be forced to pay for 99 percent of all items that come before the many results she does not want. Dwight Lee Congress, legislature, council, or district has used a Safeway grocery analogy: the con- governing body, and rationally so. This igno- sumer enters the store and is confronted with rance is costly to him, but removing it is even a full grocery cart containing some goods she more expensive. He is destined to be a loser ===== PAGE 46 ===== 42 THE FREEMAN/IDEAS ON LIBERTY © JANUARY 1999 on most of these government-provided items. ficient system. Markets overcome these In the typical voter’s purchases and work in ~~ weaknesses. private markets, he will also be rationally ignorant about almost all products offered. But these will be products he will not pur- Demand and Supply of Goods chase and will not pay for. Most of us are rationally ignorant about the features and cost Under Each System of yachts, for example. The price system Economists turn to the concepts of demand determines how they are produced, and we and supply to make sense of the allocation of need not be concerned about others who scarce goods. These powerful tools will help spend their own money for this product, for us examine our questions in a different light we will not spend our money on it. This form and give us significant insights. of rational ignorance is not costly to the indi- We know that people want lots of units of vidual. many goods and services, but they cannot The late Mancur Olson was an early expos- have all they want. The concept of demand itor of a fundamental rule of political action. tells us a person will take more of a good the Every law, rule, or regulation by government less expensive it is and that he will demand helps some group and imposes costs on oth- each good until he gets about the same happi- ers. A proposal is likely to become law if it ness from the last dollar he spends on the last concentrates the benefits in the hands of a few unit of each good. If he buys a $20 shirt and a people so that each enjoys a sizable gain; at $2 pair of socks, he should get about ten times the same time it spreads the costs over a large as much satisfaction from the new shirt as population, so each loser bears only a small from the additional pair of socks. He is then absolute expense. The gainers, then, have a getting about the same happiness from the last strong incentive to support the proposal, dollar spent on each of these goods. while the losers have little reason to oppose it When we answer our three questions using actively. They are better off remaining ratio- the concept of demand, we know each con- nally ignorant, spending their time on matters sumer will look at the many goods out there more important to themselves. When govern- and their prices, and decide which goods will ment allocates resources, rational ignorance bring him the greatest happiness from the dol- not only creates inefficiency, it also encour- lars he spends on them. He knows why he ages small groups, often called special inter- does not buy some goods he likes and why he ests, to press for allocating more and more does not buy more units of some of the goods goods in this manner. In effect, inefficiency he does purchase. The goods are not worth the breeds even more inefficiency. : price. By following these rules of demand, he Many people think that the government will be as happy as is possible with his should provide “public goods,” so named income. because many people automatically benefit When government produces or allocates from them if any one person does. Examples goods, it usually provides them at a low or are neighborhood attractiveness, fireworks zero price. Schools, police protection, justice displays, water quality, and radio broadcasts. in the courts, clean air and water, Medicaid, Still, many economists argue that markets can occupational safety, and welfare payments are provide these goods more efficiently than all seen as virtually free goods. Many other government can. goods are subsidized, such as public trans- When we rely on government, even when portation, public housing, and Medicare. democratically elected, to provide the goods When the price of a good is low, or even zero, we want, produced the way we want, and consumers will want more of it than they allocated to the people we want to receive would voluntarily have bought at its cost of them, we will get fewer of the goods we production. Think how much more food, want, more of the goods we do not want, and clothing, and shelter you would buy if they will encourage the increased use of this inef- were 50 percent cheaper, or free. ===== PAGE 47 ===== CAN GOVERNMENT DELIVER THE GOODS? 43 As a consequence of government provision, the right signal for the latter two. Recall the too much of the good will be produced. That widespread public dissatisfaction during the means we will have to give up other more 1974 OPEC boycott when government set valuable goods to get these less valuable units gasoline prices below market levels but could of the subsidized or free good. Production of not provide all the gasoline people were will- government-provided goods will draw scarce ing to buy. resources away from the production of things Government provision of goods generally people would have bought. Remember the creates wasteful consumption and consumer fundamental economic rule: there is no free dissatisfaction, a doubly bad result. Market lunch, or even a cheap, subsidized, lunch. It provision leaves consumers happy with what just appears free or cheap. We give up beer, they got and a clear understanding of why tires, and encyclopedias that are more valu- they do not want more units that are not worth able than what we get in cleaner air, higher their cost. SAT scores, or better housing for the poor. In The concept of supply tells economists that fact, added expenditures on these last three if demanders will pay a higher price for a items have often given us dirtier air, lower good, more units will be produced. Further, SAT scores, and fewer housing units for the this price must cover the cost of the land, poor. Federal laws requiring scrubbers on labor, and capital needed to turn out these electric utility generating facilities also units. If demanders will not pay for the good, allowed the use of higher sulfur-content coal it will not be produced. Waste will be avoid- so that dirtier air resulted. Despite annual ed. Firms that produce goods that people do increases in real expenditures per student in not want will go bankrupt. This is how mar- recent years, the SAT scores fell throughout kets avoid wasteful activities. the 1970s and 1980s. The early urban renew- Markets also promote efficiency. People al program displaced poor residents and built who learn to provide a better or less expensive units that only middle-income residents could good make profits. We call them Ray Kroc or afford. Bill Gates. Markets provide a strong incentive But when the government-provided goods to supply only goods people want badly do supply some benefit, even if small, we enough to pay their cost of production. The might think, “Well, at least the recipients will producers of government-provided goods, be happier.” Strangely, they are far more like- however, almost never face bankruptcy. The ly to be dissatisfied with what they have mail may be late, children may learn little in received. First, the extra units of the good are public schools, Medicare fraud may cost bil- not worth much to them. For example, there is lions, job-training programs may leave partic- far more dissatisfaction with “free,” but actu- ipants worse off, but rarely are such programs ally expensive public schools than with declared a failure or abandoned. There are at cheaper private schools for which consumers least two features that help explain these sup- pay directly. Similarly, “free” public highways ply results. are the subject of frequent complaints because First, those who produce these failed prod- of potholes and delays, while toll roads are ucts have little incentive to improve them. seldom criticized. More money spent on The person who produces a better oil-drill either education or highways is likely to be bit, Internet browser, or wash-and-wear fab- even less productive than the earlier spending. ric can make millions from the improvement. Second, recipients will be unhappy because Incentives for government employees or government will not provide them with all the administrators to improve government pro- goods they are willing to buy at the low grams are almost nonexistent. No incentive, prices. People are more likely to be unhappy no improvement. over receiving public housing and public Second, the incentives facing government transportation than over not getting expensive workers, in fact, encourage the production of housing and Lincoln Town Cars. Price sends bad products. Schools can get bigger budgets the wrong signal for the first two goods and if their students are failing. The judiciary can ===== PAGE 48 ===== 44 THE FREEMAN/IDEAS ON LIBERTY ® JANUARY 1999 get more funds if its cases take longer. The When government provides goods, people police can increase funding if there is more will demand too much of less valuable goods crime in schools and on the streets. In terms and become unhappy because they were not of a supply curve, we are not getting more provided more and better products. Govern- units of schooling provided at a higher price; ment agencies producing goods have little we are shifting the supply curve for education incentive to become efficient and significant upward and getting less education at the same incentives to turn out failed products. They price, or equal education at a higher price. also need not fear a prospect of bankruptcy or This condition applies to almost all govern- competition. ment-produced goods. Failure pays. Markets, on the other hand, change quick- ly, allow for many producers, and do not burden those who are ignorant of goods they do not buy. Further, consumers will demand Governments can provide goods or markets only those goods that benefit them most and can do the job. The two systems appear simi- suppliers will become efficient or go bank- lar, but they are very different. The general rupt. We often choose government as our problems of slow response of government preferred provider on the basis of emotion. because of political tenure, the bunching of If we can substitute understanding for emo- decisions made by government officials, and tion, we may become healthier and we will costly rational ignorance by voters all argue certainly become wealthier as we become for abandoning this inefficient system. wiser. [J Government or Market a a en Pr a ie A ecto hosted b EN FEE | 30 RESEARCH (| sell books over the Internet May We Help You? 3D RESEARCH http://fee.3dresearch.com web @ 3dresearch.com (724)-776-7384 We are helping ===== PAGE 49 ===== FREEMAN Ideas On Liberty Markets in Time: The Rise, Fall, and Revival of Swiss Watchmaking by Anthony Young or more than 300 years, watchmaking has movement-blank is an unfinished, but diffi- been Switzerland’s most identifiable cult-to-make watch movement.) This region industry. The country’s geography and politi- of Switzerland became a magnet for the cal non-involvement have permitted Swiss watch parts industry. Companies specializing watchmakers to survive revolutions, wars, and in cylinder, pin lever, and jeweled-lever depressions. Yet there was something the mechanical movements made possible the industry almost did not survive: technological establishment of small watch companies that change. did not have to manufacture every part of the Swiss watchmaking grew out of clock mak- movement themselves. ing as the ability to make smaller mechanical The twentieth century has had the most movements evolved in the seventeenth centu- profound effect on Swiss watch companies. ry. Both innovation and craftsmanship flour- Two world wars and the Depression in ished in the eighteenth century. Some firms between reduced the demand for Swiss established back then are still making watch- watches, but the industry always recovered. es today, including Blancpain (1735), The postwar economies of the world eagerly Vacheron Constantin (1755), and Perrelet sought Swiss pocket watches and wristwatch- (1777). For every Blancpain or Perrelet, how- es, from inexpensive mass-produced hand- ever, there are many smaller, lesser-known wound watches to self-winding, or automatic companies in Switzerland. Close to 500 com- movement, watches. By 1974, exports of panies in Switzerland manufacture watches, Swiss mechanical watches and movements watch movements, and parts. had risen to 84 million units. The mass production of the Industrial Rev- In this euphoric and seemingly irreversible olution reduced costs, but there has always climate, a quiet revolution was brewing in remained the cherished element of handwork Switzerland. It was a revolution mostly of its in a Swiss watch. In 1793, Isaac and David own making, and it would shake the Swiss Benguerel along with Julien and Frangois watch industry to its very foundations. Humbert-Droz established the first watch movement-blank factory in Fontainemelon, . hard against the Neuchatel mountains. (A The Quartz Revolution Work on an electrical watch began in the Anthony Young is a freelance writer based in Miami 1950s. Development of both the electro- who has written previously for The Freeman. mechanical movement and the battery to 45 ===== PAGE 50 ===== 46 THE FREEMAN/IDEAS ON LIBERTY ® JANUARY 1999 power it had to progress concurrently. In du Centenaire. As a result, Japan, with a long- 1954, Swiss engineer Max Hetzel developed range commitment to consumer electronic an electronic wristwatch using an electrically products, threw its industrial might behind charged tuning fork powered by a 1.35 volt quartz watch development and production. battery. The tuning fork resonated at precisely Seiko was the first company to bring an ana- 360 Hz and powered the hands of the watch log quartz watch to the market, the Seiko through an electro-mechanical gear train. This Quartz Astron, introduced in 1969. The watch went on to become the famous Swiss, however, were not far behind. The Accutron by Bulova, which was introduced to Ebauches SA Beta 21 quartz watch appeared the market in 1960. It used a proprietary in 1970. design that was not adopted by the watch industry. However, the Accutron was beaten to the market by the American-made Hamil- ton 500, which appeared in 1957; this was the Swiss companies, steeped in the mechani- first battery-driven watch in production. cal tradition, were slow to embrace quartz In 1962, a research center, the Centre Elec- technology. Mechanical movements had tronique Horloger (CEH), was established in proven their durability and reliability for cen- Neuchatel to develop a Swiss-made quartz turies. This reluctance of the Swiss to adopt wristwatch. Why quartz? An electrically quartz technology initially cost them dearly. charged quartz crystal has the ability to Exports of Swiss mechanical watches plum- achieve stunning accuracy in a watch mecha- meted from 40 million in 1973 to only three nism. Research and development took five million ten years later. While some Swiss years, but the center succeeded in reducing watch companies did manufacture quartz the size of the components to fit into a watch watches, Japan and Hong Kong dominated case. the quartz segment and decimated the Swiss The Japanese, however, were also hard at industry. Many small- to medium-sized watch work on an electronic watch and had the companies in Switzerland closed their doors financial footing to conduct their own by the end of the 1970s. The number of work- research and development of quartz technolo- ers in the industry plunged from nearly gy. The Japanese were no strangers to watch- 90,000 in 1970 to 47,000 by 1980. making. Citizen and Seiko are much older In 1979, the management of the Swiss companies than many realize. The first Japan- ASUAG group (Société Générale de 1’Hor- ese watch plant was built in Seikosha near logerie Suisse SA) embarked on an ambitious Tokyo in 1892, at first making wall clocks. plan to produce its own inexpensive line of Pocket watches and wristwatches followed. quartz watches to counter the Far East jugger- An earthquake in Tokyo destroyed the naut. To produce an accurate, rugged, and Seikosha plant in 1923, but it was rebuilt. In water-resistant watch for less than 50 Swiss 1924, this factory introduced the Seiko brand francs demanded a paradigm shift in thinking name. The Citizen Watch Company had its regarding materials, manufacturing, and mar- roots in the Shokosha Watch Research Labo- keting. The micro-molding of plastic parts, ratory founded in 1918. The Citizen name reduction in the number of parts in the quartz was adopted in 1930. All watches produced at movement, and ultrasonic welding were but a these two companies were mechanical until few of the cutting-edge technologies applied the 1960s, when work was begun on an elec- to the program. tronic watch. This revolutionary watch line, known as The Swiss Neuchatel Observatory, which Swatch, was launched in March 1983. The was responsible for certifying mechanical inexpensive watch, offered in myriad styles watch chronometers for accuracy, held acom- and colors, took the consumer world by petition in 1968. Swiss and Japanese watches storm. In less than two years, more than 2.5 competed. The Swiss entrants swept the first million Swatches were sold. The Swatch was ten places and the CEH was awarded the Prix a phenomenon that put Swiss watches back Swiss Slowdown ===== PAGE 51 ===== MARKETS IN TIME 47 on consumers’ wrists. As the brand went from company introduced a watch line with an victory to victory and sales passed 10 million, automatic (self-winding) movement. Oris it had a profound effect on the Swiss watch received full chronometer certification from industry as a whole and the world’s perception the Neuchatel Observatory in 1968 for its cal- of the industry. ibre 652 movement. The technological fallout of the Swatch Oris had survived and prospered for more permitted the Swiss watch companies to mar- than half a century making mechanical watch- ket quartz watches in virtually all price es. Nevertheless, it led electronic watch ranges. But quartz was not necessarily the development on several fronts in the 1960s. It answer for every Swiss watch company. Many was in a small group of companies, including companies felt honor-bound by their tradition Rolex, that contracted with a Swiss state insti- of making mechanical watches, while others tute to research and develop an electronic were simply leery of quartz for the long term. watch. It also became a member of the As the quartz movement took hold among ASUAG group. Swiss watchmakers, articles appeared in Oris was one of the first Swiss companies watch journals proclaiming that the end of the to sell an LCD (liquid crystal display) watch mechanical movement was in sight. Witness- and did so for a number of years until Casio ing the dramatic decline of mechanical watch- virtually took over this market. It had vast es exported during the 1970s and early 1980s, experience with mechanical movements, hav- some pundits stated it was inevitable the ing manufactured cylinder, pin and lever, and mechanical movement would go the way of jeweled-lever mechanical watches. Its work the horse-drawn carriage. This worried many force was skilled in the fabrication and watch companies; demise of the product assembly of such watches, and there was a would entail scrapping millions of dollars in certain romance to a mechanical movement. precision machine tools, investing in the new Moreover, quartz, while certainly accurate, technology, and retraining a very skilled work had a problem mechanical watches didn’t force. have: dead batteries. In most first-generation quartz watches, the batteries typically lasted Oris—One only a year and obtaining a replacement could ’ be difficult if not impossible in many places. Company S Response Thus mechanical watches would remain in the One of the many watch companies facing Oris catalog. At the same time, the company the quartz/mechanical dilemma was Oris. did not want to ignore what could be a large Located in the picturesque town of Holstein market for quartz watches. The company took southeast of Basel, this company had been the prudent course of adding quartz watches making watches since 1904. Its founders, Paul to its line. Cattin and Georges Christian, chose Oris as Oris was not convinced that the dire predic- the name of their company after a valley near tions of some industry observers regarding Holstein; the word Oris was formed from the the mechanical watch would come true. The Celtic-Roman word aurisa, meaning river. In decision to manufacture watches with both a crowded industry, Oris has more than a few types of movements was a cautious one, as innovations to its credit. In 1938 the company Oris waited to see which way the winds would introduced the pointer calendar, with the days blow. Many watch companies embraced the of the month running the circumference of the quartz movement totally and never looked watch face and the day indicated by a needle- back. Other companies remained faithful to type hand; the seconds were shown on a small the mechanical movement. During the 1980s, dial at six o’clock. During World War II, Oris Oris was part of the SMH group of watch produced watches with oversized winding companies, which included Omega, Tissot, crowns to permit Allied bomber crews to syn- Mido, and other brands. But Rolf Portmann, chronize watches with gloves on in the bitter who had joined Oris during the 1950s and cold environment at 30,000 feet. In 1952, the later steered the company through troubled ===== PAGE 52 ===== 48 THE FREEMAN/IDEAS ON LIBERTY © JANUARY 1999 waters over the next three decades, orchestrat- ed a management buyout, and Oris was once again an independent watch company. The market for quartz watches became crowded in the 1980s. The Pacific Rim coun- tries were churning out literally hundreds of millions of quartz watches a year, and many Swiss companies were making them. How could Oris distinguish itself in such a saturat- ed market? The management concluded it was hard to convey through advertising that its watches were unique. So the company decid- ed to focus all its design, manufacturing, and sales efforts on mechanical watches. Oris chose to lure buyers by extolling the beauty and virtues inherent in the mechanical movement, which had always been the : essence of watchmaking. Many Oris models 1 are fitted with a glass back with a screw- " down case to show off the handcrafted move- ment inside—a feature of many other mechanical watch companies. The company has published a series of booklets describing the history of timekeeping, Oris milestones, detailed descriptions of each step in the man- industry was slow to embrace quartz technol- ufacture of an Oris watch, and a lexicon of ogy, but many companies eventually realized it the components and functions of the mechan- was the key to their survival and to the indus- ical watch. In so doing, the company is link- try as a whole. In 1997, Swiss production of ing itself to Switzerland’s rich watchmaking finished watches was 33 million pieces, with past, building on its own successful history, 30 million being quartz analog, and the rest and making it possible for the watch fancier mechanical. This is a far cry from the glory to wear a piece of that history on his wrist. days of the 1970s, but there is a silver lining. The company took what, at first, appeared to Over half the value of the more than 500 mil- be a market liability and turned it into a mar- lion watches sold worldwide (roughly 80 per- ket asset, proving it could compete with the cent being made in Hong Kong and China) is high-tech quartz movement, no matter where generated by the Swiss watch industry, total- Swatch revolutionized Swiss watchmaking in the 1980s. it’s made. ing more than eight billion Swiss francs. Inter- estingly, while mechanical watches account The Swiss Comeback for only ten percent of annual Swiss produc- tion, they generate nearly half of that total. In looking at the history of Swiss watch- Even Swatch has introduced watches with making over the last 30 years, it’s clear that if mechanical automatic movements. On the face the industry had not responded to the electron- of each one of these watches are the two words ic revolution that was coming, it would not be that make them the most sought-after in the in the healthy state it is today. Initially, the world: Swiss Made. ] ===== PAGE 53 ===== Economic Notions by Dwight R. Lee ¥ Economics Censoring Pleas for Help AX people if they favor government cen- After a natural disaster, prices generally sorship and the response will be a nearly increase sharply for labor, construction mate- unanimous no! Yet if you ask the same people rials, electric generators, and a host of other if they favor government price controls, the products needed for recovery and comfort. response will be much more mixed. Ask them The common explanation for these price if the government should control prices to increases is that unscrupulous suppliers are prevent “price gouging” after natural disas- profiteering at the victims’ expense. Suppliers ters, and the response will be a nearly unani- may be profiting, but not at the expense of the mous yes! victims. Those whose homes are damaged and These responses reflect an unfortunate lives disrupted are victims of the natural dis- ignorance of how markets allow us to com- aster, not of those who supply them with municate with one another. Once market peeded goods and services afterward. High prices are recognized as a means of commu- prices are better explained as the best way for nication, we have another powerful way of victims to communicate their need for help to understanding why government price con- those who are most able to provide it. High trols, which I have discussed previously, are a prices also insure that pleas for help will be particularly harmful form of censorship. And met with a quick and effective response. the harm is greatest in the times of natural disasters because the victims are desperate to . . . communicate their need for help. Sending Lumber to Miami The communication permitted by market | heard an interesting example of such a exchange and the resulting prices creates a response when I was giving a talk in Ohio in remarkable degree of social cooperation. 1992, not long after Hurricane Andrew ripped There are no better examples of the benefits rough southern Florida. I had mentioned the of this communication and cooperation than 40m and its aftermath to illustrate the impor- natural disasters. The victims need not only (p00 of price communication, and a gentle- the assistance of people outside the disaster a0 in the audience told a story about his son, area, but also the cooperation of one another, y,ij4ing contractor outside Cleveland who if they are to recover as soon and completely 1.4 carted building the house he and his wife as possible. Unfortunately, when natural dis had dreamed of for years. The foundation had asters strike, governments are most li ly 10 been laid and the lumber was being delivered outlaw the price signals that make this coop- as Andrew hit Miami. With the news of the cretion Den? fo do so with the sup- disaster, he decided against using the lumber port ol public opinion. himself and (despite his wife’s opposition) Dwight Lee is Ramsey Professor of Economics and Shipped it to Miami instead. Why? Because Private Enterprise at the University of Georgia. the news he found most compelling came in 49 ===== PAGE 54 ===== 50 THE FREEMAN/IDEAS ON LIBERTY ® JANUARY 1999 the form of high prices for lumber, informing this from happening by censoring communi- him that the demand for his lumber was cation among victims. greater in Miami than in Cleveland. A friend of mine who lived in Charleston, Was the Cleveland contractor an unscrupu- South Carolina, when Hurricane Hugo hit in lous profiteer? Hardly. He did far more good 1989 saw firsthand the harm done by this cen- for the victims of Hurricane Andrew than sorship. Electricity was out for several days in those who sat around expressing contempt for my friend’s area, and so lots of people were price “gougers.” True, a few people helped the anxious to get gas-powered electric genera- hurricane victims by sending supplies to tors. Unfortunately, the local hardware store Miami for free. Certainly these people should had only two and was unable to get more be commended. But their help was insignifi- because of price controls. But there was anoth- cant compared to the help given by suppliers er problem with the price controls—one that from all over the country (indeed, the world) actually benefited my friends family, though who responded to higher prices by providing at great cost to others. Because his father was more of the things Andrew’s victims indicated a good friend of the local hardware-store (through higher prices) they most desperately owner, he got one of the electric generators at needed. the controlled price. The store owner couldn’t Those who express contempt for people legally sell the generator to anyone else at a who sell products to natural-disaster victims higher price, so why not let his buddy have it? at high prices should look closer to home for My friend’s father was delighted because he someone to criticize. Their criticism (born of could continue to shave with his electric economic ignorance) and the public opinion shaver. Unfortunately, grocery stores in town they inflame frequently provoke price con- required electricity desperately to prevent trols, which muzzle those crying out for help. thousands of dollars’ worth of food from spoil- The Atlanta Journal-Constitution pointed out ing. Without price controls, one of those stores last April that Georgia has a “price gouging” would have offered a higher price for the gen- law that forbids suppliers from charging “one erator, effectively communicating (on behalf penny more than they charged the day before of customers) that it had a more urgent use for the disaster struck.” This law was favorably it than my friends father had. One person mentioned, with no hint of irony, in an article would have had to suffer the inconvenience of reporting that building contractors and con- lathering up to shave, but hundreds of his struction supplies from several states had neighbors would have persuaded him, through poured into Atlanta immediately after it suf- a high price for the generator, that their desire fered massive tornado damage. Can anyone for fresh food should take precedence. Of seriously believe that this help would have course, without price controls, all the stores poured in from far away if the “price goug- and my friends father (had he still wanted ing” law had been perfectly enforced, or that one) would have quickly secured electric gen- the help was not reduced by the enforcement erators because they would have been able to that had occurred? (Penalties for price goug- communicate with suppliers outside the disas- ing in Georgia range from one to ten years in ter area. prison and fines of $5,000.) Natural disasters provide a particularly vivid example of the harm done by price con- The Electric Shaver trols. Unfortunately, governments do not need natural disasters to justify undermining social Victims of natural disasters need to com- cooperation and destroying wealth by dictat- municate with one another also. Market prices ing prices. Governments have a long history are the only practical method. Everyone in the of imposing price controls on a wide range of stricken area will value the products being goods and services. And they will continue to made available, but people will want those do so until it becomes widely recognized that products to go to those they believe can put such controls are a particularly pernicious them to the best use. Price controls prevent form of censorship. ===== PAGE 55 ===== FREEMAN ideas On Liberty Let’s Pierce the Government Veil by Karen Selick NTARIO, CANADA—AIlthough multiple mismanaged and that money had been pil- births are becoming almost common- fered. They demanded compensation from the place in the 1990s, quintuplets were consid- province of Ontario. ered a miracle in 1934 when the Dionne sis- The province denied any legal responsibili- ters were born in a small northern Ontario ty, but nevertheless offered to pay them a pen- town. Their father, a poor farmer with five sion of $2,000 per month each for the rest of other children in the family to feed, soon dis- their lives. At a press conference, they reject- covered that his five baby girls might bring in ed this offer with the words, “We want justice, some extra income during those tough not charity” One couldn’t help admiring the Depression times. He accepted an invitation spirit with which those words were uttered. to exhibit the girls at the World’s Fair. Hastily, However, a few weeks later, the sisters the province of Ontario stepped in and made accepted the province’s offer of a $4 million the quintuplets wards of the province, ostensi- lump sum, without seeming to realize that bly to protect them. They were taken away what they got was precisely what they wanted from their parents and deposited ina hospital- to avoid—charity, not justice. Or maybe compound that was soon transformed into a something worse. virtual theme park called “Quintland.” Justice would have consisted in identifying Quintland became a tourist attraction, the individuals responsible for misappropriat- drawing millions of curious visitors who were ing their trust money and making those peo- permitted to gaze through one-way glass at ple pay compensation, either out of their ill- the five little girls during three daily “show- gotten gains or their other resources. Instead, ings” over nine-and-a-half years. The quints the money will come out of the pockets of themselves earned unknown amounts through Ontario taxpayers. endorsements. A trust fund was set up for them. When they turned 21, it contained ey sys $800,000, which as paid out to them over Whose Responsibility? the next 20 years. Many of those now being asked to foot the In early 1998, at the age of 63, the three bjl] hadn’t even been born back in the days surviving quintuplets, now virtually destitute, when the quints were being put on display or alleged that their trust fund should have con- hen their trust funds were being dissipated. tained a lot more than the $800,000 they had Others were mere children themselves, too received. They claimed that the trust had been young to vote the government out of office Karen Selick is an attorney in Ontario, Canada, and even if they had been aware of the misdeeds a columnist for Canadian Lawyer. Copyright © 1998 taking place. Still others were residents of by Karen Selick. other provinces or foreign countries and did 51 ===== PAGE 56 ===== 52 THE FREEMAN/IDEAS ON LIBERTY ® JANUARY 1999 not immigrate to Ontario until later. Among human action is, by specific individuals. The those who resided in Ontario at the time, government is not “us.” It is rather a tiny sub- many had voted against the government then set of individuals chosen from among us. in power. Others, who may have voted for that These people are expected to know right from government initially, would never have sanc- wrong. Their job is to enact and implement a tioned such actions if it had been in their system of laws that protects the rights of citi- power to stop them later. zens. If they choose instead to exercise the Add up all these segments of the taxpaying coercive powers of government to violate the population and you will undoubtedly find that rights of citizens, it is they, not innocent the overwhelming majority of the people who bystanders, who should be held account- will now have to bear the burden of this com- able—first, for not doing their jobs properly pensation claim are innocent of even the tini- and second, for the harm they’ve caused. est share of blame for the offenses. Forcing We've had it backwards for centuries. them to pay will not be righting a wrong. It We’ve allowed successive bands of so-called will just be shifting the wrong from one group statesmen to occupy our legislatures, inflict or of victims to another. But the new victims, the at least preside over one injustice after anoth- taxpayers, will be so numerous that the injury er, and then walk away free of all responsibil- to each will be diffuse and easy to ignore. ity for the damage they’ve done. Meanwhile, The number of people claiming compensa- they bask in praise for having served society, tion for government misdeeds in recent years pension checks swelling their bank balances. is astonishing. A search through the Canadian The worst that ever happens to them, no mat- Press database reveals literally dozens of ter how badly they’ve harmed their country unrelated claims. Clearly, many Canadians or their countrymen, is that they don’t get have suffered physical, emotional, and finan- re-elected. cial injury at the hands of the state. It’s about time we rethought this. Corpo- If they all receive compensation out of tax rate law has been allowing us to “pierce the money, we’ll witness the ludicrous spectacle corporate veil” for years in order to hold cor- of victims compensating other victims. Japan- porate directors responsible for company ese Canadians who suffered internment and actions. Why not pierce the government veil? expropriation during World War II will be Why not trace the financial liability for gen- paying compensation to recipients of HIV- uine government wrongdoing back to the and hepatitis-tainted blood, who in turn will individuals who actually formed the govern- compensate David Milgaard for the years he ment at the time of the transgression? spent in prison after his erroneous murder If making politicians pay for their blun- conviction. Milgaard will pay sexual assault ders would discourage people from seeking victims at government reform schools, who public office, or from doing much while in will pay the victims of Alberta’s eugenics office, so much the better. This might be the laws (sterilized against their will on the mere shock treatment they need to make them suspicion of mental inferiority), who will realize they are there primarily as guardians reimburse the Chinese immigrants of the of our liberty, not meddlers in our lives. 1920s for the racist head-tax imposed on The easier we make it for people to collect them, and so on ad infinitum. The same chain compensation by taking it out of the com- of injustice can be found of course in the mon pot so that the new victims won't United States. notice, the more such claims we will encour- age. The more we discourage individual responsibility among our elected representa- tives and their employees by shifting the cost This absurdity has its roots in the accep- of their malfeasance to the taxpayers, the tance of collective responsibility for misdeeds more such violations of rights we can expect that were conceived and implemented, as all to occur. OJ Collective Blame ===== PAGE 57 ===== Economics on Trial by Mark Skousen FREEMAN Ideas On Liberty JANUARY 1999 Are Financial Markets Inherently Unstable? “There is an urgent need to recognize that financial markets, far from trending towards equilibrium, are inherently unstable.” —GEORGE SOROS! I the aftermath of the collapse of emerging fundamentally fragile and destabilizing owing economies in Asia, eastern Europe, and to excessive debt, lax government rules, and Latin America, many prominent economists businessmen’s “animal spirits” and “waves of and speculators, from Paul Krugman to irrational psychology.” (Conservative econo- George Soros, have called for government mist Allan H. Meltzer of Carnegie Mellon intervention in financial markets. Recom- University makes the same point.2) mended policies include monetary inflation In the Keynes-Minsky model, full employ- and currency controls. The foundation of such ment in an unregulated market economy is state interference is the belief that free mar- not a natural equilibrium point, but a transi- kets in general, and financial markets in par- tory moment in a business cycle. Euphoric ticular, are inherently unstable and require expectations lead to an overleveraged condi- strict government regulation. tion where the rate of credit expansion The fathers of this thesis are the British exceeds the rate of profit in the economy. economist John Maynard Keynes and his Eventually, the boom turns into a debt defla- principal heir, Hyman P. Minsky, who devised tion and depression. a “financial instability hypothesis.” Minsky, a Harvard-taught economist, wrote many books _ and articles during his academic career of Long Run Damage by nearly 50 years, most of which he spent at Government Intervention Washington University in St. Louis. He died Ty stabilize the business cycle, Keynesians in 1996. favor big-government capitalism where cen- According to Minsky, Keynes’s general (ra) panks and the International Monetary theory of the economy was really a financial Fund play major roles as lenders of last theory of uncertainty and expectations. resort. Keynes advocated the “socialization According to this thesis, the capitalist econo- ,f investment” and taxes on short-term trad- my is primarily ruled by Wall Street, which is no 3 However, Minsky rightly pointed out _ that interventionist policies validate the exist- Dr. Skousen (http://www.mskousen.com; mskousen ing fragile financial structure and allow the @aol.com) is an economist at Rollins College, « Department of Economics, Winter Park, FL 32789, problems to deepen. He warned that “Once a Forbes columnist, and editor of Forecasts & borrowers and lenders recognize that the Strategies. downside instability of profits has decreased 53 ===== PAGE 58 ===== 54 THE FREEMAN/IDEAS ON LIBERTY © JANUARY 1999 there will be an increase in the willingness errors” that currently characterize today’s and ability of business and bankers to debt- global economy.6 finance.” Larger and more frequent interven- Fortunately, most economists now recog- tions become necessary to fend off debt nize that governments monetary and fiscal deflations and recessions. policies are the main source of economic and Minsky correctly criticized neo-classical financial instability in the world today. In fact, economics for largely minimizing the impact more and more college textbooks teach up that financial markets can have on economies: front that the economy is relatively stable at “The neo-classical synthesis became the eco- full employment; this is known as the “long- nomics of capitalism without capitalists, cap- term growth model.” The short-term Keynes- ital assets, and financial markets.”s ian model is taught at the end of the text- My only problem with Minsky is that he books, where government intervention is mistakenly blames the market itself for its recognized as a destabilizing factor in the instability. economy and the chief cause of the boom- bust cycle. See Roy Ruffin and Paul Gregory’s Principles of Economics and N. Gregory Mankiw’s Economics. Mises’s Non-Neutrality Thesis To understand the root cause of financial Maybe George Soros needs to take a and economic instability, we need to go back refresher course from these textbooks. [] to Ludwig von Mises’s “non-neutrality” thesis . . 1. George Soros, remarks before the House Banking Committee mn his breakthrough work The Theory of Hearing on International Economic Turmoil, September 15, 1998. : : : 2. Allan H. Meltzer, Keynes's Monetary Theory: A Different Money and Credit. Mises pointed out that Interpretation (Cambridge: Cambridge University Press, 1968). monetary intervention (easy money policies 3. John Maynard Keynes, The General Theory of Employment, Red : : : Money and Interest (London: Macmillan, 1936), chapter 12, “The and artificial lowering of interest rates) is the State of Long-Term Expectation.” See also my article, “Keynes as a principal source of uncertainty, false expecta- Speculator: A Critique of Keynesian Investment Theory,” Dissent on : : _ : Keynes (New York: Praeger, 1992), pp. 161-69. tions, and excessive debt leverage in the 4. Hyman P. Minsky, Stabilizing an Unstable Economy (New economy and on Wall Street. Under a stable Haven: Yale University Press, 1986), p. 213. : fai 5. Ibid., p. 120. For a favorable review of Minsky’s work, see monetary system, a laissez faire economy Robert Pollin, “The Relevance of Hyman Minsky,” Challenge would suffer occasional financial mishaps, (Marclvapril 1997), pp. 75-94. nkru : _ 6. Ludwig von Mises, The Theory of Money and Credit (Indi- ba pteies, and down days on Wall Street, anapolis: Liberty Classics, 1981 [1934]). See especially Murray but there would be no systematic “cluster of Rothbard’s excellent foreword in this edition. Skousen on Samuelson at the AEA The annual meetings of the American Economic Association (AEA) convene in New York City, January 3-5, 1999. Freeman columnist Mark Skousen will be chairing and participating in an AEA session titled “Fifty Years of Paul Samuelson’s Economics” on Monday, January 4, at 8:00 a.m. in the Trianon Ballroom at the New York Hilton. Other participants include Greg Mankiw of Harvard, Alan Blinder of Princeton University, and Freeman Contributing Editor Peter Boettke of George Mason University. For complete information on registration, check AEA’s Web site, www.vanderbilt.edu/AEA. FEE will host a get-together for participants and friends Monday evening at the Hilton. For further information, contact Janette Brown at FEE—(914) 591-7230. ===== PAGE 59 ===== 55 ers of this magazine can be grateful that he sank many millions into creating the Univer- sity of Chicago. Despite great wealth, Rockefeller was Titan: The Life of always economical, some would say miserly, in his own affairs. He reviewed every house- John D. Rockefeller, Sr. hold bill and often “patrolled the hallways by Ron Chernow turning off gaslights.” The titan and his fami- Random House © 1998 © 774 pages © $30.00 ly owned several residences, but there were no racehorses, no decadent parties, no yachts, no extravagant traveling or gaudy personal trin- kets. When Cettie, his beloved wife of 50 or me, this is the image that sticks: John years, died in 1915, her most costly items of D. Rockefeller, president of Standard Qil, clothing were a seal coat and muff valued at age 57, in bicycle suit and goggles, racing $135. Rockefeller gave away hundreds of mil- around the University of Chicago campus in lions of dollars to his children and to selected 1897, harried administrators in tow, with stu- causes (including medical research and black dents on the sidewalk chanting: “Rah, Rah, schooling). When he died, his own personal Rah, Rockefeller, he’s the feller.” Priceless. estate (which had been devastated by the 1929 He was indeed “the feller,” as this scintil- crash) stood at a “mere” $26 million. lating retelling of his life and times by Ron Chernow labors mightily to set Standard’s Chernow aptly demonstrates. Chernow must commercial accomplishments reasonably surely be one of the few historians who can straight. He identifies correctly the factors that really write. That a 774-page book about a account for the early growth of the firm (entre- businessman born in 1839 can be a wonderful preneurship, economies of scale, technologi- page-turner in the late 1990s says a lot about cal innovation) and its ability to maintain mar- Chernow’s literary talents—and about the ket leadership. He also identifies correctly the object of his attention, John D. Rockefeller. changing market conditions at the turn of the Chernow’s early hunch was that the Rocke- century that eroded Standards market share feller legend was “exhausted” and that he prior to the antitrust suits. Indeed, Chernow should skip the project. We can rejoice that he even admits that the subsequent legal actions did not. For here, finally, is an intelligent and may have been “superfluous.” insightful account of the most important But there are problems with some of his industrialist of his time, of his personal and economic and legal analysis. Lacking a cor- family life, his religious beliefs, his massive rect (Austrian) theory of monopoly, Chernow philanthropy, and the company he created. 1s unnecessarily bothered by Standard’s This important revisionist account of the man “predatory” pricing and by the “rebates” it and the myth is about as good as we are like- was able to wring consistently from the rail- ly to get. roads. Also, he constantly refers to Standard Who was John D. Rockefeller? Chernow as a “monopoly” even though there were shows that he was, above all else, a man who always rivals in domestic refining (147 in held fast to certain core values throughout his 1911), and even though most markets were life. His early Baptist religious training legally open to entry. shaped his lifelong attitudes toward the The greatest disappointment in Titan is importance of hard work and charitable giv- Chernow’s virtual non-treatment of the classic ing. Rockefeller threw himself into both with- antitrust decisions that broke up Standard. out reservation. “Get money and give money” While the book builds to this climax, the Cir- was his double-entry bookkeeping for recon- cuit Court (1909) and Supreme Court (1911) ciling capitalism and Christianity. His church decisions are tossed off in less than two work and other charitable causes were never pages! Readers are not told that the Circuit an apology for his commercial success. Read- Court never made any legal judgment on Reviewed by D.T. Armentano ===== PAGE 60 ===== 56 THE FREEMAN/IDEAS ON LIBERTY © JANUARY 1999 Standard’s business practices or economic the simple mechanics of economic exchange. performance. Instead, it decided the case on In a chapter entitled “Anatomy of a Mur- the more narrow issue of whether Standard der,” Buchanan uses the American auto indus- Oil of New Jersey was a “trust” or “combina- try as the consummate example of the evils of tion” in restraint of trade. Under the legal American trade policy. He declares: “The U.S. precedents, it was. Guilty; divestiture ordered. auto industry can justifiably claim to have And while the Supreme Court announced that been a victim of abuse, neglect, and abandon- dominant firms should be judged by a “rule of ment by the government of the United States.” reason,” it never applied that rule to the evi- The one lesson from this chapter is that no dence in the case. industry can be held responsible for its own These are not dry academic points. They incompetence and abuse of loyal customers. are crucially important to any overall evalua- He begins by declaring that Volkswagen tion of the firm in the marketplace and to an Beetles were the first foreign auto to get sig- understanding of any appropriate “monopoly” nificant market share in the United States— policy. Unfortunately, Chernow misses it all and then stresses Hitlers role in creating the very badly. Still this is a blockbuster book that Volkswagen corporation and the fact that the every student (and professor) of business his- company (like many German corporations) tory would do well to study carefully. [J relied on slave labor from concentration D.T. Armentano, professor emeritus of economics at camps during World War II. Readers are left the University of Hartford, is the author of Antitrust With the impression that all Volkswagens are and Monopoly: Anatomy of a Policy Failure. forever tainted by this Original Sin and that anyone who bought a Beetle or any foreign car was morally inferior to people who bought American-made cars. The Great Betrayal: How American One issue Buchanan did not find space for Sovereignty and Social Justice Are is quality and reliability. Consumer Reports in Being Sacrificed to the Gods of the the early-to-mid-1980s repeatedly flogged the Big Three American automakers for the high Global Economy : : ] rate of defects in their new cars—at a time by Patrick Buchanan when Japanese companies had far better qual- Little Brown & Company © 1998 © 320 pages ity control. Buchanan, like other protection- * $22.95 ists, ignores how foreign competition improves the quality of domestic products. Among other notions of unfair trade, Buchanan claims that foreigners unfairly ben- Pare Buchanan has given America one efit because they are not forced to comply of the most eloquent theological tracts with the same regulations and pay the same of recent decades. Unfortunately, when taxes that American companies face. He has Buchanan, a two-time presidential candidate, shifted from his earlier beliefs that govern- takes his theological views into economic ment must slash the burden of regulations and areas, the result is a recipe for poverty, con- taxes on American citizens and American flict, and subjugation. businesses—and is now on a holy crusade to The subtitle of Buchanan’s book is “How “level the playing field” by imposing more American Sovereignty and Social Justice Are taxes and burdens on foreign businesses. The Being Sacrificed to the Gods of the Global fact that many European companies face Economy.” Buchanan seems obsessed with heavier tax and regulatory burdens than do demons—denouncing economist Frederic U.S. companies somehow never gets men- Bastiat as “heretical,” denouncing elites for tioned. Even were that not so, why should for- betraying America, denouncing foreigners at eign companies be considered cheaters if their every opportunity. He seems far more inter- nations’ tax systems are not as idiotic as is the ested in the proliferation of enemies than with U.S. Internal Revenue Code? Reviewed by James Bovard ===== PAGE 61 ===== Books 57 B k I i . = og 0 » . , uchanan’s program is nothing new. Amer Politics By Principle, Not Interest: ican protectionists have always found some moral pretext to damn imports. In the 1820s, Towards Nondiscriminatory Democracy protectionists proclaimed that trade between by James M. Buchanan and England and America could not be fair Roger D. Congleton because England was advanced and America Cambridge University Press ® 1998 ® 191 pages was comparatively backward. In the 1870s, eo $49.95 protectionists announced that trade between America and Latin America could not be fair Reviewed by William H. Peterson because America was comparatively rich while Latin American countries were poor. In aid Plato: “Morality determines politics.” the 1880s, protectionists warned that trade Which raises a question 2,500 years later could not be fair if the interest rate among for Nobel laureate James Buchanan and fel- the trading nations differed by more than 2 low economist Roger Congleton: Does poli- percent. tics determine morality? In practice, fair trade means protectionism. Their answer in an era of no-holds-barred Yet every trade barrier undermines the pro- welfare state politics is, in the main, yes. They ductivity of capital and labor throughout the argue that the very logic of majoritarianism economy. A 1979 Treasury Department study inevitably leads to unequal treatment and dis- estimated that trade barriers routinely cost crimination by the state. Coalitions push the American consumers eight to ten times as interests of their members at the expense of much as they benefit American producers. A others. Politics and “takings” become virtual- 1984 Federal Trade Commission study esti- ly synonymous. mated that tariffs cost the American economy Unprincipled politics? The charge is not $81 for every $1 of adjustment costs saved. new. Ambrose Bierce defined politics as “the According to the Institute for International conduct of public affairs for private advan- Economics, trade barriers are costing Ameri- tage.” Oscar Wilde saw democracy as the can consumers $70 billion a year—equal to “bludgeoning of the people by the people for over $1,000 per family. the people.” Yet America seems to cling to The myth of fair trade is that politicians and politics over character. The high approval rat- bureaucrats are fairer than markets and that ings of scandal-ridden President Clinton prosperity is best achieved by arbitrary politi- come to mind. cal manipulation, rather than by each individ- A kind of political amorality marks our ual pursuing his own interest. But government times. Politics becomes a secondhand reli- cannot make trade more fair by making it less gion, an odd mixture of opportunism, apathy, free. cynicism, relativism, and deception. It sinks Should Pat Buchanan have dictatorial into a contest over spoils, plundering many to power over what other Americans are permit- benefit a few, all via political spin and tax ted to buy from 96 percent of the world’s pop- coercion. ulation? This is the question by which his doc- Buchanan's insights into this unholy process trine must be judged. helped him win the 1986 Nobel Prize in eco- nomics, long after he and colleague Gordon Tullock forged the Public Choice school with their 1962 book, The Calculus of Consent. Their theory holds that self-interest guides voters and officials in their public as well as private choices, and that government naturally caters to powerful “rent-seeking” groups. “Rent” in public choice jargon means a special grant: in a sense, a sale of a govern- ment favor enabling the beneficiary to prosper James Bovard is the author of The Fair Trade Fraud. ===== PAGE 62 ===== 58 THE FREEMAN/IDEAS ON LIBERTY ® JANUARY 1999 more than it otherwise could. Note, for exam- But, Catch-22: Can guts for such basic ple, that the domestic price of wholesale sugar change be found in today’s jaded electorate? is about twice the world price. It remains at How many Americans want to do in Santa that high level because the federal govern- Claus by setting up a real barrier to the free- ment protects some three-quarters of the mar- spending, vote-buying state? The need to put ket for high-cost domestic growers, with the the constitutional brakes on runaway govern- remaining quarter allotted by quotas to low- ment is clear. How do we get there from here? cost foreign producers. The domestic grow- That question awaits an answer. ers’ gain comes at the expense of sugar con- As Voltaire wrote some 250 years ago: sumers—virtually everyone getting clipped “The art of government is to take from some for but a few pennies a day. to give to others.” It is this dark art that Why does politics generate programs of James Buchanan and Roger Congleton seek such dubious morality? Public choice theo- to undo. O nists explain that the rent-seekers are well William Peterson, a Heritage Foundation adjunct informed about and fight hard for programs scholar, is Distinguished Lundy Professor Emeritus of that give them large gains. The costs, on the Business Philosophy at Campbell University in North other hand, are widely diffused among a great Carolina. number of consumers who know little or nothing about the government’s policy and have little incentive to oppose it. The political Written on the Heart: deck . sacked in favor of (hose who pre er 0 The Case for Natural Law wheedle their profits out of government “ren . : rather than honost trade. ® by J. Budziszewski Buchanan and Congleton point up the eco- InterVarsity Press ¢ 1997 © 252 pages © $15.99 nomic facts of life. No free lunch ever—the state can give only what it first takes. Most voters are too busy with life’s exigencies to cope with the daily maze of politics, or as the he canard that free-market economists public choicers put it, voters are “rationally are so narrowly focused on economic ignorant.” However, they will pursue their concerns that they miss the big picture seems perceived self-interest, join pressure groups in as indestructible as it is indefensible. It was an attempt to get their cut of the state’s booty, Ludwig von Mises, after all, who said that one and generally vote for the candidate or party cannot be a good economist if he is only an that promises them the most. economist. Indeed, there are things higher The cure? The authors prescribe relimiting than economics that do have a bearing on how the state: Get it back to equal treatment of all. an economic system should be properly Restore to constitutional vitality the Ninth ordered. Written on the Heart spells out what Amendment: “The enumeration in the Consti- those higher things are and why they justify tution of certain rights shall not be construed to economic freedom. deny or disparage others retained by the peo- This book, however, was not written pri- ple.” In short, Buchanan and Congleton want marily to shed light on the best way to fashion to stop the state constitutionally from treating an economy. It is, rather, a primer on natural different persons and groups differently. law philosophy. It discusses the main tenets of That would knock rent-seeking for a loop. three seminal thinkers in this tradition: Aris- It would reform election campaigns by getting totle, Aquinas, and Locke. After comparing at the root of the problem—power. It would the views of the three, the author then exam- add up to freer trade, saner environmental ines the utilitarian position of John Stuart controls, greater freedom for American entre- Mill, which helped move moral philosophy preneurs. It would also lead to faster econom- away from natural law thinking. ic growth, less discrimination, less state Just what does natural law philosophy have waste, and lower taxes. to say about the proper role of government? Reviewed by Robert Batemarco ===== PAGE 63 ===== Books 59 Aristotle’s teaching that government exists to acceptance of utilitarianism has imbued the make men virtuous looks like an invitation to twentieth century with ethical relativism and an overbearing state. However, the author, a the exalting of emotions over reason. The philosophy professor at the University of price, counted in lives and liberties lost in Texas, shows that Aquinas qualified this wars, concentration camps, and bureaucratic somewhat, contending that the state should tyranny, has been high indeed. not seek to extirpate all vices but “only the The book is avowedly Christian. It is laced more grievous vices, from which it is possible with numerous references to scripture and to for the majority to abstain, and chiefly those Christian writers such as C.S. Lewis. Whether that are to the hurt of others.” This formula- or not the reader shares Budziszewski’s belief tion still leaves much to be desired. To most in God, he would be hard pressed to deny that people, for instance, the drinking of alcoholic natural law thinking is a mighty obstacle to beverages would scarcely qualify as a “griev- the belief that earthly rulers are entitled to ous vice,” but unfortunately the author, show- wield god-like powers. The acceptance of nat- ing more courage than wisdom, denies that ural law, he writes, implies that “Earthly Prohibition was an instance in which banning rulers are on a leash. They cannot make deeds a vice did more harm than good. This will wrong simply by prohibiting them, nor can hardly help to promote natural law thinking. they make them right simply by calling them Just how far short of the standards set by constitutional rights.” natural law thinking current legislative prac- Beautifully said. Unless that point is taken tice falls is clearly demonstrated by Aquinas’s to heart, however, the 21st century may turn definition of law as “an ordinance of practical out as bad as the twentieth. [J reason, for the common good, made by those Robert Batemarco is director of analytics at a mar- who have care of the community, and promul- keting research firm in New York City and teaches gated or made known.” With so many legisla- economics at Marymount College in Tarrytown, New tive enactments serving special interests York rather than the common good, and so few such measures fully understood even by the legislators who vote on them, the amount of The Commanding Heights: The Battle twentieth-century American legislation that Between Government and the Marketplace meets all these criteria would probably fitina pat Is Remaking the World volume 1 ot much larger than one issue of The by Daniel Yergin and Joseph Stanislaw Budziszewski’s discussion of Locke Simon and Schuster ® 1998 © 352 pages ® $26.00 revolves around the seventeenth-century philosopher’ criteria for justice in the appro- priation of goods from their original state of nature and his notion of inalienable rights. It he danger in telling a good story is often follows from these Lockean concepts that the sacrifice of key facts, thereby distort- since the natural right to keep justly acquired ing the reader’s understanding of reality. In property is inalienable, redistributive taxation The Commanding Heights, authors Daniel is theft, regardless of how large a majority Yergin and Joseph Stanislaw describe the epic favors it. That argument will shock many, but twentieth-century conflict between socialists it is one that needs to be made. and market advocates. This is an extremely Budziszewski’s critique of the utilitarian worthy story, but the telling, although quite challenge to natural law is very pointed. He informative, has some serious gaps and weak finds utilitarianism devoid of any notion of analysis. We might say that it comes up one right and wrong that is not tantamount to sandwich short of a picnic. expediency. Moreover, he maintains that the The books title is lifted from a saying of foundation of utilitarian ethics is feeling Lenin’s, that socialists must aim at seizing the rather than reason. Thus the widespread “commanding heights” of a nation’s economy Reviewed by David L. Littmann ===== PAGE 64 ===== 60 THE FREEMAN/IDEAS ON LIBERTY ® JANUARY 1999 if they are to succeed in their plans. Yergin unprofessional wisdom propounded by the and Stanislaw embark on an ambitious jour- propaganda organs of socialism that whenev- ney to describe the eight-decade-long, world- er something goes wrong, it’s a market failure wide struggle among economists and politi- for which the visionaries have a remedy. Con- cians with conflicting visions about govern- sequently, the average reader is apt to blithely ment’s role in the economic and social life of accept “market failure” rather than govern- their citizens. ment meddling as the beginning of the gov- One admirable accomplishment of the book ernment’s rise to the commanding heights. is its tracing of the forces and individuals The errors do not end there. Yergin and most centrally involved in the rise and fall of Stanislaw fail to distinguish between money socialist policies around the globe. The and credit, and they totally miss the origins of authors have painstakingly developed the key the $200 billion savings and loan disaster. names and ideas associated with the drama. Those and other mistakes undermine the Their history of each nation’s sorry experi- book. ence with socialism is excellent. The anec- Their understanding of inflation, for exam- dotes and damaging quotations from now- ple, is weak. Inflation is always and every- discredited proponents of socialism alone where a monetary phenomenon. Printing make the read worthwhile. money faster than the growth of real output The greatest strength of The Commanding leads to an increase in the overall average Heights is its comprehensive portrayal of price level. Yergin and Stanislaw, however, socialism’s ascendency—the road to serfdom, write as if increases in particular prices—oil, as FA. Hayek put it. Yergin and Stanislaw in this case—were the cause of inflation. reveal an amazingly consistent pattern of Worse yet, they fail to examine the terrible political connivance and the distressing ease policy blunders committed in Washington in with which professional politicians and their an effort to “solve” the so-called energy cri- coterie of “economic advisers” systematically sis. Looking down from the commanding capitalize on fear and gullibility among the heights, our central planners gave us price masses to replace freedom and property rights controls, rationing schemes and, thanks to the with central planning and bureaucracy. The Federal Reserve, torrents of new money and authors illustrate how eagerly totalitarians true inflation. Many important lessons can be have—and in the future, will—pounce on learned from a study of the “energy crisis” of every economic crisis as an opportunity to the 1970s, but the reader will have to learn grasp more power. them elsewhere. But there are significant weaknesses in the The plentiful sins of omission and commis- book stemming from the authors’ deficient sion could have been avoided if the authors background in economics. This deficiency had talked less with the likes of Felix Rohatyn leads them to repeat familiar misconceptions and had consulted more with, say, Walter about the free market, such as blaming it for Williams. Alas, they didn’t. the Great Depression. Readers are bombarded Read this book for its generally good by “market failures” as the reasons for the history, but beware of its poor economic subsequent rise of the central planners, but if analysis. OJ the authors had looked more closely, they David L. Littmann is senior vice president and chief would have found that government interven- economist of Comerica Bank, Detroit, Michigan. tion was responsible for all the economic shocks of the century. Among the precursors of the crises exploit- ed by the socialists are stifling taxes, trade restrictions, intervention in agricultural mar- kets, counterproductive regulations, and per- verse monetary and credit policies. The authors, however, accept the conventional, but ===== PAGE 65 ===== Books 61 given lawsuit with the existing body of legal rules” But the consequences of adopting indeterminacy are devastating. As Farber and by Daniel A. Farber and Suzanna Sherry Sherry write, “If the indeterminacy thesis is Beyond All Reason: The Radical Assault on Truth in American Law Oxford University Press ® 1997 ® 195 pages correct, then it is unclear how legal arguments * $25.00 ever have any persuasive effect, because all - - arguments are equally sound.” Why bother Reviewed by Lauren S. Bain with argumentation at all; we might as well flip a coin. n Beyond All Reason, Daniel Farber and The authors go to considerable lengths to Suzanna Sherry identify a serious threat to deconstruct two crucial tenets of multicultur- our legal system—the assault on the idea that alist theory: first, that reality is socially con- the law should seek and then respond to the structed, and second, that all constructs of truth. Unfortunately, they pull their punches reality merit equal deference in the market- and fail to deliver a knockout blow to this place of ideas, including the legal system. lurking menace. They are particularly effective in obliterating Much has been written about the farrago of the “alternative ways of knowing” supposition bizarre ideas that goes under the name of that the multiculturalists use as a battering “multiculturalism.” Among the stranger ram against the idea embedded in the legal notions advanced by the multiculturalists is system that the truth excludes all incompati- that reality is a social construct. There is no ble ideas. This is the backbone of the book objective truth; instead, each person or group and it is strong. constructs his own reality. Women, for exam- Unfortunately, our avowedly “centrist” ple, supposedly have their own “way of know- authors weaken their effort by trying to paci- ing,” and those who dispute this idea must be fy the multiculturalists. “We don’t mean that a part of the “dominant power structure” and all the work of these scholars is worthless,” therefore beneath response. Decades ago, they write. They then proceed to validate their Ludwig von Mises destroyed the claims of multiculturalist colleagues’ “other work” by what he referred to as “polylogism,” but bad resort to the non-judgmental multiculturalist ideas have a way of coming back, dressed up trait of presuming merit where no evidence of in some fancy new language. That is exactly merit exists. The reader looks in vain for any the case here. sound argument from the authors in favor of Law professors Farber and Sherry see the multiculturalist theorizing, in law or else- multiculturalist assault on truth as undermin- where. ing the very foundations of our system of law. At one point, Farber and Sherry go so far as They write, “Critiques of truth, merit and to attempt an intellectual rescue of the people legal reasoning are all tightly intertwined. Itis whose ideas they have shown to be a menace difficult to defend merit if the concept of truth in the law, saying that the multiculturalists are is open-ended. . . . [I]t is difficult to defend only guilty of employing wild and sometimes truth if the merit of an analysis or argument is inane slogans as a means of getting across wholly subjective. And without either merit or their ideas. But if the ideas behind the slogans truth, how could judicial reasoning hope to are bad ones, what does it matter how they stand?” Well said. They have identified one of promote them? the most pernicious tendencies of multicultur- At another turn, the authors, attempting to alism—its hostility to reason. chart a “middle” course, take a completely Consider, for example, the “indeterminacy gratuitous swipe at the free-market camp: thesis” advanced by the “critical legal stud- “Radical multiculturalists favor ideas relating ies” movement. Professor Mark Tushnet, a to the social construction of reality, just as proponent of this thesis, explains, “Critique is conservative scholars have latched onto other all there is. . . . A competent adjudicator can ideas about free markets.” These law profes- square a decision in favor of either side in any sors probably know almost nothing about the ===== PAGE 66 ===== 62 THE FREEMAN/IDEAS ON LIBERTY ® JANUARY 1999 vast extent of free-market scholarship (that Like the proverbial road to hell, Beyond All they insist on labeling it “conservative” is a Reason is paved with good intentions. Farber tip off), but are happy to dismiss it in the same and Sherry smoke out and then wound some breath as they dismiss the idea that reality is of the multiculturalist dragons, but it will merely a “social construct.” have to fall to more courageous writers to slay Their unwillingness to come down hard on them. J the multiculturalists (who are leftist allies, if : : ; . : Lauren Bain (Ibain@emeraldnet.net) is an attorney rather embarrassing ones) and their pandering and writer living on Vashon Island in Puget Sound. attacks on freedom advocates undermine Spe is the author of Glamorgan’s Tales: A Cat’s Gar- what might have been a truly useful book. den of Verse (Companion Star, 1998). && A brilliant mix of theory and practice, this is a book you will share with your friends. —Randy E. Barnett, Boston University School of Law fist ssn sss pls ove dis health: | “By explaining the tradition of liberty rights and the eco- A |] C nomic system of capitalism that accompanies it, Kelley 90) EAP shows ‘welfare’ rights to be both an ethical and an econom- 1CS ic sham. Kelley argues that individualism is at odds with ou neither morality nor community. This is a clearly written Individual Rigs work that appeals to common sense.” a lesa —Douglas B. Rasmussen A Life of One's Own Professor of Philosophy by David Kelley 176 pages St. John’s University $9.95 paper/$18.95 cloth “Anyone interested in the moral legitimacy of the welfare Available from the Foundation for Economic Education, Inc. state must deal with the arguments of this book.” —Ellen Frankel Paul Editor Social Philosophy and Policy Published by Call toll-free to order: 1-800-452-3518 INSTITUTE ===== PAGE 67 ===== The Pursuit of Happiness by Walter E. Williams @ History The Civil War’s Tragic Legacy he Civil War produced at least two impor- pose, directly or indirectly, to interfere with tant outcomes. First, although it was not the institution of slavery in the states where it President Lincoln’s intent, it freed slaves in exists. I believe I have no lawful right to do the Confederate States. Second, it settled the so, and I have no inclination to do so.” The question of whether states could secede from real causes had more to do with problems the Union. The causes of and the issues sur- similar to those the nation faces today—a fed- rounding America’s most costly war in terms eral government that has escaped the limits of of battlefield casualties are still controversial. the Constitution. Even its name—the Civil War—is in dispute, John C. Calhoun expressed that concern in and plausibly so. his famous Fort Hill Address of July 26, 1831, A civil war is a struggle between two or when he was Andrew Jackson’s vice presi- more factions for control of the central gov- dent. Calhoun, who later became a senator ernment. Modern examples are the conflicts from South Carolina, said, “Stripped of all its in Lebanon, Liberia, and Angola. In 1861, covering, the naked question is, whether ours Jefferson Davis, the president of the Confed- 1s a federal or consolidated government; a erate States, no more wanted to take over constitutional or absolute one; a government Washington, D.C., than George Washington resting solidly on the basis of the sovereignty wanted to take over London in 1776. The of the States, or on the unrestrained will of a Confederate States were fighting for indepen- majority; a form of government, as in all other dence from the Union. Whatever one’s senti- unlimited ones, in which injustice, violence, ments, the conflict is more accurately charac- and force must ultimately prevail.” terized as a war for Southern independence; Calhoun, like Jefferson, feared Washing- in the South, you frequently hear it called the ton, D.C.’s usurpation of powers constitution- War of Northern Aggression. ally held by the people and the states (“con- solidation”). For example, of the tariffs enact- ed to protect Northern manufacturers, Calhoun said that “an undue proportion of the History books most often say the war was burden of taxation has been imposed on the fought to free the slaves. But that idea is South, and an undue proportion of its pro- brought into serious question by Abraham ceeds appropriated to the North.” Lincoln’s repeated disclaimer: “I have no pur- Import duties extracted far more from the South than from the North, and Southerners Walter Williams is the John M. Olin Distinguished complained of having to pay either high Professor of Economics and chairman of the eco- prices for northern-made goods or high tar- nomics department at George Mason University in iffs on foreign-made goods. They also com- Fairfax, Virginia. plained about federal laws not dissimilar 63 Unrestrained Government ===== PAGE 68 ===== 64 THE FREEMAN/IDEAS ON LIBERTY ® JANUARY 1999 to the Navigation Acts that helped bring on state, with full power to levy war, conclude the War for Independence. peace, contract alliances, establish commerce, and to do all other acts and things which inde- The Nullification Doctrine pendent States may of right do.” The next year war started when South Carolinians fired on A precursor to the War Between the States Fort Sumter, an island in the harbor of came in 1832 when South Carolina called a Charleston, South Carolina. convention to nullify the tariff acts of 1828 The principal-agent relationship between and 1832. Branded “the tariff of abomina- the states and federal government was not an tions,” the duties were multiples of previous idea invented by South Carolina in 1860; it duties. The convention declared them uncon- was taken for granted. At Virginia’s conven- stitutional and authorized the governor to tion to ratify the U.S. Constitution, the dele- . resist federal efforts to collect them. After gates said, “We delegates of the people of Vir- reaching the brink of armed conflict with ginia. .. do in the name and on the behalf of Washington, a settlement to reduce the tariffs the people of Virginia, declare and make in steps—the Great Compromise of 1833— known, that the powers granted under the was reached. Constitution being derived from the people of South Carolinians believed there was the United States, may be resumed by them precedence for the nullification of unconstitu- whensoever the same shall be perverted to tional federal laws. Both Jefferson and James their injury or oppression, and that every Madison suggested the doctrine in 1798. It power not granted thereby remains with them, was used to nullify federal laws in Georgia, and at their will.” Alabama, Pennsylvania, and the New Eng- The clear and key message was: the people land states. The reasoning was that the feder- of Virginia, through their delegates, entered a al government was created by, and hence was contractual agreement with the several other the agent of, the states. sovereign states and created the federal gov- When Congress threatened to raise tariffs ernment as their agent. When the federal gov- to unprecedented levels and the Republican ernment violates their grant of power, the peo- Lincoln was elected president, a special South ple of Virginia have the right to take back the Carolina convention unanimously adopted an power and fire their agent. Ordinance of Secession and a “Declaration of In light of the outcome of the War Between Causes” stating that “We assert that fourteen the States, the federal government can do any- of the States have deliberately refused for thing it wishes and the states have little or no years past to fulfill their constitutional obliga- recourse. A derelict U.S. Supreme Court tions. . . . Thus the constitutional compact has refuses to do its duty of interpreting both the been deliberately broken and disregarded by letter and spirit of the Constitution. That has the non-slaveholding States; and the conse- translated into the 70,000 federal regulations quence follows that South Carolina is released and mandates that controls the lives of our cit- from her obligation. . . .” Continuing, the Dec- izens. It also translates into interpretation of laration, asserted, “We, therefore, the people the “commerce” and “welfare” clauses of our of South Carolina, by our delegates in Con- Constitution in ways the framers could not vention assembled, appealing to the Supreme have possibly envisioned. Today, it is difficult Judge of the world for the rectitude of our to think of one elected official with the states- intentions, have solemnly declared that the man’s foresight of a Jefferson, Madison, or Union heretofore existing between this State Calhoun who can articulate the dangers to lib- and the other States of North America is dis- erty presented by a run-amok government. solved, and that the State of South Carolina The prospects for liberty thus appear dim. The has resumed her position among the nations supreme tragedy is that if liberty dies in of the world, as a separate and independent America, it is destined to die everywhere. []