The Freeman 1989 - The Ludwig von Mises Institute

4THEFREEMANIDEAS ON LIBERTYThe Tucker Car: Did theBig Guys Do It In?by Melvin D. BargerAtfirst, I thought it was astonishing thatPreston Tucker and his fabled car fromthe 1940s should suddenly reclaim thepublic's attention, as a result of the new movieby Francis Ford Coppola. 1Thinking it over, I decided that the Tuckercar's second coming-if only on the screenisn'tso astonishing after all. Ever since Tucker'sshort-lived carmaking venture collapsed inlate 1948, myths about him have circulated inthe country. The myths have become part of alegend that strikes close to the opinions held bya lot of people. These myths are worth reviewingbecause they also touch economic fallacieswhich are part of the general folklore.It should be said at the outset that the Tuckercar was a poorly conceived venture that wasdoomed to fail from the start. Though PrestonTucker was a charming, persuasive person withnovel ideas, he lacked many of the qualitieswhich were needed for a successful entrepreneurialventure. Even had he possessed thesequalities, however, he was entering a businesswhich had become fiercely competitive andcost-efficient at every level. The U.S. automotiveindustry was already dominated by the BigThree in the late 1940s and would soon shakeout established companies like Studebaker,Packard, and Hudson.There was some concern about this situationby people who argued that it takes many producersto bring real competition. The truth,however, is that the Big Three reached theirMr. Barger was a business writer associated with Libbey­Owens-Ford Company and one of its subsidiary firms fornearly 33 years.positions because they performed most efficientlyamong the carmakers who still survivedas the industry grew and matured. The Big­Three efficiency was not only in designing andengineering cars, but also in mass-producing,marketing, and servicing them. Any would-becontender in this tough market would have hadto offer not only a great car at a competitiveprice, but also superb manufacturing and asound dealer network with servicing arrangements.The outlook for success was so forbiddingthat no really new car company had grownup since Walter Chrysler revamped the Maxwellconcern in the 1920s and then went on toacquire the formidable Dodge interests. Theone newcomer who did achieve some success inthe postwar car building industry was Henry J.Kaiser, who produced about 750,000 cars in hisnine-year attempt to crack the market. Amazingly,however, it's Tucker and his 51 cars thathave stayed in the public memory. Kaiser, anastute businessman with many successes to hiscredit, is largely forgotten.Preston Tucker burst upon the, scene in 1946with astonishing announcements which promiseda revolutionary new car. First called theTucker Torpedo, it purportedly had been undertesting and development fifteen years andsported amazing safety and performance features.It's hard to believe the response to thisincredible announcement. As a pair of magazinewriters recalled in 1982, thousands consideredTucker a genius, "an automotive Davidwho would slay the monopolistic Goliaths ofDetroit. ,,2For two years, Tucker's "Tin Goose," as it

5The Tucker Torpedo, complete with Cyclops center headlight andpop-out windshield. Only 51 Tucker cars were actuallyproduced.became known, seemed to fly fairly high. Forhis company headquarters, Tucker managed toobtain from the War Assets Administration ahuge Chicago plant which Dodge had operatedduring World War II. Early success in sellingstock and dealerships eventually brought inabout $26 million. Though the responsive publicbecame restive over Tucker's failure to producea car, he finally displayed one in a highlydramatized showing on July 19, 1947. Nowcalled the Tucker "48," the display model captivatedcrowds with its aerodynamic design,rear-mounted engine, and such supposedly advancedsafety features as a Cyclops center headlightwhich turned with the wheels and a windshieldto pop out in an accident.Though the display model also drew recordcrowds when Tucker took it on tour, it turnedout that the vehicle had been hastily put togetherand actually had no reverse gear at the originalshowing. The suspension system had failed andhad been frantically rebuilt just before theshow. Some of the body had been fabricatedaround a 1942 Oldsmobile body. The more seriousproblem was that Tucker apparently hadno sound plan or even blueprints for getting thecar into real production. The 51 Tucker carsactually produced were hand-built models fabricatedat enormous cost. One example ofTucker'sprofligate ways was revealed in his procurementof transmissions. Tucker obtainedsalvaged transmissions from the defunct Cordautomobile, and then paid a shop owned by hisfamily $223,105 to rework 25 of them. 3 Withsuch weird practices, it's not surprising that bylate 1948 the firm was all but bankrupt. Byearly 1949 it was all over, with less than$70,000 remaining of the nearly $26 millionraised by Tucker from trusting shareholders andwould-be dealers.A number of publications, particularlyCollier's magazine, reported on the failure,

6 THE FREEMAN. JANUARY 1989leaving little doubt that the Tucker venture hadbeen a business seduction of massive proportions.Tucker himself was exonerated of fraudcharges, and it's possible that he had, indeed,fully intended to build and market his dreamcar. He was reportedly still determined tolaunch another automaking venture when hedied of cancer in 1956 at age 53.Long before Tucker's death, the myths werealready circulating in Detroit. I'm sure I heardthem from fellow workers when I worked onassembly in a Detroit engine plant in 1951 and1952. We heard that Tucker had had such aphenomenal car that the Big Three automakersmoved to block it. One of their alleged tacticswas to bully their own suppliers into refusing tosell parts to Tucker. They also enlisted the government'shelp; and the Securities and ExchangeCommission helped speed the Tuckercar's demise by leaking information about thecompany. Another "villain" -as the newmovie makes clear-was Homer Ferguson, aU. S. Senator from Michigan who had strongpersonal ties to the Big Three establishment.As a student of free-market economics, I'mquick to concede that a government-backedbusiness conspiracy can work to stifle a newventure. The involvement of Senator Fergusonand the SEC does muddy the waters in reviewingthe Tucker collapse. In fact, however,Tucker needed no help in destroying his company.The government, if anything, bent therules in Tucker's favor when it awarded him theplant in Chicago on very generous terms. As forSenator Ferguson, his more probable concernwas not that Tucker would succeed, but that ·hewas headed for a massive failure which wouldwipe out shareholders' investments. The SECdid not doom Tucker, nor did it really carry outits role of protecting investors.Did the Big ThreeShut Out Tucker?What about the role of the Big Three automakers?Their supposed opposition to Tucker isinferred as a result of a common fallacy aboutbig business concerns. There is a widely heldbelief that any large business or several "oligopolists"can easily shut out an upstart competitor,either with predatory pricing or someother tactic. The way this story goes, the dominantbusiness simply applies such pressureswhen a new company appears, and then goesback to its usual exploitative practices after thewould-be contender expires. This is a fallaciousargument that is often used to explain failure. Itcan be easily disproved by tracking the numberof times newcomers have dislodged establishedfirms. It still survives, however, and it contributedto the Tucker myth.I find it hard to believe that any top managerof a Big Three company actually gave morethan a few minutes' thought to the Tucker venture,let alone conspired to destroy him. WhileDetroit's auto executives would have been curiousabout any new car, they would have beenquick to see that the Tucker program was likelyto unravel by itself. They were also in the midstof an extraordinary sellers' market in the late1940s and had little apprehension that a newcompetitor might sweep the industry. Nor wasthere need to fear that failure to bring out aglitzy new body design would cause loss ofmarket share. Though some of them may haveadmired Tucker's body design, all of them hadnew aerodynamic models in progress andplanned for early introduction. Studebaker andHudson, in fact, did beat the Big Three to themarket with aerodynamic designs, and yet thisdid not help them survive in the long run.Even ifTucker had offered a truly revolutionarycar, it's doubtful that Detroit's managerswould have panicked about possible "losses ofbillions" in the future, as the Coppola moviesuggests. The Big Three automakers alreadyknew how to design "dream" cars, as both GMand Chrysler did just before World War II. 4Their concern was not the design of such cars,but the cost constraints of getting them into production.Again, there is far more required forautomotive success than just having a great car.Any top executive of GM or Ford, in lookingover the Tucker car, would have immediatelyquestioned whether it could be put into productionto support the low sales price Tucker hadpromised. There would have been questionsabout its likelihood of giving trouble-free performanceand whether the car really deliveredthe excellent gas mileage promised. And itwould have raised some eyebrows if it had been

THE TUCKER CAR: DID THE BIG GUYS DO IT IN? 7known that Tucker had sneaked reworked Cordtransmissions into the car rather than designinghis own.There is also scant reason to believe, as somedo, that the Detroit automakers bullied theirsuppliers into refusing to sell parts to Tucker. Ihad personal knowledge of this as a result ofbeing associated with Libbey-Owens-Ford for14 years. I learned that Libbey-Owens-Ford hadfabricated Tucker's pop-out windshield at atime when LOF supplied 100 percent of GeneralMotors' automotive glass. Had Tuckergone into production, LOF would have continuedas his supplier, just as it also supplied glassto other auto and truck manufacturers. (FordMotor Company had its own glass plants.)Moreover, sales managers are adamant in denyingthat any carmaker would prevent a supplierfrom selling to other companies. Ratherthan making suppliers totally dependent onthem, carmakers are more interested in havingvendors who are soundly financed and arelikely to have a number of customers in order tosurvive the times when auto production is cutback.It is possible, of course, that in 1948 somesuppliers would have been more attentive to BigThree customers than to Tucker. The persistentfear at supplier firms is that a customer may notbe able to pay the bills. In view of disturbingrumors that were already circulating aboutTucker Corporation in early 1948, any prospectivesuppliers would have been skittish aboutselling to the company except on a c.o.d. basis.Tucker, however, never reached the point ofordering production parts in volume. He wasnever strongly in the market for the parts thatsupposedly had been denied to him. lThe most likely Big Three response toTucker is that the top auto managers noted hiscompany and quickly dismissed it as a speculativeventure that would not survive. The duty offollowing Tucker and reporting on his progresswould have been assigned to the marketresearchperson who tracked competitors' activities.Far from conspiring to destroy Tucker, theBig Three executives were more concernedabout competing with each other for the longrun.Another reason given for the Tucker failure isthat the SEC leaked damaging informationwhich had the effect of stifling sales of Tuckerstock and dealerships. As a result, Tucker fellfar short of raising the total amount that wouldhave been needed to get into production. Whilenobody knows an exact figure for this, $100million is probably a fair estimate. This wasfour times the amount Tucker actually raised.The Market RespondsWhatever the effect SEC leaks might havehad on Tucker's venture, his failure to raisemore capital can be easily explained by the ordinarybehavior of the investment market. Thesurprising thing is not that Tucker failed to financehis venture. What's really surprising isthat he found investors and dealers who weregullible enough to risk $26 million with him.With or without the SEC, the stock market hasan intelligence of its own and puts values onshares after they have been sold. ThoughTucker was able to milk thousands of small,trusting investors, he was not likely to tap intoshrewder ones who realized how speculative hisentire venture had become. Price is the stockmarket's way of expressing opinion about companyvalues, and in Tucker's case the shareprices plummeted as facts began to surface, virtuallyforeclosing any hope of raising fundswith new equity offerings.Another myth is that Tucker did have a rev­01utionary car which foretold Detroit's future.Newspaper articles recently extolled some ofthe unusual features of the Tucker car: a pop-outwindshield, a rear engine, a Cyclops light in thecenter which turned with the front wheels, apadded dash, and an aerodynamic body style.But were these really the way Detroit went inthe future? No carmaker adopted the pop-outwindshield, for example, and the Libbey­Owens-Ford engineers who supplied it toTucker thought it was a bad idea. Few carmakershave adopted a rear engine; and the frontwheeldrive has helped eliminate the long drivetrain. The Cyclops light is a gimmicky idea thatintrigues onlookers, but apparently hasn't beenconsidered an automotive selling point. CreditTucker with the padded dash and the leap intoaerodynamic design, but neither was beyondDetroit's capabilities.A final feature of the Tucker myth was the

8 THE FREEMAN. JANUARY 1989David vs. Goliath aspect, always a sqbject forpopular appeal. At the end of the -Coppolamovie, for example, Tucker is deploring thefact that there's no place for the little guy in theautomotive business. This is in line with thefrequently expressed idea that nobody can getrich anymore. We heard that in 1948, just as weoccasionally hear it 40 years later. Anybody candisprove it, however, by getting the latest copyof the Forbes 400 wealthiest people and notinghow many current multimillionaires were pennilessor had not even been born back in 1948.There have been numerous opportunities whichwere spotted by people like Ross Perot, SamWalton, or Steven Jobs.Tucker's point was that the little guy could nolonger enter the carmaking business. My pointis the same, with the added proviso that carmakingis so competitive and risky, and thecapital requirements are so high, that it alsoexcludes "big guys." If there are tg be newentrepreneurial ventures in carmaking, theywill logically be carried out by well-financedcompanies who already have expertise in heavymanufacturing. You might think, for example,that a firm like Deere & Company would use itsexperience as a tractor builder to move into passengercars. Such companies avoid car manufacturingas they would the plague, knowingthat it would mean almost certain losses.The automotive manufacturing businessdoes, however, offer countless opportunities forpeople in related lines. If car building itself is a"big guy" business, the industry continues toprovide excellent opportunities for hundreds ofsupplier firms. There have also been entrepreneurialfirms who came up with new automotivetools and ideas. Add to that the companieswhich specialize in modifying and rebuildingstock cars for select markets.Tucker himself, if he had possessed moreself-understanding and business savvy, mighthave prospered as a custom car remodeler. Hedid have a love of cars and he had experience inthe automotive field. In a way, the Tucker caritself was a customized remodeling of existingcar concepts. Tucker's use of the Cord transmiSSion,for example, showed that he understoodnifty innovations which somehow hadn'tsucceeded in the market. But one of Tucker'sproblems was in being carried away by a"dream" while ignoring the practical workneeded to apply it for useful purposes. Merepossession of a dream does not excuse a personfrom exercising prudence in business relationships.Though Tucker himself escaped convictionon fraud charges, it is fraudulent at this late dateto blame his failures on the Big Three automakers.There are lots of sins we can lay at the doorof GM, Ford, and Chrysler managements. Theyhave sometimes been arrogant and complacent;they have occasionally misjudged their markets;they have been sluggish in coping with the newworldwide competition. Their faults are typicalof big companies: poor communications, slowresponse to change, and even bad habits growingout of too much success. Most of the time,however, market realities tend to correct suchproblems. And in criticizing the Big Three, weshould never forget that they are the companiesthat were most influential in putting the nationand even the world on' wheels.Let us also be careful not to add Tucker'sfailure to any catalog of Big Three wrongs.There's simply no evidence that any Big Threecompany was more than an innocent bystanderwhile the Tucker venture was running its erraticcourse. Tucker did himself in and lost moneyfor lots of trusting shareholders and prospectivedealers at the same time. And Tucker was nevera victim of anybody or anything other than hisown ineptitude. The Tucker Torpedo was a dudfrom the start, and Tucker was the triggermanwith faulty aim. 01. Tucker-The Man and His Dream, which opened in manyAmerican theaters in early August 1988.2. Perry R. Duis and Glen E. Holt, "The Tale of the TinGoose," Chicago, October 1982.3. Lester Velie, "The Fantastic Story of the Tucker Car," Collier's,June 25, 1949.'4. See Alfred Sloan, My Years With General Motors (New York:Doubleday and Co., 1963). It carries a photo of the "dream car"designed by GM Styling and introduced in 1938 to test consumerreaction to advanced ideas.

9Foreign Capital: Friendor Foe?by William H. PetersonMorning. You get ready for anotherworkday. You hear the news on yourSony TV as you wash up with a barofDove soap. You put on your Brooks Brotherssuit or an outfit from Bloomingdale's. Soon youdrive to work in your Honda equipped withBridgestone tires.At work you call up a customer on a NorthernTelecom phone system after consulting aspreadsheet on your Sharp terminal. For a midmorningsnack you nibble on some Keeblercookies, paying for it with cash from the FirstAmerican Bank. On your lunch hour you buy asweater at a Benetton store.Sometimes these brand names have a niceAmerican ring to them-Keebler, Bloomingdale's,Dove, for example. Other times thebrands are recognized as distinctly foreignsay,Sony, Honda, Benetton.But in every instance all these brands are notonly foreign-owned, they all have substantialAmerican operations. They reflect foreign capitalinvested here. Is that bad? Some peoplethink so, and they mean to do something aboutit. That something is called protectionism.Look at First American Bankshares, for example.It is a $10 billion bank holding companywith 5,700 employees in 280 branches in NewYork, Virginia, Maryland, Georgia, Florida,Tennessee, and the District of Columbia. Somecritics note that, despite its name, First American'sowners are not Americans but Arabs. TheDr. Peterson, an adjunct scholar with The Heritage Foundation,is the Burrows T. and Mabel L. Lundy Professor ofthe Philosophy ofBusiness at Campbell University, BuiesCreek, North Carolina.company was purchased in 1982 with "petrodollars"by private investors in Kuwait, AbuDhabi, and the United Arab Emirates.Too, while all of the above brands are marketedextensively in America, critics saydarkly, marketing control resides overseas. Forinstance, Benetton stores are Italian-owned andfeature knitwear made in Italy.To be sure, some of those brands are manufacturedin America-i.e., they wear the label,"Made in the U.S.A." But manufacturing controllieselsewhere, say the critics. In their eyesthe label is almost as deceiving as the pre-WorldWar II label sported by some Japanese imports.Then "MADE IN USA" referred to a Japaneseindustrial city, Usa, whose letters neatly correspondedwith the acronym for the United Statesof America.Northern Telecom, to illustrate further, is a$5 billion company with 15 manufacturingplants and five research facilities in the U. S. ,but its headquarters are in Canada. Dove soap ismanufactured in a Baltimore factory owned byUnilever, a giant British-Dutch consumer-goodconglomerate with such other brands as Pepsodent,Lifebuoy, and All. Your Sony TV wasassembled in southern California, your Sharpterminal in Tennessee, your Honda in Ohio.Americans, be wary of this development, ofthis internationalization of capital, caution thecritics.Of recent foreign ownership, too: Campeau,a Canadian retailer, just purchased Bloomingdale's;and not long ago Marks & Spencer, aBritish merchandiser, bought Brooks Brothers.Bridgestone of Japan took over Firestone Tire

10 THE FREEMAN. JANUARY 1989and Rubber for a stunning $2.8 billion in 1987.So the critics vex Congress with the questions:"Where is the control? Who is in control?"In addition, with the fall of the Americandollar, Japanese and other investors havestepped up the purchase of many resort andother properties in Hawaii as well as officebuildings and other real estate in large Americancities such as Seattle, San Francisco, LosAngeles, Denver, Houston, Chicago, Atlanta,New York, Boston, and Washington, D.C.What is more, by 1990, seven Japanese autocompanies will have established American"transplants" to assemble cars in California,Illinois, Ohio, Michigan, Kentucky, and Tennessee,with a horde of Japanese auto parts andequipment producers following in their wakewith American manufacturing facilities. By1992, Detroit estimates that 1.5 million vehicleswill be rolling off the assembly lines ofthese "transplants" each year."Invading America"So, Americans,proclaim critics, hold out,stand fast against this "invasion" of Americaby foreign capital-by, what they really mean,the foreign owners of that capital. They look toCongress to pass laws impeding these "outsiders,"who, as the critics see it, slowly butsurely are taking over the American economy.Typical of these critics are Martin and SusanTolchin, authors of Buying into America: HowForeign Money Is Changing the Face of OurNation (Times Books, 400 pp., $19.95). MartinTolchin is a correspondent with The New YorkTimes; Susan Tolchin is a professor of publicadministration at George Washington University.Their persuasion is further revealed in thetitle of their previous book, Dismantling America:The Rush to Deregulate.In their latest book, they tell us that, sure,foreign "takeovers" may be completely legal,but they are being accomplished "with thestealth and anonymity of illegal aliens." Accordinglythe Tolchins ask the American peopleto stop, look, and listen.Well, all right, listen to their arguments.Among these are:Tolchin Argument No.1: They complain,among other things, that U.S. laws discriminateagainst American companies in favor of foreigninvestors. They cite the case of Citicorp's beingshut out from buying a California bank, only tosee it sold to a Tokyo bank.Tolchin Argument No.2: The authors wonderabout the wisdom of states competing forforeign capital, putting up millions of dollars intax abatements and other incentives. They ask:Don't those incentives amount to U.S. taxpayers'subsidizing foreign investments and acquisitions?Tolchin Argument No.3: The Tolchins alsoquestion whether some industries are so vital toour national security or industrial strength thatthe U. S. must maintain a controlling interest inthem. They cite such fields as banking, transportation,communications, semiconductors,machine tools, and biotechnology.Tolchin Argument No.4: Again, with theJapanese, Canadians, British, Arabs, and otherforeigners increasingly becoming holders ofprime commercial and residential real estate,the Tolchins ask: Are we becoming a nation oftenants?And Tolchin Argument No.5: They also askif it is really protectionist to demand a quid proquo for foreign access to our markets by havingour foreign trading partners end their restrictivepractices on American trade and investmentsabroad. Reciprocity, they claim, is the name ofthe game: Foreigners, you open your markets,and we'll open ours.Foreigners. Aliens. Outsiders. People ofother lands, other cultures, other races, subjectto other governments, increasingly takingcharge of our economic affairs.What we witness, I think, is xenophobia: thatunreasoning fear of something or someone foreign-herein its latest form: capital xenophobia,the fear that many critics attach to foreigncapital invested in America.The xenophobes may concede-but not always-theurgency of capital as an indispensabletool in modem-day production, as a catalystin creating jobs and industrial progress; butwhen that capital originates in other countries,as noted above, ugh! Disadvantages outweighadvantages.But do they?

FOREIGN CAPITAL: FRIEND OR FOE? 11Let me try to answer those five Tolchin argumentsone by one.As to the first Tolchin argument on U.S.laws discriminating against interstate bankingmergers and acquisitions in favor of foreign investors-yes,the Sherman Antitrust Act of1890 and the Glass-Steagall Banking ReformAct of 1933 do inhibit bank expansion acrossstate lines. The inhibition may be breakingdown today, but it is still relatively easier for aforeign bank to buy an American bank than foran American bank to buy a bank in anotherstate.So what? This argument has nothing to dowith foreign capital; it has to do with our competition-inhibitingantitrust and other laws.True enough, Citicorp was accordingly precludedfrom bidding for the California bank. Somuch the worse for competition-a perennialantitrust confusion, I submit, over size andnumbers in relation to competition.To illustrate: Britain has, essentially, but fivecommercial banks; the U.S. has some 13,500.But does this contrast mean banking is reallyany less competitive in Britain? Hardly, withthe crucial factor of freedom of entry ever determiningthe vigor of competition. In anyevent, the blame for foreign bank investmentfavoritism here lies in Washington and not Tokyoor Zurich.This line of rebuttal applies to the secondTolchin argument on state laws favoring foreigninvestors via tax abatements and other incentives.For again, the problem lies not withforeign capital, but with those states courtingand subsidizing overseas investors at the expenseof firms and all other taxpayers domiciledwithin.Still, without defending them, I can see howthey rationalize, how they subsidize new capitalknowingly, how they perceive a trade-off.What they lose, these states reason, they morethan gain through the acquisition of more jobs,greater development, higher realty values andother tax bases-so that, if they are right, ultimatetax revenues greater than immediate taxlosses accrue.The third Tolchin argument raises the flag ofnational security and industrial strength, citingcertain industries and seeking American con-trol. But the authors seem to get mixed up overcontrol, location, and consumer sovereignty.Any entrepreneur, foreign or domestic, settingup business in the U. S. has to meet all local,state, and Federal laws, licenses, and other regulations,including local, state, and Federaltaxes, with any tax forgiveness expiring in amatter of years. In brief, legal control, insofaras a foreign affiliate here is concerned, is entirelyAmerican.Meeting Consumer DemandMoreover, there is in a sense a larger controlconfronting the foreign entrepreneur and investor.He must still, inescapably, satisfy the consumer,must still meet competition from allcomers, with the consumer having the final say,with the ultimate control coming through Kingand Queen Customer's life-and-death power toconfer profits or impose losses.Thus, for example, Japanese managerialmystique may be vaunted but not invincible. Aspointed out by The Wall Street Journal of June23, 1988, for example, one decade after its celebratedtakeover of an American firm, SanyoElectric has seen its payroll in its Forrest City,Arkansas, plant slump from 2,000 to 350, itsthree dozen or so Japanese executives becomingbut ten, its nine TV assembly lines slimmingdown to two, as it shifts production to Mexicanplants. Productivity and quality have simply notbeen forthcoming. Sanyo has apparently runinto serious union and other communicationsproblems.All of which has been swiftly telegraphed toSanyo by the American consumer, the finalcontroller.Even so, the transcendency of consumer controlover so-called foreign control should notblind us to the fact that overseas investmentshere can have benefits beyond that of additionalcapital. Take, for instance, New United MotorManufacturing Inc., NUMMI, the successfulsix-year-old joint venture of General Motorsand Toyota, in Fremont, California. Toyotasought low-cost entry into the U.S. auto market;GM sought new technological and managerialskills. The marriage worked, and the sovereignconsumer is the beneficiary.

12 THE FREEMAN. JANUARY 1989What of the fourth argument of the Tolchinsas seen in their plaintive if not disingenuousquery: Are we becoming a nation of tenants?The query seems odd in light of the fact thatmost Americans-practically two out of every"When goods-andcapital~an'tcrossfrontiers, armies will."three-own their homes. Yet practically everyfirm in the Fortune 1,000 is a commercial tenantin one degree or another.So I ask: Landlord or tenant, to own or torent, what's the better option? It all depends, letme respond, on the firm or the individual-hisage, income, credit rating, etc.-and on thegeneral situation, including location availability,the height of mortgage interest rates, andso on.In any event, landlords, foreign or domestic,are hardly privileged. They must compete.They can face onerous property taxes, bewilderingzoning restrictions, confiscatory laws.Some landlords, for example, face local rentcontrol laws stretching from New York City toLos Angeles, although I concede the foreignrealty investor usually, and most understandably,avoids rent-controlled properties.And from the viewpoint of the American tenant,commercial or residential, does it followthat his foreign landlord is any less competitiveor any less concerned for tenant welfare than hisdomestic counterpart? The Tolchin query, inshort, does not appear germane. Again, it reflectsxenophobia.The fifth Tolchin argument on reciprocityalso does not seem overly germane. For all toooften such reciprocity becomes a cloak for continuinga policy of protectionism. To reiterate:Says Congress, bolstered by a host of protection-mindedindustries, unions, and other lobbyists,to foreign investors, "If you don't openyour market for our wares and investments,we'll not open ours. ' ,But who's hurting whom? On whose side isCongress? What of those Americans who wishto sell-and of their constitutional right tosell-their property, shares, firm, patent, invention,and so forth to foreign investors? Whatof American consumers who benefit, inexorably,from such general optimization of capitalinvestment?I contend that protectionism betrays morethan xenophobia, that, whatever its formtariffs,quotas, licenses, embargoes, exchangecontrols-it reflects a hidden agenda of:• constricting consumer choice,• infringing on constitutional rights oflife, liberty, and property,• jacking up domestic prices,• suppressing competition,• rejecting foreign technology,• excluding foreign management skills,• setting back job creation,• restraining economic growth,• impeding peaceful international cooperation,and• rebuffing constructive people-to-peopledivision of labor.All ofwhich would otherwise flow from freedomof trade and investment.True, ideally, free trade and investmentought to be worldwide. But we don't live in anideal world. We, critics included, should faceup to the fact that imports finance exports, thatprotectionism breeds protectionism, that economicretaliation can even breed military reaction.In this light, the massive Smoot-Hawley Tariffof 1930 went beyond, quite conceivably,triggering and exacerbating the Great Depression;it contributed to the frictions ultimatelyhelping to ignite World War II.To paraphrase nineteenth-century Frencheconomist Frederic Bastiat: When goods-andcapital---can't cross frontiers, armies will. Unilateralfree trade and investment are still betterthan no free trade and investment.Besides, the Tolchins and other critics of foreigninvestment in America are late in thegame. For, not so long ago Americans werebeing warned that our uncaring multinationalcompanies were heartlessly shifting, productionand jobs to foreign low-wage lands.Indeed, in 1964 French journalist Jean­Jacques Servan-Schreiber made an internationalsplash with his own xenophobic book, TheAmerican Challenge, describing in dire terms

FOREIGN CAPITAL: FRIEND OR FOE? 13how IBM, General Motors, Ford, Exxon, GeneralElectric, Dow, DuPont, Kodak, CocaCola, and others were taking over the worldeconomy. Now the shoe of challenge, it seems,is on the other foot--ours.But instead of deploring foreign capital andthreatening to shunt it aside, we should welcomeit with open arms. The accompanying tableshows wholesome trends: Three millionAmericans-that number up by almost halfsince just 1980-are working for better than10,000 foreign affiliates on our shores, with thenumber of such affiliates also growing by almosthalf in the same period.FOREIGN INVESTMENT IN U.S.1987 % Change1980 (Est.) 1980-87Number of foreigncompany affiliatesGross value of plantand equipment(billions, currentdollars)Employees (millions)6,822 10,143$127.8 $349.22.034 3.017Source: U.S. Commerce Dept., Washington Post48.7173.248.3So to the critics of foreign capital, I say thatcapital whatever its source, is our friend, notour foe. By boosting productivity, capitalgreatly helps meet human needs. It represents,in the broadest sense, savings turned into vitaltools.These tools of production are inevitablyrisky, ever subject to the vagaries of technology,politics, demographics, popular taste, capricesof history, acts of nature such as earthquakes,and so on. And, like everybody else,we Americans need all the tools, all the capital,we can get.That capital is not free. It is not permanent. Itflows out as well as in. It must be nurtured. It isinherently sensitive, timid, ever tentative, everambivalent in that it is at once risk-tolerant andrisk-averse. It can be sullied and bullied, yes,but not for long. It will flee to safer climes, aswitness capital flight for decades from much ofLatin America, from much of Africa, Asia, andthe rest of the world.That flight accounts, in part, for the greatness,the integrity of tiny Switzerland, home ofsecret bank accounts, haven for politicallyhounded "hot money," guardian of, for example,Jewish capital spirited out of Hitler's Germany.Virtue has its rewards: The high-saving, capital-rich,free-enterprise, historically neutralSwiss, in terms of per capita income, are therichest people in the world. (The Swiss, incidentally,celebrate their 700th anniversary as ademocratic republic in 1991.) Capital and anamazing culture have bestowed peace and prosperityon the Swiss for centuries.Too, capital is in a sense nationless, nervous,suspicious, mobile--ever ready, if need be, tomove. It stays as long as it is treated with reasonablesecurity and respect, as long as it earnsa competitive yield. Indeed, yield, productivity,gain, is its raison d' etre-gain for both theinvestor and the consumer. The rule is . . .Capital ever seeks the greatest yield consistentwith the least risk.What of Our Future?Lucky for generations of Americans, theUnited States has long been a magnet for foreigncapital, as it has been for immigrants fromall over the world. We are a country of immigrantpeople and immigrant capital. The questionis: Will we continue to be? (The new immigrationlaw should give us pause.) Or, willcritics continue to harp on capital's ethnic oroverseas origins and eventually kill this goldengoose?Consider. From colonial times to the presenthour, investors in other lands-in Canada,Latin America, Britain, France, Germany, Italy,the Netherlands, Belgium, Spain, Switzerland,Scandinavia, Eastern Europe, and, morerecently, Japan, other Pacific Basin countries,and here and there in the rest of the worldhavebet on America, have risked their savingshere, have spurred job creation here, havehelped America grow and Americans prosper.As a 1930s pop song put it: "Who could ask foranything more?"D

14Letter tothe COInInissionby Robert HellamEditors' Note: The following letter was sent tothe Chairman of the Economic DevelopmentCommission of Seaside, California. The Commissionwas formed as an advisory body, composedofunpaid volunteer citizens appointed bythe City Council, to represent the views of thepublic and the Council to the Economic DevelopmentDepartment ofthe City ofSeaside.June 20, 1988Dear Tom:This is not a letter of resignation. There is noneed for me to resign: my term on the Commissionexpires June 30, and, although I ampleased that you have asked me to stay on, Ihave chosen not to seek reappointment. I supposeyou could call this a letter of expiration,then; but I prefer to say a letter of explanation,and I hope you will share this with the othercommissioners and staff.I welcome what I see as a more active (I donot say/ "pro-active") Commission, ready toassert its rightful role, but I believe I haveserved long enough. I have been on the Commissionfor two and a half years, and have expressedmy views as forcefully as I could wheneverthe moment was right and I could get aword in. (The minutes often have not reflectedmy comments, for reasons we have discussed.)Sometimes my words have met with a hostilereaction, sometimes with mild impatience,sometimes with amused tolerance. Often, theyhave been dismissed as "mere" philosophy.Mr. Hellam is a long-time resident ofSeaside, California,and a free-lance writer.There is no such thing as "mere" philosophy,in my opinion. The axioms that we carrywith us to any enterprise will color everythingthat we do. Just as a married couple who do riotview divorce as one of their options is morelikely to stay together, so a city government thatdoes not see confiscation of private property asa proper activity is less likely to violate therights of its citizens.Rights are possessed by the people, and onlyby the people as individual flesh-and-blood humanbeings. Collective rights are a myth.Rights inhere in the people from birth, grantedby God, not by government. Government hasno rights at all, only specific, limited, enumeratedpowers granted to it by the people. Ourancestors thought that these were self-evidenttruths.Since the only proper role ofgovernment is toprotect the sovereign people's rights to life, liberty,and property, it follows that any governmentthat takes away those rights without dueprocess of law is destructive of the very ends itwas established to achieve. The phrase "dueprocess of law" has become twisted in manycases into an excuse to justify whatever a governmentalbody wants to do, and today "dueprocess" is often regarded as meaning no morethan providing advance notice of whatever adverseaction the legally constituted authoritieswant to take. This makes the phrase meaningless,and makes the Constitution a dead letter.What was once self-evident is now hardly evidentat all.The supremacy of the people must be respected,not only in words but in actions. The

15City Council, composed of the people's electedrepresentatives, is subject to the people. Boardsand commissions, appointed by the people'srepresentatives, are subject to the Council. Citystaff is supposed to be on the bottom of thepower structure; unfortunately, in real lifethings seem to be turned around. Actions thataffect the lives and livelihood of people aretaken lightly, almost on whim. We must takegovernment seriously, remembering that everygovernment action is an act of force, funded byconfiscated money and backed up by the threatof deprivation of life, liberty, or property.City employees are people like the rest of us,with the same mixture of good and bad; however,anyone in a position of power must bewatched carefully. We should not take it forgranted that a city employee has the interests ofthe people at heart. Especially, an employeewho does not even live in the city is likely toregard it only as the source of a paycheck, andmoreover is not subject to the consequences ofhis own official acts. A high-ranking city officialis probably more loyal to his career than tothe particular city for which he is working at themoment. If you are an ambitious city planner,hoping to make a name for yourself and moveon up to Fresno or San Jose or Stockton, yourfocus may well be on what makes you lookgood in the short term, not what is good for thecity in the long term.Conservatives and liberals alike often preachpiously about the virtues of local governmentand local control, waxing poetic about how localgovernments are closest to the people andmost responsive to those whom they were createdto serve. However, that very closeness canbe a danger. Government at best is a dangeroustool. At worst, you might see your home orbusiness destroyed or taken away by the verygovernment that was designed to protect it.Even in this day and age, the level of governmentmost likely to do that is based not inWashington but in City Hall. As a Christian anda libertarian, I am concerned that real people,real live men and women, girls and boys, not besacrificed on the altar of "The People" as adisembodied ideal."Economic development" is merely the lat-est alias of the old "Progress," which had acquireda bad name and a suspicious odor. In afree society, property is owned individually,and each property owner has the right to decidewhat is the proper use for his land, limited onlyby concern for the similar rights of his nearneighbors. When government, meant to be thepeople's servant, seeks to be their master, webegin to hear phrases like "economic blight,""underutilization," and "highest and best useof the land. " Obviously, these all involve subjectivejudgments; and to say that someone atCity Hall has better judgment than thousands ofproperty owners is to set a dangerous precedent.If you concede that government has authority totake property from any single person to benefitanother person or business, or simply to fulfillsome almighty plan, then you have given awayyour own rights.We need to be a little less vulnerable to theappeal of catch-phrases, not only those listedabove, but others as well. "Increasing the taxbase" is often repeated as a sort of mantra, butwhen we listen critically, we ask questions: will,'increasing the tax base" lower the tax burdenon the people, or will it really facilitate higherspending, higher salaries, and more power forthe city establishment? Some say that this areahas a shortage of housing; but when we say thatwe do not want to be "just a bedroomcommunity, " do we mean that we want to starteliminating bedrooms in favor of board rooms?The people who sleep in those bedrooms are thecity.The city is not City Hall, not buildings andstreets and lines on a map, but people. A city isnot like a machine, but like an organism. It willgrow, if left alone; it may grow better, withproper care. Radical interventions will probablybe counterproductive. I grew up here. I lovedSeaside as it was, and I love Seaside as it is. Wemust be sure that we are serving the real peopleof the real Seaside, not the ideal population ofsome professional planner's dream city. Otherwise,we may finish by destroying Seaside inour attempts to help it.With my best wishes,Robert Hellam

16Against theCreation of Wealth:The Threatening Tideby Arthur ShenfieldIn American memory President Coolidge is,to put it mildly, hardly an object of pride oradmiration, still less of veneration. He isoften derided for having supposedly declared,"The business of America is business."Though they have not descended to the use ofthe term, some of his detractors have impliedthat in him the unfortunate American peoplehad a Yahoo in the White House. In fact whathe said was the following:After all, the chief business of the Americanpeople is business. They are profoundly concernedwith producing, buying, selling, investingand prospering in the world. I amstrongly of the opinion that the great majorityof people will always find these are movingimpulses of our life. . . . Wealth is the productof industry, ambition, character and untiringeffort. In all experience, the accumulationof wealth means the multiplication ofschools, the increase of knowledge, the disseminationof intelligence, the encouragementof science, the broadening of outlook,the expansion of liberties, the widening ofculture. Of course, the accumulation ofwealth cannot be justified as the chief end ofexistence. But we are compelled to recognizeDr. Shenfield was visiting scholar at FEE during June of1988. He was formerly economic director o/the Confederationof British Industry, director of the International Institutefor Economic Research, and president of The MontPelerin Society.it as a means to well-nigh every desirableachievement. So long as wealth is made themeans and not the end, we need not greatlyfear it. (Calvin Coolidge, Foundations oftheRepublic, 1926)A more unexceptionable statement would bedifficult to conceive. It merits perhaps only oneimprovement or extension. That the accumulationof wealth, within the American frameworkof liberty under law, produces the expansion ofliberties, is true and important. But even moreimportant is the fact that both the creation andthe accumulation of wealth are, in their optimumforms, rooted in the liberty in whichAmericans claim that their nation was conceived.If Coolidge was any kind of Yahoo,then so too must John Wesley have been whenhe said to his followers, "Gain all you can.Save all you can. Give all you can." And asIrving Kristol has happily said, his half of theJudaeo-Christian tradition has never held it tobe sinful to be rich. Nor, on its best constructionand contrary to not a few counterindications,has the Christian half.Perhaps the causal link between liberty andthe creation of wealth was rarely fully understoodby more than a minority of Americans.Nevertheless, from before the birth of theAmerican Republic to Coolidge's time, thegreat majority did apprehend its existence andcharacter in broad terms; and a well-instructed

tation as to propose to limit company votingrights to shareholders who have held theirshares for at least a year. The implication is thatthe "predator's" wiles succeed mainly by theenticement of shareholders who are interestedin quick in-and-out gains, not in the long-termprogress of their companies.Nowadays with the spectacle before our eyesof the manifest failures of other economic systems(including various forms of mixed economy,as well as those ofcentral planning), it hasbecome less and less plausible to impugn thesuperiority of the free enterprise system as acreator of wealth, though of course many continueto turn their faces against it on othergrounds.17Calvin Coolidge(1872-1933)minority understood it fully and accurately.Now, by contrast, of all the siren voices whichassail the American ear, perhaps the most insistentare those which urge the erection of impedimentsto certain liberties, new and distinctfrom former familiar impediments, such as importduties and the paraphernalia of regulatorycommissions. By immediate effect these newimpediments to liberty thwart the creation ofwealth, just at a time when a sizeable and growingnumber of Americans, though as yet farfrom a majority, have perceived the evils ofprotective tariffs and industrial regulation.The sound of some of these siren voices isrising to a crescendo, and their persuasivenessamong the general public grows apace. Considerthe animus which has thus been developedagainst the corporate takeover bidder. In publicdiscussion it has become almost routine to picturehim as a modem economic ogre. "Corporateraider," "business predator," and othereven less complimentary appellations set thetone of debate. Hence legislators in 29 stateshave been moved to pass measures to block hispath. Even so intelligent an observer as IrvingKristol, whom I have quoted with approbationabove, has succumbed sufficiently to this agi-Free MarketsThe free enterprise system is a system of freemarkets. Of all its markets, that which morethan any other bears upon its efficiency as awealth creator is the market in corporate control.Long ago, blinkered observers of the corporatescene noted that the owners (i.e., theshareholders) of the modem, large (or even notso large) corporation could have little or no directcontrol over the directors or managers, andso concluded that corporate democracy had tobe a fiction. Hence, they thought, modernboards of directors had largely become selfperpetuatingoligarchies. Their interest, notthose of the shareholders, it seemed, determinedthe governance of the companies.These observers failed to note that the marketin corporate control enabled the baton to bepassed to the shareholders. Even if they perceivedthis, they failed to see that it was not theactual event which was decisive, but the standingthreat or possibility of it. It is this marketwhich principally sees to it that managementsmust beware of elevating their own interestsabove those of their legal masters, or of fallinginto ways, of whatever kind, which produceless wealth than the assets under their controlmight produce.But why should shareholders' interests accordwith optimum production of wealth? Arenot shareholders often fickle, or conversely,gripped by mindless inertia, in their attachmentto their companies? Do they not generally know

18 THE FREEMAN. JANUARY 1989little or care little about the business of theircompanies? Doubtless they have, as owners,the right to sit in judgment over the directors oftheir companies, but is it not ludicrous to envisagethem as intelligent or informed judges ofthe directors' performance? All this may be true(though it must be subject to at least partialqualification in the case of pension fund, mutualfund, and other institutional shareholders).However, true or false, it has little bearing onthe matter before us.Performance vs. ExpectationsWhat counts is the difference between theperformance of the existing management andthe expectations of the "predator." Hence,prima facie, if the "predator" is able to offerthe shareholders a buy-out price above the currentstock market price of their holdings, and toexpect a profit for himself, it must follow that atleast he, putting his money where his mouth is,and therefore acting with at least some circumspection,has confidence that the management'sperformance can be bettered. However, thismay be too simple a view, and so we mustexamine the contentions of those who criticizetakeover activity.First, it is loudly asserted that the typical"predator" has a short-term perspective; thathe is primarily interested in a fast getaway withshort-term gains, often by dismemberment ofhis "victim" companies and a sell-off of theirparts. But why is a short-term perspective necessarilybad and a long-term perspective necessarilygood? If a company is irrevocably headingfor bankruptcy, a very short-term perspectivemay be right. On the other hand, if acompany's perspective is such that a particularinvestment in research and development is unlikelyto recover its costs in less than a century,then the long-term view is almost certainlywrong. The correct view will be somewhere ina range ofperspectives. It will be determined bythe expected pay-off of an investment, discountedby the rate of interest over the period ofexpectation, long or short. In principle a relativelylong-term perspective has no specialsanctity over a short-term perspective.But is it not true that the typical "predator"often dismembers companies, selling off·partsof them soon after his takeovers? Does it nottherefore seem to be true that his perspectivetends to be undesirably short-term? For may itnot be true that the value of a company may begreater than the sum of the market values of itsparts?In the first place, it is not true that dismembermentis an automatic or prevailing practiceof the "predatory" process. Certainly it oftenhappens, but that is because companies whichare the object of "predatory" attention are oftenless successful than they might be preciselybecause they have parts which they would dowell to get rid of. Indeed efficient managersoften divest their companies of parts of theirassets even though there is no threat or likeli-, hood of a takeover bid. Thus in such cases divestiture,with or without the promptings of a"predator," is a necessary step toward optimumwealth production.Furthermore, the purchasers of dismemberedparts must believe that their productive potentialexceeds in value the prices to be paid forthem. Thus on both sides the process of dismembermentcan reasonably be expected toraise, not depress, the wealth-creating capacityof the economy. If, however, it is true that thevalue of a particular company is greater than thesum of the market values of its parts, only aninexpert "predator" would proceed with dismemberment,and inexpert "predators" are notlong survivors. For in such a case the predatorwould find that the market value of the retainedcore of the company would fall. Then the resultof dismemberment would be a net loss, not aquick gain.But in any case is it true that the typical"predator" is predisposed to seek quick, shorttermgains, whether by dismemberment or otherwise?This is one of those myths which easilygain popular credence, especially where the impugnedcharacters are held up to public obloquyby those considered to be more respectable thanthey. In this type of case the respectable charactersare supposed to be the businessmen inestablished charge of substantial companies,who are affronted by the pretensions of the"predators." Often they are regarded as the pillarsof the business community, while the"predators" are new men, to whom the epithet"smart" is applied in a pejorative sense.

AGAINST THE CREATION OF WEALTH 19In fact, studies of takeover cases have shownthat takeover bidders are as much committed torationally long-term purposes as other businessmen.They would be fools if they were not. Forfast getaways with short-term gains would notbe the end of the bidding game. The gainswould have to be invested somewhere, whichwould inevitably bring longer-term considerationsinto play. If the companies taken overwere, or could be made into, good ones, whyshould the gains be invested elsewhere? Whynot in the companies themselves? Thus if nurturingand developing the companies werelikely to be profitable, the "predators" wouldbe likely to perceive this as readily as the oustedmanagers themselves.Secondly, it is often maintained that the"predator's" buy-out price, which exceeds thecurrent stock market price, deceives the shareholdersinto acceptance, because they do notrealize that the stock market price temporarilyunderestimates the true value of their property.It does so, it is supposed, because stock marketinvestors are likely to have shorter time perspectivesthan competent managers of soundcompanies may have. Thus competent managersmay be ousted by the wiles of the"predators" against the true interests of theshareholders. Therefore, it is asserted, theshareholders should not fall headlong into thearms of the "predators." They should wait.Then they would often find that the stock marketprice would rise above the''predator's" apparentlyattractive offer, once stock market investorscame to perceive the benefits of themanagers' longer-term plans.It must be said that this is a travesty of thestock market's performance. We need not go sofar as the "efficient market" theorists, whohold that the market always takes account of allknowable factors bearing on prices, to recognizethat awareness of future possibilities indeedplays a role in the market's prices. That ispartly why some stocks sell at ten times earnings,others at fifteen times, and yet others attwenty times. The "predator's" perception ofthese factors is more optimistic than the currentperception of other market operators, but hisfeel for these things is likely to be well-honedby practice and experience. If it is not, he willnot for long be a "predator."Thirdly, the "predator's" plans may be repellentto many good citizens because, with hisinnovations and possible dismemberments, hemay upset the attachment to local interestswhich existing managements may have developedand fostered. The ABC company mayhave become the long-established pride ofPleasantville, and the financier of many goodworks for its citizens. What the "predator"may do imports at least .. a risk that this willchange for the worse. The company's attachmentto "social responsibility" may even beconfidentially pinpointed by the "predator" asone of the causes of its sub-optimal economicperformance.Closing and MovingPlants and FactoriesThis problem is particularly evident in thewidespread animus which has developed in recentyears against the liberty of businessmen toclose plants and factories, or to move them fromestablished locations to others within the U. S.or abroad.As far as closing, as distinct from moving,plants is concerned, public discussion so farcenters only on the question of mandatory noticeperiods to workers. In some cases, extendednotice may do little harm to business,and so is often given voluntarily. In many moreit would do harm by adversely affecting thebehavior of workers, suppliers, and creditors.Hence mandatory notice periods would be atypical example of the diseconomies producedby ham-fisted governmental action.Now suppose that a company decides tomove a plant from the Snow Belt (or the RustBelt part of it) to the Sun Belt. We may assumethat it is expected to be more productive in itsnew location than in the old (perhaps because oflower wages, but perhaps for other reasons). Itis obviously good for the Sun Belt. It is alsogood for the United States, for any move froma less productive to a more productive locationmust raise the average national productivity.The notion that it may be bad if its purpose is topay lower wages than the Snow Belt rates isgroundless. Not only will the move have anelevating effect on Sun Belt wages, but quiteapart from the Sun Belt's equitable right to such

20 THE FREEMAN. JANUARY 1989industry as it can obtain, no valid national purposecan be served by using high-paid labor forwork which can be done by less well-paid labor.But what about about the effect of the moveon the Snow Belt? Surprisingly, except in theshort run, the Snow Belt also gains from themove. By the side of the now famous principle"There ain't no such thing as a free lunch," weshould erect the principle "If you want morejobs and better jobs, you must destroy jobs."All economic history shows that the loss ofjobsis a pre-condition for the elevation and increaseof employment. For example, if New Englandhad not long ago lost most of its textile jobs tothe South, it would now be poorer, not richer,than it is. Indeed we can see this effect alreadyin the Snow Belt (if not yet everywhere in theRust Belt) which now has more and better jobsthan it had before the southward move ofjobs inrecent years.Suppose, however, that industry moves notfrom North to South, but from the U.S. to foreigncountries, perhaps to gain the advantage oflower wage rates. The results are still on balancelikely to be good for the U.S. and for thelosing areas, North or South. There are fourreasons:1. Profits come home from the foreign locationto the United States. Even if they are firstreinvested abroad, they will still ultimatelycome home.2. By moving abroad, American capital isable to produce cheaper goods for the Americanconsumer, who thus has a surplus income tobuy other home-produced goods or services andthereby to foster new American jobs.3. Opportunities open abroad for well-paidmanagerial and supervisory jobs for Americansin the migrated plants.4. The dollars paid for these cheaper American-producedimports ultimately come home tobuy other American goods or services. As exportindustries cannot be protected against foreigncompetition, it follows that their jobs havea sounder economic foundation than that ofprotectedindustries.Thus, on balance, the movement of industryabroad, when based on a realistic assessment ofrelative costs, benefits the United States. As forthe losing areas, the net effect is likely, exceptin the short run, to be beneficial for the samereasons as it is for the Snow Belt in the case ofmovement to the Sun Belt.The Concept of"Social Responsibility"What about the effect on "social responsibility"to which I referred above? This is sometimesthe most powerful motivator of publicopinion against both the "predator" and theplant mover. We need not here analyze the conceptof "social responsibility" at length. Weneed only state what full analysis establishes,that it is fundamentally misconceived. Businesseshave no right, still less a duty, to espouse"social responsibility" except where, as maywell happen, it coincides with and promotes thepurposes of lawful and successful business itself.The business of business is business, justas the business of a surgeon is surgery, not otherproblems of his patients. Business has no expertisein the solution of social problems, exceptwhere, as stated above, it coincides withgenuine business purposes. Worse still, havingno expertise in the matter, it is unlikely to beskilled or successful in its pursuit. Only citizens,acting individually or in relevant groups,have a right or duty to be concerned with socialproblems; and this includes businessmen, butacting as citizens, not as businessmen.The ideas and influences which seek to inhibitthe takeover process and the freedom ofbusinessmen to move their firms where theywill, are sure to undermine the production ofwealth and its impact on the admirable purposesoutlined in the Coolidge speech with which thisarticle opened. How deplorable it is that justwhen the American people are in some measurebeginning to learn to grapple with older interestsand influences inimical to wealth production,they are in growing numbers pursuing thewill-o-the-wisps to which these new debilitatinginfluences beckon them! 0

21The Dark Side ofModern Voluntarismby Andrew E. BamiskisVoluntary civic and charitable effort is anAmerican tradition, and most of ushave witnessed it at its best at sometime in our lives. A young family's home willbe damaged by fire, and within minutes peoplewho have never met them come forth with donationsof food, clothing, and furniture. Aneighborhood will donate a weekend of voluntarylabor to clean up and refurbish a local parkor playground. We take such actions almost forgranted.But in recent years voluntarism has developeda dark side, which has also come to betaken for granted. Too often, volunteer effort isused by well-meaning people to demonstrate afalse feasibility for their favorite charitable orcivic undertaking, for the purpose of inducinggovernment to take over the project. The economicsdemonstrated using privately donatedfunds and volunteer labor are then replaced bythe economics of coercive taxation, and sometimeseven conscripted citizen labor.A municipality near where I live provides auseful example, if only because it's an examplebeing repeated in hundreds of places across thecountry. Several years ago, a highly motivatedyoung woman and a committee of her environmentallyaware friends convinced their townshipofficials to set up a voluntary recyclingcenter on township property.The township received the proceeds fromsale of the recyclable materials, and benefitedsomewhat from the reduction of landfill spaceused. Meanwhile, the committee built a constituencyof other voluntary recyclers, who wouldmeet on Saturday mornings when residentsAndrew E. Barniskis is an aerospace engineer and consultantin Bucks County, Pennsylvania.dropped off their cans, bottles, and newspapers.In two years, the township took in about$3,000 and saved perhaps a dozen truckloads'worth of landfill space. But this was accomplishedthanks to countless hours of volunteerlabor by workers at the recycling center, and byresidents who took the time to sort, wash, andbundle their recyclable trash and transport it tothe center on Saturday mornings at their ownexpense.Eventually, one member of the volunteer recyclingcommittee parlayed his new visibility inthe community into election as a township supervisor.Soon, the energetic founder of thevoluntary program was appointed by the townshipto the newly created position of RecyclingCoordinator.As a result of the "success" of the voluntaryrecycling program, it soon came about that oneneighborhood in the township was chosen for avoluntary pilot program for curbside pickup ofrecyclables, and a year later-perhaps inevitably-thetownship supervisors, at the urging ofthe now quasi-official volunteer recycling committee,voted in an ordinance making curbsiderecycling mandatory for every resident in thetownship.How different the new mandatory program isfrom the cheerful Saturday morning volunteerefforts! Anyone placing recyclable materials intheir ordinary trash is now subject to a $300fine. "Scavengers," who used to drive aroundthe streets in the early morning hours, usingtheir own time and effort to gather recyclablesfrom trash, are subject to a fine of $300 forevery property they visit. Recyclables now belongto the township, by law.A frightening change of spirit surrounds the

22 THE FREEMAN. JANUARY 1989new program. Thus far, it appears the townshipwill collect far less for recyclables than it ispaying a contractor for the service of pickingthem up, and the volume collected has been anegligible fraction of the amount of landfillspace still being used. Nevertheless, the townshipis proclaiming the program a "success,"while 'at the same time searching for scapegoatsto blame for why it's not more successful. Residentsare asked to tum in the license numbersof suspicious vehicles that might be "scavenging,"and, in another perversion of voluntarism,there is talk of establishing "blockcaptains" and using Neighborhood Watchgroups to enforce the recycling law. People criticizingthe program at public meetings havebeen subjected to vicious verbal abuse, includingsuggestions that they leave the country ifthey don't want to be part of a "civilizedsociety. "The above is only one example of how voluntarismceased being good when perverted bya collectivist mentality. There are others. In anothercity, a group of volunteers found a way tobuild shelters for homeless people at a cost of$40 each. Buoyed by their success, they approachedthe city with a plan to build moresubstantial shelters-but now at a cost of$10,000 each, to be paid for by a public grant.It is unexplained why they expect their conceptofpublic housing to be more successful than thescores offailures ofpublic housing in the pastorwhy a target cost of $40 per unit seemedappropriate while using their own funds, butgrew to $10,000 when other people's funds becameavailable.It has become a cliche for volunteer workersto decry the "Me Generation," but they fail tosee that what they offer is something far worse.In the past, when asked who would undertake avolunteer effort, volunteers answered, "Me!"Today, their answer is, "You!"Somehow, the so-called "Me Generation"seems less self-centered and arrogant-andcertainly far less threatening to our freedom.DCamping: Societyin Miniatureby Eugene L. GotzMy wife and I are inveterate campers.We enjoy the pleasures of traveling,outdoor living, and seeing the countryat a relatively low cost.Campgrounds fall into two major categories-thoseoperated by the state or federal governmentand those privately owned. Essentially,they offer the same basic servicescampingsites, toilet facilities, and water. InMr. Gotz, who is retired as Manager ofEngineering at theGeneral Electric Company, resides in Arlington, Massachusetts.addition, some campgrounds offer such servicesas electricity, laundries, stores, entertainment,and recreational facilities. Each campground,either state or private, offers a uniquemix of facilities.A campground, in a sense, is a miniaturesociety. Campers generally are strangers, havea wide range of ages, and come from differentbackgrounds. They live within sight and soundof each other. They share basic necessities suchas toilets, water, and other camp facilities. Perhapseven more so than in normal living, a fun-

23damental consideration of one's fellowmen isessential if the campground is to function in asatisfactory manner.It is in this area that there is a primary differencebetween state and private campgrounds.In a private campground, reasonable behavior isgenerally observed. People know that if theypresent serious behavior problems to theirneighbors and to the campground operator, thepolice will be called. And it is precisely thisfeature that attracts many people to a privatecampground-the prospect of enjoying campingwithout rowdiness, petty theft, and excessivedrinking in the area. The private campgroundoperator realizes that to make a profit hemust run a tight ship. As in any business, hemust satisfy the customer.State campgrounds, on the other hand, canand often do have local scenes of behavior abhorrentto most people. Some campers, albeit avery few, regard it as their right to behave inany manner they choose. And if you unfortunatelyare their neighbor, why that's your problem.The staff of most state campgrounds generallymake little effort to enforce any type ofcampground discipline. Complaints usually gounresolved and remain unanswered. The drivingforce to satisfy customers-the profit motive-ismissing.The maintenance of the physical plant ofcampgrounds is another area of vast differences.In private campgrounds toilets flush, hotwater faucets produce hot water, and showerswork. The facilities are reasonably clean andneat. The stores have adequate supplies. Unfortunately,in state campgrounds the same statementscannot be made across the board. Dependingon the local area and the staff, thecondition of the facilities ranges from excellentto awful.There is a vast difference in grounds maintenance.Private campgrounds operators properlymaintain the grounds and the landscape. Theircampers respect the environs and generally refrainfrom littering and destroying the shrubbery.And, here again, in the state campgroundsthe opposite is too often true, reflecting the generallackof camp discipline.The daily fee for the state campgroundsranges from $6-$10, for the private campgroundsfrom $10-$14. The private operator hasall the normal business expenses such as taxes,depreciation, wages, advertising, and so on.And he still must make a profit. The state campgroundsdon't have to make a profit and havefew of the normal business expenses. If thevalue received from the private campgrounds ismeasured against that from state campgrounds,it is surprising the state's fee is so high.In the interests of fairness and even-handedreporting, I must point out all state campgroundsare not bad, nor are all private campgroundsgood. Each campground must be evaluatedin its own right. But, over the long hauland years ofcamping, my wife and I have foundthat private campgrounds offer by far the morepleasant experience.The reasons for this are very basic. When anenterprise is not driven by the need to be profitable,it tends to become inefficient and unproductive.If management does not feel theneed to compete, few attempts will be made tosatisfy consumers. Clearly, the public wouldgain if the state and federal governments wereto tum campground management over to privateenterprise. 0

24Sailing theCompetitive Seasby William B. ConerlyIpicked up my beer at the yacht club's bar,then went out on the deck to watch the lastfew boats come in. It had been a goodday's sailing for us: we finished the race in themiddle of the fleet, but we had a couple of newstories to tell. When John grabbed the chairnext to me, 1 was all set to talk about the windshift that had helped us at the end. John,though, had other interests."Tell me, Doctor, what are we going to doabout these Japanese imports?" John asked.1 sail on the weekends; Monday throughFriday I'm an economist for a local company.Even though 1 love economics, 1 didn't want tospend the whole cocktail hour talking about it."Did you do the race to Drake's Bay threeyears ago?" 1 asked. Without waiting for hisanswer 1 began my story.,'After we rounded the point and turnednorth, a light fog set in. It wasn't thick enoughto be dangerous, but we couldn't see the otherboats. ""I remember that one," John said. "I neverdid figure out where the wind was that day, buteveryone else seemed to find it. 1 think 1 wasthird from last. "1 continued: "After about two hours we happendto sail close enough to another boat tosee her. It was Fred's boat, which is prettycompetitive with ours. We sailed side by side,about a hundred yards apart, and she waspulling away from us.""You should have been able to keep up w,ithher," John said. "You've beaten her plenty oftimes. "Dr. Conerly is an economist in Portland, Oregon, where heraces his sailboat, Leading Indicator."That's what we thought. So we startedlooking around and decided to ease the Cunninghama bit."Racing a sailboat isn't as simple as lettingthe wind catch the sails and push it along. Thesails are airfoils, like airplane wings, but withan added complication: being made of fabric,the curvature of the sails isn't fixed in place.We have thirteen separate controls that willchange the sail's shape in one way or another.The Cunningham is one of those thirteen.,'It was hard to tell at first, but it seemed wewere no longer losing to her. Al was on thehelm, and he's always pretty good at steering inpuffy conditions. He got on our case about notworking the sheets in time with his coursechanges. We put two good fellows on thesheets- and we started to gain ground. Weeven got a little ahead of her. ' ,John asked if we had kept our lead. Wehadn't. After we got moving a bit faster, theother boat picked up speed. It took them twentyminutes to find the trick, and 1don't know whatthey did; but just as we were feeling confident,they got their boat moving definitely faster thanours.,'Rob started to look up at the mainsailyouknow how he's so quiet-and softly said,'Maybe there's too much mast bend. Can welet off on the backstay a tad bit?' The mastlooked fine to me, but on the rare occasionswhen Rob talks, we all listen. We eased thebackstay a little, and then watched the speedometer.We picked up a tenth of a knot in notime, and started to gain on them.""Sounds like a game of leapfrog," John remarked.

25"It was. Pretty soon we couldn't find anymore gains out of sail trim. But watchingFred's boat helped us spot a tired helmsmanright away. I had been steering for 45 minuteswhen they pulled out on us. I felt fine, orthought I did, but when Murphy took the wheelhe brought our speed right back up.""How did you finish the race?""First and second. Turns out we were theonly two boats to have been in sight of anyoneelse for most of the race. We got the second,which is too bad, but that was one of our bestfinishes the whole summer.",'It sounds to me like you have that otherboat to thank for your good finish, even if theydid beat you. ' ,"Exactly. The speedometer tells you howfast you are going, but it doesn't tell you howfast you could be going, given the wind andwaves. You need a competitor to tell you if youhave greater potential. It's easy to think thatyou're doing your best, but usually you aren't."Besides," I continued, "we were able tolearn a trick from him. When the wind turnedlight and we were wallowing in the swells, wesaw that he had vanged his boom down hard.We weren't used to doing that, but we gave it atry and it helped.,'All the other crews thought they weredoing their best, but they couldn't see the otherboats because of the fog. I know most of theother crews and they're not lazy. It's just hardto be fast when you're out there by yourself."John finished his beer and stood up. "Well,Doctor, I've got to run. Thanks for the story.But I really would like to sit down sometimeand talk with you about the danger of foreigncompetition. ""I thought that's what we were talkingabout," I replied.D

26Freedom,Coercion,andFamily Sizeby David C. HuffThe freedom of a husband and wife tobear as many children as they wish is animplicit aspect of the principles of libertyupon which our nation was founded.America's early citizens and statesmen clearlyunderstood the many social and economic advantagesof large families, recognizing in thefamily structure a rich treasure of ingredientsfor the sustenance of society which far overshadowsany benefits a civil government canprovide. As Gary North has observed:The family ... provides a basic division oflabor, and this leads to greater productivity.It provides a zone of safety against life'sbattles with a fallen, recalcitrant environment.. . . It provides men and women witha stake in the future, and in so doing, makespossible habits of thrift that lead to vast capitalgrowth.... It provides welfare and educationfor its members. It reduces the needfor a huge state bureaucracy, so it acts as aweapon against the illegitimate expansion ofstate power. 1As might be expected, the concept of thefamily as the cornerstone of a free society, aprincipal steward of a society's capital, and akey facet (through steady population increase)Mr. Huff, chieffinancial officer ofFox-Rowden-McBrayerin Atlanta, Georgia, is married and has three children.of a society's economic vitality has not lackeddetractors. Most parents with more than twochildren would agree that large families aresubtly and sometimes noisily discouragedtoday. The task for advocates of freedom is toinquire beyond the specific bias against largefamilies and discern the root ideology involved.It will prove to be quite familiar.Any consideration of the freedoms involvedin choosing family size necessarily involves thelarger issue of ownership and property rights.Even to question the fact that the ownershipand responsibility for children vests exclusivelyin their parents once would have seemed superfluous.Yet in the current environment of ZeroPopulation Growth, Planned Parenthood, andGlobal 2000, private ownership of children nolonger enjoys unanimous consent: "The 'right'to breed implies ownership of children. Thisconcept is no longer tenable. Society pays aneven larger share of the cost of raising and educatingchildren. The idea of ownership is surelyaffected by the thrust of the saying that 'Hewho pays the piper calls the tune.' "2Does this tune sound familiar? While one obviousresponse is the insight that a "society"has no existence or identity apart from the individualscomposing it, such a coercive mind-setmerely regurgitates a common statist strategy.Any drive for omnipotence by the state or itsagents always involves an insatiable appetite tocontrol private property for the "good of society."And understandably so, since the ownershipand control of private property is integralto a free society and therefore an inherentenemy of central planning.Given that the tenets of interventionismidolize the state as a benevolent, all-wise parentto its children, it is not a difficult leap for governmentto concoct a policy which includes seizureof the "right to breed" and thereby arrogatesthe ultimate control of family size to thestate. Only then can it begin to enact the kindof "necessary" controls (to protect society, ofcourse) envisioned by some: "It can be arguedthat over-reproduction-that is, the bearing ofmore than four children- is a worse crime thanmost and should be outlawed. One thinks of thepossibility of raising the minimum age of marriage,of imposing stiff penalties for illegiti-

27mate pregnancy, of compulsory sterilizationafter a fifth birth."3We see, then, that in order for a bureaucracyto gain its desired position of pseudo-parentand thereby the power to control family size, itmust begin by usurping property rights overchildren.Malthus and Human CapitalAs alluded to earlier, the barbs directed atprolific parents generally are launched from thevarious elements of the population controlmovement. Their basic message is that ourplanet is becoming overpopulated, which intum will purportedly cause food shortages, destroythe balance of nature, wreck economies,and generally drive civilized society into extinction.This population control ideology had its originsin the theories of Thomas Malthus, whotwo centuries ago predicted a population crisiswhich would shackle the world in the perpetualgrip of poverty. The passage of time, however,has not seen the fulfillment of his dismal prophecies-butit has yielded decades of experiencewhich show that healthy populationgrowth is an asset, not a threat:The basic axiom of economics- both classicaland modern- is that wealth is theproduct of labor. The mineral resources ofthe earth are not wealth until human efforthas been exerted, either to discover or extractthem.Throughout the ages-until the currentera of statistics-worship-population hasbeen regarded as the foremost source ofwealth; the prime object of rulers and governmentshas been to attract and increase thenumber of their people. Density of populationand rising population historically havebeen the mark of a prosperous, vital civilization.4By their very nature, Malthusian precepts(which have been substantially disproved) areideologically at war against the principle ofhuman capital expansion through populationincrease. This seems strange, when the evidencein favor of large families and growth isamply available.So again, to fully comprehend the real issue,one must uncover the motivation of those whofret over the "population bomb." Is the issueactually conservation-of resources, livingspace, and the balance of nature-or is theissue control of the human capital represented?The Propaganda ExplosionAn exhaustive chronicle of the many factorsworking toward family size limitation by forceis beyond the scope of this brief essay. Nevertheless,the fundamental idea which should beretained is the insight that discouragement oflarge families represents but one narrowsymptom of an age-old, chronic illness-interventionism.The dangerous explosion has notbeen population, but propaganda.Population control is an uncannily accurateobjective for a movement whose prime motivationis, indeed, control. The march of the statetoward attainment of the power of life anddeath over its citizens, if unchecked, will allowno competing sovereignty on the part of individualsor families. Thus, not only the right tobear children, but the very sanctity of humanlife must be diligently guarded and defended.For as Frederic Wertham notes, "If someone inauthority tells us that we have no right to procreate,it is only one step further for him to tellus we have no right to live."5History bears telling witness to an observationwhich captures the essence of the familylimitingphilosophy: "Population control is thelast desperate act and ultimate weapon of aWelfare State whose lust for power and instinctfor survival knows no political or morallimits. "6D1. Gary North, Unconditional Surrender: God's Program ForVictory, 2nd Ed. (Tyler, Texas: Geneva Divinity School Press,1983), pp. 102-3.2. Garrett Hardin, "Parenthood: Right or Privilege?" Science,July 31, 1970, p. 427, quoted in James A. Weber, Grow or Die!(New Rochelle, New York: Arlington House Publishers, 1977), p.179.3. Kingsley Davis, "Will Family Planning Solve the PopulationProblem?" The Victor-Bostrom Fund Report for the InternationalPlanned Parenthood Federation, Report No. 10, Fall 1968, p. 116,quoted in Weber, Grow or Die! p. 178.4. Elgin Groseclose, "Too Many Mouths to Feed?" ResearchReports, American Institute for Economic Research, Great Barrington,Mass., December 9, 1968, p. 198; reprinted fromBarron's November 18, 1968, quoted in Weber, Grow or Die! p.21.5. Weber, Grow or Die! p. 183.6. Ibid., p. 190.

28Racism: Publicand Privateby Walter BlockWhen an individual or a group of personsin the private sector discriminatesagainst a racial or ethnic minority,the results can be debilitating. Psychologicalharm, feelings of isolation, and a senseof hostility are likely to result.Fortunately, in the private sector there is alittle-recognized phenomenon which helps toprotect minorities from great economic harm:the fact that private individuals tend to pay fortheir discrimination. For example, if a segmentofthe population is discriminated against in employment,this tends to drive down their wagerates. However, the lower wages they nowcommand act as a magnet, inducing other employersto make them job offers. Employerswho discriminate pass up these lower wages.Other things equal, competition will tend todrive the discriminating employers out of business.This is hardly an ideal situation from theviewpoint of the minority-they would be betteroff with no discrimination. But at least thisaspect of the free market tends to reduce theinjury which would otherwise accompany discrimination.Things are far worse for the minority victimizedby government discrimination. For onething, the incomes of prejudiced bureaucratsand politicians are protected from marketforces. Their incomes do not tend to fall, asthey do for prejudiced businessmen in the privatesector. For another, civil servants dQ notrun the risk of bankruptcy at the hands of non-Dr. Block is Senior Economist at The Fraser Institute, Vancouver,Canada.discriminating competitors-their jobs areguaranteed.Consider, for example, the "back of thebus" rules which discriminated against blacksin the South. This aspect of Jim Crow was partand parcel of government. The buses were partof the public sector; they were subsidized, andno competition was allowed. As a result, blackshad to suffer discrimination for many years, untilthe "back of the bus" rules finally werechanged through massive demonstrations. Hadblacks been told that they could ride only in theback of the bus in a market situation, other bu~companies would have been formed, and wouldhave enjoyed an inside track in competing forblack customers.Sometimes discrimination in the public sectoris so well camouflaged that few people realizeit is taking place. For example, the Hutteriteswere victimized by discriminatorylegislation in the Canadian province of Albertathat did not even mention them by name! Thesepeople commonly live in colonies of 100 familiesor more. But the economics of farming inthis part of the prairie are such that each colonyneeds two or three square-mile sections to supportitself. An Alberta law which restrictedholdings by size thus made it very difficult forthe Hutterites to form colonies.But well-hidden public discrimination is byno means limited to rural areas. In Vancouverthere is a crackdown on illegal suites, and a banis in the works for second kitchens in areaszoned for single-family occupancy. None ofthelaws mentions the Sikh community by name;nonetheless, this spate of legislation singles out

29the East Indian community for discriminatorytreatment. The reason is not difficult to fathom.Like the Hutterites, Sikhs live in very largegroups. According to Gurnam Singh Sangheraof the East Indian Workers Association of Canada,many ethnic communities live with threeor four generations under one roof-and withan extended family in each generation of aunts,uncles, cousins, and so on.Were the private sector discriminatingagainst the Sikhs or Hutterites, these groupscould find accommodations, albeit perhaps atslightly higher prices. But when they are victimizedin the public sector, their plight is farmore serious. They must convince a majority ofthe electorate-many of whom are hostile tothem-of the injustice in discriminatory laws.History tells us this is no easy task.Given that public-sector discrimination is farmore harmful to minorities than private discrimination,those who sympathize with racialand ethnic victims should think twice beforeentrusting human rights to the state. The marketis a far better alternative. 0AffirDlative Action:A CounterproductivePolicyby Ernest Pasour"That teacher was selected for affirmativeaction reasons." That is how Ifirst heard the term used-implying alack of ability on the part of a teacher at my highschool.The phrase "affirmative action" was firstused in a racial discrimination context in ExecutiveOrder No. 10,925 issued by PresidentJohn F. Kennedy in 1961. This executive orderindicated that Federal contractors should takeaffirmative action to ensure that job applicantsand employees are treated "without regard torace, creed, color, or national origin." Thecivil rights legislation of the 1960s followed inthe same vein.As initially presented, affirmative action referredto various activities to ensure the fairnessof hiring and promotion decisions and to spreadinformation about employment opportunities.Emphasis was placed on encouraging previouslyexcluded groups to apply for jobs, admis-Ernest Pasour is a junior at Athens Drive High School inRaleigh, North Carolina.sion to colleges, and so on-after which theactual selection was to be made without regardto group membership.Affirmative action was originally conceivedbecause it was thought that simply stopping discriminationagainst minorities would not overcomethe results of past employment and promotionpatterns. Prior to the 1960s, employersfrequently hired by word of mouth and, consequently,friends or relatives of current employeeswere more likely to be hired.Kennedy's executive order implied equal accessand nothing else. The system that hasevolved since is a perversion of the originalintent of affirmative action.A shift in emphasis from equality of prospectiveopportunity toward statistical measures ofresults was already under way by the time theCivil Rights Act of 1964 was debated in Congress.Quotas and the right of minorities andwomen to have a "correct" percentage of theirpopulation employed have since become rallyingcries for civil rights activists. Affirmative

30 THE FREEMAN. JANUARY 1989action as it has been applied is detrimental to theoperation of the job market, to white males, andto the groups it is supposed to benefit.First, affirmative action promotes the hiringof less skilled workers. It sometimes forces employersto choose the best of the minority workersthey can find, regardless of whether theyhave the required job skills. For example, DukeUniversity recently adopted a resolution requiringeach department to hire at least one newblack for a faculty position by 1993. However,only six blacks received Ph.D. 's in mathematicsin 1987 in all of the U. S., casting doubts asto whether it would be possible for each departmentto find a well-qualified black, much lesshire one.Colleges and universities frequently alsohave quotas for how many blacks it is necessaryto admit to "round out" their freshman classes.An example is the admission practice at Berkeley.Only 40 percent of the entering class in1988 were selected solely on the basis of academicmerit. While whites or Asian-Americansneed at least a 3.7 grade point average in highschool to be considered for admission, most minoritycandidates who meet a much lower standardare automatically admitted. Berkeley continuesthis practice of preferential admissionsfor minorities even though the graduation rateof minorities is very low. Sixty-six percent ofwhites or Asian-Americans graduate while only27 percent of blacks graduate.An Influence on CurriculumThe practice of affirmative action in employmentand admissions policies is now being extendedto the selection ofwriters to be studied atuniversities. At Stanford, race, gender, and nationalityof authors are to be considered in bookselection-not merely the quality of their work.Requiring that books be selected on the basis ofsuch criteria is absurd. The selection of booksshould be based on merit rather than on therace, gender, or national origin of the authors.The effect of affirmative·action based on quotasrather than merit is that quality suffers, regardlessof whether the issue is employment, collegeadmissions, or book selection.A closely related point is that affirmative actioncauses reverse discrimination. Discriminationagainst white males is just as bad as discriminationagainst minorities. Some peoplesay that affirmative action is justified as a wayof making up for past discrimination. Althoughdiscrimination still exists in the U. S., as it doesin the rest of the world, most blacks entering thejob market today were born after the CivilRights Act of 1964 and have suffered little or noprejudice in terms of salary.When this Civil Rights Act was passed, itsspirit was not one of reverse discrimination butof getting employers to consider applicants objectivelyin filling jobs within their companies.Hubert Humphrey, a major sponsor of the Act,swore that he would eat the bill if it were everused for discrimination of any sort. The pastcannot be changed and we should stop compensatingpeople who were never hurt at the expenseof people who have done them no harm.The Alan Bakke Supreme Court case held that itis reverse discrimination to accept a minoritystudent at the expense of a white student withbetter credentials. Unfortunately, this decisionhas had little influence in subsequent cases ofreverse discrimination.Another problem caused by affirmative actionis that it places a stigma on groups whichreceive preferential treatment, especially on individualsin those groups who earn their positionsbecause of their ability. Consider an employerwho hires a member of a minority groupfor a high position on the basis of merit, not foraffirmative action reasons. Other employees,however, are likely to assume that it was anaffirmative action hiring, as are many other minorityhirings. As a result, such employees cansuffer from lack of respect which makes themless useful to the company.The increase in racial tensions betweenwhites and blacks at U. S. colleges, as describedin recent news articles, is also related to preferentialadmission policies. It is not surprisingthat racial tensions have grown worse since affirmativeaction policies were implemented. Atcolleges in North Carolina, for example, blackstudents recently stated that they were treatedlike affirmative action cases even if they werenot. Professors, seeking to help, asked them ifthey needed tutoring or other assistance, alreadyassuming that blacks were unqualified.

31Affirmative action also appears to have beengenerally ineffective for blacks in the job market.Economist Thomas Sowell shows that incertain places, including some prominent companiesand public utilities, there have beengains. But overall, the economic position of minoritieshas changed little since "goals andtimetables" (quotas) became mandatory in1971.As originally conceived, affirmative actionmay have been a constructive policy, but it hasbeen counterproductive in practice. I hope bythe time I am in college that students, teachers,and others will be selected on the basis of ability-notaccording to quotas based on race orsex. If so, we will have finally achieved truecivil rights for everyone.oThe Quality of Peopleand Productsby Jonathan AthensGo to any restaurant, hotel, or businessplace that deals directly with the public,and the person behind the desk inthe lobby is usually a clean-cut young man or anattractive, well-dressed woman. This is a common,unwritten practice employed by mostbusinesses as a way of "putting their best" forward.Look at almost any advertisement andyou'll find the same kind of people selling anythingfrom toothpaste to cigarettes. It is a meansof making a product more attractive to the consumer.Of course, the consumer has the ultimatechoice as to which brand of toothpaste to use orwhether to buy cigarettes. When it comesto patronizing a hotel or restaurant the consumerhas the same right. However, the right ofthe business office (or hotel or restaurant) tochoose the kind of person they want to promotetheir product or service is slowly being takenaway.As an advertising consultant for a local newspapersyndicate, I deal with a variety of businesseswith the goal ofhelping them attract customersas well as prospective employees. Oneday a print shop owner called and asked to placeMr. Athens is a/ree-lance writer in Columbus, Ohio.a classified ad for employment. The print shopowner told me he wanted a young lady to workthe front desk of his office. She should be adeptat dealing with the public and capable of jugglingthe paperwork that had piled Up."Can I do that?" he asked, sounding somewhatunsure."Certainly," I told him. "It's your business,your money, your advertisement. You can dowhat you please." The print shop owner calledback to place the final copy of the employmentad only to discover that I was wrong. My supervisorexplained in detail how and why. Itwasn't the newspaper's policy, she said, norhers. Rather it was the state's policy. To advertisefor an attractive young lady or man with apleasant personality is discrimination on the basisof age, sex, and appearance. Reluctantly, Iinformed the print shop owner and worked withhim to rewrite the ad so that it did not give anindication of anything other than the job title,the pay, the location of the shop, and the hoursof business.The print shop owner began his businessyears ago without government grants or assistance,and neither did he have contracts with thegovernment. Still, he had to play by the government'srules of hiring and firing. After key-

32 THE FREEMAN. JANUARY 1989ing the advertisement into the computer system,I sat back and thought ofhow many people weregoing to apply for the job and how many theowner was going to have to tum down beforefinding the right applicant. I then thought of thenumber ofpeople who were going to read the adnot knowing what the employer was specificallylooking for, and waste their time and effortalong with his money just to be told "no."The Right to HireTwo forms of civil rights legislation affectthe business owner's right to hire. Equal Opportunityguarantees that a person be consideredfor a job without regard to race, age, or sex.Affirmative Action, on the other hand, commandsthat a person be hired with regard to suchcriteria.How contradictory the two anti-discriminationlaws are! And the results are pernicious.If someone is hired on any basis other than individualmerit, the employer will generallyhave employees who perform substandardwork. Time, money, and energy are spent tryingto correct and/or overcome substandardwork-time that could be devoted to improvingproduct quality. The bottom line is that a corporationis only as good as its product, and theproduct is only as good as its makers.A popular misconception is that a "product"is merely a material item with physical dimensions.But services are products, too. The producta waitress makes is food service. The producta salesman makes is selling. The product amechanic produces is automotive maintenance.The product a doctor provides is health care. Ifany of these positions were to be filled strictlyby Affirmative Action, what kind of servicewould the consumer get? The consumer can alwaysgo to another restaurant for better foodservice, another doctor for a second opinion,and another salesman for a different kind ofproduct. But what if the options are limited?What if there are no choices?The consumer ultimately loses his freedom ofchoice. It is a freedom no person and no businesscan afford to be without.DAchieving Genuine EqualityDespite our problems, one of the central facts of American historyhas been the achievement of a high degree of individual equalityfor most citizens. Perhaps the nation somehow sensed that humanbeings achieve their fulfillment in what they become. Certainly we aremost fully ourselves as we aspire to further development, and enjoy thefreedom to pursue it. It is in connection with our aspiration that we seekequality for each person. Surely race or sex is an inadequate basis for suchequality. We do not aspire to be black, white, or yellow, male or female.These categories are facts of existence, but the achievement which we seekin life must lie elsewhere, and it is elsewhere that the definition of trueequality must also be located.What we all want, and what some members of society presently lack, isacceptance as an individual by others. It is that acceptance which constitutesgenuine equality. Each of us wants to be a person in his own right.Such acceptance can hardly be produced by governmental compulsion.Compulsion smothers any creative response to a problem.-GEORGE C. ROCHE III,The Balancing ActIDEASONLIBERTY

33Two Senses ofBUOlan FreedoOlby Tibor R. MachanWhen we consider whether a capitalist,libertarian society is free,whether it secures human beingstheir maximum individual freedom or liberty,serious controversies arise. Some agree that, ofcourse, in capitalism, where one's private propertyrights are respected, we enjoy the greatestfreedom. Despite the fact that such a systemdoes not offer the utmost security in life, norequality of wealth or even of opportunity, manymaintain that capitalism certainly does securefor people the maximum freedom.But there are those, too, who dispute thiscontention. Not only do they criticize capitalismfor failing to ensure for us well-being andequality of opportunity, they also hold that capitalismis, in fact, an enemy of individual freedom.Marx made this point in the 19th century,and in our time many have followed his lead.For example, in his posthumously publishedwork, Grundrisse, Marx notes that "This kindof [capitalist] individual liberty is ... at thesame time the most complete suppression of allindividual liberty and total subjugation of individualityto social conditions which take theform of material forces-and even of allpowerfulobjects that are independent of the individualscreating them. ,,1Professor Larry Preston, following in Marx'sfootsteps, has advanced a similar claim,namely, that "a capitalist market, understoodas a system in which production and distributionare based on the pursuit of private interestthrough the acquisition and transfer of privatelyTibor R. Machan teaches philosophy at Auburn Universityin Alabama.owned property, generally denies freedom tomost participants. ,,2 Preston defends this positionby first advancing the following characterizationof freedom: "Free decisions and actionsare identified as those in which an agent's consciousdeliberation has played an essentialrole. ,,3 He clarifies this by adding that "Theprerequisite of deliberate choice can only bedetermined with reference to specific activitiesassociated with particular roles.' ,4 Furthermore,"A choice is voluntary (freely made) ifthe persons who agree to it possess, before theydecide, the relevant capacities and conditionsfor deliberation regarding the proposed transaction.,,5In contrast, within the Anglo-American politicaltradition, freedom has been characterizedquite differently. According to F. A. Hayek:It meant always the possibility of a person'sacting according to his own decisions andplans, in contrast to the position of one whowas irrevocably subject to the will of another,who by arbitrary decision could coercehim to act or not to act in specific ways. Thetime-honored phrase by which this freedomhas often been described is therefore "independenceof the arbitrary will of another." . . . In this sense "freedom" referssolely to a relation of men to other men, andthe only infringement on it is coercion bymen. 6For Marxists the emphasis has always beenon possessing the requisite abilities-includingresources and information-to act in any wayone might wish to act after necessary delibera-

34 THE FREEMAN. JANUARY 1989tion. In Hayek and the classical liberal tradition,however, the emphasis is placed on achoice being that of the agent, that it be "hisown" decision. Furthermore, unlike Preston,Hayek does not insist that deliberation has an,'essential role" in free choice.The difference between the two conceptionsof freedom seems to be that whereas Prestondoes not stress personal autonomy and selfdetermination,Hayek does; and while Hayekseems to accept decisions of any sort (whimsical,intentional, negligent, or deliberate), Prestonallows only deliberative or self-consciouslycalculated decisions to be free choices.What Is "Real" Freedom?Preston holds that "real" freedom is not thelibertarian, capitalist sort. What his theory, followinga very respected tradition, proposes isthat one can be really free only if one is on theright path. Consider again Marx on freedom:"[F]reedom . . . can only consist in socializedman, the associated producers, rationally regulatingtheir interchange with Nature, bringing itunder their common control, instead of beingruled by it as by the blind forces of Nature; andachieving this with the least expenditure of energyand under conditions most favorable to,and worthy of, their human nature.,,7Marx was invoking the idea of freedomwhich ordinary people invoke when they saythey wish to be "free" of worry, trouble, hardship,psychological blocks, bad memories, disease,or whatnot. From the time of Plato thissense of "human freedom" has been a powerfulcontender. It refers to our capability of attainingfull human flourishing, unhindered bysuch obstacles as ignorance, illness, or sin. Inour day many think of this sense of freedomwhen they refer to Marxist-Leninist type liberation.Unlike the more libertarian sense of thisterm-within the American political traditionliberationhere means guiding one towardemancipation. Compare the liberation of Franceto the liberation of Poland! And consider thecharacter of Marxist-Leninist liberation movements,which all reject libertarian freedom.Now Preston's idea of freedom does not stateexplicitly that his understanding of "free tochoose', implies that only those are free tochoose who in fact choose properly. But this isthe result of his characterization, nevertheless.This is because the "relevant capacities andconditions for deliberations" would in the finalanalysis include the individual's ability to selectwisely from among the alternatives. It wouldalso include the absence of any impediments tosuch wise decisions, including ignorance andpoverty, whether imposed by other persons, orby nature, or by the social system in force. Nodoubt, if a social system protects propertyrights, this also means that those who have nowealth or health, or squander them, will facethe obstacle of poverty or ill health in their effortat successful living.That there may not be any system that could"remedy" this situation is, of course, one ofthe major problems of characterizing freedomalong these lines. But by speaking as if such lifecircumstances were limitations of liberty, Marx(or Preston) suggests that there may be socialsystems that do not place any restrictions beforepersons who might at some stage of their livesaspire to success. Marx hints at this when hepoints to "the absurdity of considering freecompetition as being the final development ofhuman liberty.,,8 Presumably there is a finaldevelopment.Another problem with the Marxian idea Prestonadvances is that a deliberation is a rare process.Most people proceed through their dayswithout deliberation, yet acting intentionallythatis, fleetingly thinking of their objectivesand almost automatically using the means toattain them, as when they switch on a light asthey enter a room. The intentional character ofsuch actions may be gleaned from the fact thatif some mishap is associated with them, personswho took the actions are held responsible forwhat they did. These, then, are treated as perfectlyfree actions when they are not forced onthe doers by others. For Preston, however, theywould be unfree actions since they did not involvedeliberation-the self-conscious, selfmonitoredmental process characteristic of intellectualactivities (such as theorizing aboutfreedom).It is also important that in Preston's andMarx's characterization of freedom, there is noconsideration of the place of free will. If personsare metaphysically free-possess free will

TWO SENSES OF HUMAN FREEDOM 35or the power of self-determination-they mightnot elect to inform themselves about the factsthat may make a choice a wise one. They maythen be regarded as unfree in the Marxist sense.Nevertheless, in the liberal sense of the term"freedom," they are free, since they mighthave placed themselves in a position of beingbetter informed-even though they did not dothis-which would mean they are essentiallyfree.Women's LiberationThe different meanings of "human freedom"can be more fully appreciated in connectionwith the women's liberation movement, inwhich two meanings of "liberty" are prominent,though not always noted. First, women'sliberation sometimes means the absence of restraintsimposed by other people who wouldkeep women under a yoke or treat them as ifthey were not of age but in constant need ofguidance (from males or the state). Second, women'sliberation sometimes means being guidedto a higher state of consciousness and humanemancipation.Another way-hinted at before-to distinguishthe two ideas of liberty is to recall thecontrasting meaning of "liberation" for the SovietUnion and the United States vis-a-vis thecountries of Europe they helped liberate inWorld War II. The Soviet Union "liberated"by helping to defeat the Germans and then fullyoccupying the eastern European countries,while the United States helped cast off the Germanforces (e.g., in France) and then left,which freed these countries to develop themselves.Which sense of the term "freedom" is thenprimary? On the one hand, ifwe are focusing onprogress toward human flourishing, humanfreedom may well mean what has been meant inthe tradition from Plato, through Rousseau, Hegel,Marx, T. H. Green, and many contemporaryintellectuals. These thinkers would all joinMarx in the view that the liberal/libertarian conceptionof human freedom is limited and incomplete.To pretend to be concerned with humanfreedom when one is really only interested infreedom from the aggressive intrusion of otherpeople-as so well expressed in the Colonialslogan: "Don't tread on me!,,_is, according tothis line of thinking, to distort an importantvalue in human existence. (Even some neoclassicaleconomists prefer to mean by freedom themaximizing of our options, creating a broadrange of possibilities. Our freedom, they say, isenhanced with an increase of our wealth.)9There is something to this, of course. It isarguable that full human freedom-being unimpededby various obstacles in life in reachingone's proper goal of self-development-shouldmean what members of this tradition havemeant. Yet, on the other hand, the view thathuman freedom or liberty, in the aforementionedsense, is a political concern, lack ofwhich ought to be dealt with through law andpolitics, is highly disputable. This view simplyfails to credit individuals with self-initiated effort.It demeans them, treats them as helplessand always in need of guidance from above. Itis paternalistic and ultimately self-defeating ifwe extend it to everyone, including those whoadvocate totalitarian measures to liberate us.The ultimate reason behind this drastic anddevastating error is that the conception of freedomembraced by the tradition following Plato,and today mostly promoted by Marxists, presupposesa conception ofhuman nature which iscontrary to fact. Marx did not credit human individualswith a basic kind of freedom, namely,freedom of the will or the power of selfdetermination.Neither do Preston and other Marxists (e.g.,Andrew McLaughlin, Charles Taylor, G. A.Cohen). Preston notes that "Capitalist exchangeshave become coercive because participantscan recognize an alternative situationwhich would provide them with substantiallygreater freedom, a situation that the capitalistmarket prevents them from having. ,,10 In otherwords, people are not acting freely under capitalismbecause by virtue of the structure of thesystem-i.e., its framework of private propertyrights-they are forgoing options that theymight enjoy and that it would be beneficial forthem to enjoy.This treats people as helpless, inept creatures,who are unable on their own initiative tocome to terms with lacking some of what theymight want and benefit from in life. And whilesuch a conclusion is warranted in societies

36 THE FREEMAN. JANUARY 1989where people face persecution, oppression, andliquidation from the state if they try to remedytheir circumstances by individual initiative (includingforming economic alliances), for a societyin which no such political limits to libertyare sanctioned, the judgment comes to littlemore than either stressing the exceptions or demeaninghuman ability.The "freedom" Preston thinks people mightenjoy involves what people could benefit fromin their relationship to others, namely, greateraccess to information, better conditions for deliberation,etc. For example, they might be bettereducated, they might possess more wealth,etc. This is, of course, not political freedom buta better standard of living. To obscure the differenceis dangerous.Making the Most of Our LivesWhen Marxists say that we lack freedom orliberty under capitalism, they don't make clearthat what they have in mind is something weprobably would lack far more under any othersystem-the ability and opportunity to make themost ofour lives. And that is perhaps because ifput this way, it becomes clear that at least undercapitalism everyone has his or her political liberty-freedomfrom other people's forcible intrusioninto one's life-and in the main thisprovides most with a good chance of attaining ahigh standard of living. While capitalism is notpreoccupied with the equal distribution ofwealth-or, rather, poverty-it is a system underwhich those who make a good try have thechance of reaching considerable economic success.(Nor does capitalism assume that everyonewould, or even should, want this!)The Marxist position sees persons as we dotrees or flowers that grow not from their owndetermination but are spurred on by the naturalenvironment. And if there are deficiencies inthis environment, there will be impedimentsstanding in the way of growth.As Preston puts it, "We now realize that theexchanges of capitalism generally do not representagreements in which both (or all) participantsare better off if 'better off' is viewed asgaining access to the resources needed to exercisefreedom. ,,11 Once Preston has defined"free choice" as, in effect, "the best possiblechoice one could make, " it is no wonder that heviews capitalist exchanges as not being''free. "It may not be immediately obvious that Prestonand this entire tradition hold this conception of"freedom," but it becomes so, once it is clearthat here the objective is to ensure human perfection,the full emancipation of human beings-notmerely their freedom to do what theychoose to do, regardless of the outcome. Preston,like others in this tradition, in effect identifieshuman freedom with human success.Without that identification, human freedom orliberty simply have no value to him.The liberal tradition, however, sees humanfreedom (from aggression by others) as valuablein itself, because it is a constituent part ofhuman goodness-without the freedom tochoose one's conduct, one is not the agent ofwhatever good behavior one might engage in.This is not always clearly put in the liberal tradition,but it is there, nevertheless.In the liberal tradition, government aims atprotecting the individual's role as the agent ofhis own conduct. That is why it stresses individualliberty and rights. Once persons enjoythis protection, they will then do what theychoose, well or badly. Society is not perfect,but it is politically best if it secures for everyonea sphere ofjurisdiction or personal sovereignty.The rest is in the hands of individuals.In contrast, for the Preston/Marx position theprimary task of good government-of thosewho understand and have the power to upgradethe species-is to free human beings from impedimentsto growth. This is clearly not accomplishedsimply by protecting people against theaggressive intrusion of other human beings.No, they need total "liberation"-the preventionof all intrusions such as poverty, disease,ignorance, illness, and even sin. Thus Prestonholds that "Physical force need not always beeither morally objectionable or a denial of freedom.Efforts physically to restrain drug addictsfrom gaining access to drugs may be done formoral reasons and in the interest of freedomtoenhance the addicts' ability to make deliberatechoices." 12This is a convenient example for Preston, becauseeven in contemporary near-capitalist societiespeople are not granted the right to con-

TWO SENSES OF HUMAN FREEDOM 37sume the drugs they choose. But for Preston,the scope within which lack of free choice isappropriate is far greater. It is only a short distanceto the view that forcing people not to advocateanti-revolutionary policies or the wrongreligion, or censoring the viewing of trashymovies and the reading ofbad literature, is morallyjustified because it enhances the ability ofpeople to live properly.Many people who advocate Marxism but findthe Soviet Union politically reprehensible insistthat the Soviets have distorted Marx and that aproper understanding ofMarxism will avoid thekind of policies that have characterized theU.S.S.R. throughout its brief history. Some ofthose who hold such views are, nevertheless,wholly disenchanted with capitalism, whetherits ideal version or the watered-down type evidentin some Western societies. Indeed, someof these people hold out hope for societieswhose leaders proclaim themselves to be Marxists--e.g.,Cuba, Nicaragua--even when thesesocieties are directly allied with the SovietUnion.The confusion arises from failing to distinguishbetween what Marx might have liked, andwhat his views usher in, especially when hisvision of the future is not coming about automatically,as a matter of historical necessity.Maybe Marx would have hated Stalin or evenGorbachev, no one knows. But that the policiesof these Soviet leaders most closely followMarx's views, given that those views are basicallywrong, cannot reasonably be denied.Marx may have thought that capitalist societieswill tum socialist without much need forviolence. But since this hasn't happened, so-cialists have resorted to coercion to force socialismupon various countries in the name ofMarx. And there are plenty of concepts in theMarxist edifice that give philosophical fuel tothe idea of forced socialization. One of these isthe conception of freedom that Marx and hisfollowers embrace. Their idea of liberty mayhave some grounding in ordinary language. Butin one sense that idea is most destructive towardthe freedom of one individual from the intrusionsupon his life by another. This is the sensein which it encourages the idea that people mustbe made to be "free," whether they choose thisor not. 01. Karl Marx, Grundrisse (abridged), ed., D. McLellan (NewYork: Harper Torchbooks, 1971), p. 131.2. Larry M. Preston, "Freedom, Markets, and VoluntaryExchange," The American Political Science Review, Vol. 78 (December1984), p. 961. A somewhat oblique answer to Preston'sanalysis may be found in Paul Craig Roberts and Matthew A.Stephenson, Marx's Theory of Exchange, Alienation and Crisis(Stanford, Calif.: Hoover Institution Press, 1973). Roberts andStephenson show that substituting rational planning for the exchangesystem introduces tyranny. The choice, then, may be between marketexchange, which can involve some "exploitation," meaning theopportunity of some to take advantage of the circumstances of others,and totalitarian rule, which guarantees that exploitation willoccur, as a pennanent and unalterable feature of the system.3. Ibid.4. Ibid., p. 964.5. Ibid.6. F. A. Hayek, The Constitution ofLiberty (Chicago: Universityof Chicago Press, 1960), p. 12. An interesting group of discussionson the concept of liberty may be found in John A. Howard, ed., OnFreedom (Greenwich, Conn.: Devin-Adair, 1984). The most recent"classic" on this topic is I. Berlin, Two Concepts ofLiberty (London:Oxford University Press, 1958).7. Karl Marx, Selected Writings, D. McLellan, ed. (Oxford: OxfordUniversity Press, 1977), p. 496.8. Marx, Grundrisse, p. 131.9. See George Stigler, "Wealth and Possibly Liberty," JournalofLegal Studies, Vol. 7 (June 1978), pp. 213-17. Cf. E. C. Pasour,If., "Liberty, and Possibly Wealth," Reason Papers, No.6 (Spring1980), pp. 53-62.10. Preston, p. 965.11. Ibid.12. Ibid.Freedom as a Moral PrincipleThe most important among the few principles of this kind that wehave developed is individual freedom, which it is most appropriateto regard as a moral principle of political action. Like all moralprinciples, it demands that it be accepted as a value in itself, as a principlethat must be respected without our asking whether the consequences in theparticular instance will be beneficial. We shall not achieve the results wewant if we do not accept it as a creed or presumption so strong that noconsiderations of expediency can be allowed to limit it.-F. A. HAYEKIDEASONLIBERTY

38Readers' ForumTo the Editors:In your September 1988 issue, you carrieda piece entitled "What Should We Do AboutLuck?" Without wishing to plunge into the intricatephilosophical issues raised by the questionof whether having "character" is a matterof luck, I do wish to make one important observation.If being competent, self-assured, andtherefore successful is a matter of luck, this isall the more reason not to penalize success. Ifwe are, basically, subject to determinism, thenit is surely essential to structure penalties andrewards in such a way as to manipulate peopleinto having successful, rewarding lives. Themore scope there is for character to be selfgrounded,the more we might expect people tostrive and succeed without tangible rewards, althoughwe might still want to say that characteris admirable and should be rewarded. But ifcharacter and aptitude are determined mechanicallyby the outside world, let us by all meanscreate an outside world in which as many peopleas possible are determined into having characterand aptitude. Either way, reward success,not failure.To the Editors:-JOHN S. P. ROBSONAustin, TexasAs a Jew and a libertarian, I read with interestMilton Friedman's essay, "Capitalism and theJews" (The Freeman, October 1988). Dr.Friedman admitted to having no answer for thequestion of why intellectuals, and Jews in particular,tend to dislike capitalism. I think I haveone.Judaism stresses education, and college degreesare common among Jews. But before weconclude that Jews' anti-capitalist beliefs wereinstilled by their professors, we must analyzethis argument. It assumes that the professors inquestion, in their tum, were radicalized by theirprofessors, and so on. So where did the originalradical professors come from? While there isample truth in the assertion that professors tendto radicalize students, we must reject it as anotherchicken-vs.-egg argument.I find it far more accurate to say that intellectualstend to feel guilty about not being pooror not feeling as though they belong to theworking class, as it were. And if one did feelsuch guilt, would one support a system that allowscitizens to work for their own benefit (capitalism),or would one support a system thatdemands that citizens do penance by workingfor the benefit of others (socialism)? Leftist andegalitarian beliefs, not surprisingly, have alwaysfigured prominently in the lives of thosewho have the most guilt to relieve, and this putsintellectuals in the same category with filmstars, poets, and writers even though the intellectualsmay not be wealthy. One's surnameneed not be Rockefeller or Fonda to regret notbeing poor; all one need do is not be poor.Educated people, in many cases, have the samesort of vulnerability, since their education relievesthem of the necessity ofperforming manuallabor. Since most Jews fall into this category,they can be expected to favor guiltrelieving(egalitarian) politics to any other kind.For those who are working to win over brightminds to. our side, I therefore recommend,along with the usu~l reliance on facts and logic,an equal emphasis on promoting pride andself-respect--or anything else that might successfullycombat guilt.-ALLAN LEVITEDallas, Texas(Readers are invited to share their opinionson ideas appearing in The Freeman.)

39Private Property andthe EnvironUlent:Two Viewsby Jane S. Shaw and John HospersEditors' Note:In the May 1988 issue of The Freeman wepublished John Hospers' review of PropertyRights and Eminent Domain by Ellen FrankelPaul. In thefollowing essays, Jane S. Shaw andJohn Hospers exchange views on some issuesraised in that review.Jane S. Shaw:People concerned about freedom recognizethe importance of property rights asthe foundation for a system of cooperationand mutual exchange. Often, however,they abandon their convictions about the valueof property rights when they address environmentalissues. Yet a more thorough understandingof property rights would lead them to recognizethat private rights offer the best hope forprotecting many components of the natural environment.Many writers have expressed concern aboutenvironmental devastation such as the loss ofwild animals in Africa and the destruction oftropical forests in Latin America. In the May1988 issue of The Freeman, for example, JohnHospers shared his alarm about these losses andsuggested that private property rights are part ofthe problem: "And here the property rights inJane S. Shaw is a Senior Associate ofthe Political EconomyResearch Center in Bozeman, Montana.John Hospers is apro/essor o/philosophy at the University0/ Southern California and editor of The Monist. Heis the author ofnumerous books and articles on aesthetics,ethics, and political economy.land conflict sharply with the need for retainingthe natural links in the food-chain...."It's right to be concerned about environmentalharm, but we need to understand that solutionswill occur when private property rights arestrengthened rather than weakened.Wanton destruction of animals occurs primarilybecause no one owns wildlife. Contrastwildlife with cattle: No one worries about thedestruction of livestock and the reason is simple--cattleare owned and the owner has a directinterest in protecting them.It is lack of ownership, or common ownership,that leads to destruction. Aristotle observedthis more than 2,000 years ago. He notedthat "what is common to many is taken leastcare of, for all men have greater regard for whatis their own than for what they possess in commonwith others."As James Gwartney and Richard Stroupwrote in The Freeman in February 1988, thedevastation of the American buffalo on theGreat Plains came about because no one ownedthe buffalo. Without ownership, it was to theadvantage of Indians, and later white men, tokill whatever buffalo they could. Without ownership,no individual could benefit by savingmore buffalo--someone else could easily go afterany buffalo an individual refrained from killing.Had the buffalo been owned, it would havebeen in the interest of the owner to assure thatenough buffalo remained to reproduce for thefuture. While ownership of the buffalo was notpractical then, Gwartney and Stroup point out

40 THE FREEMAN. JANUARY 1989that other Indians successfully turned to a systemof private rights to protect other animalssuch as beaver, which did not have the nomadiccharacteristics of Plains buffalo.Of course, common ownership does not alwayspose an environmental problem. At earlierperiods of human history, when human beingswere scarce, grazing land could be held in common.However, even with extremely low levelsofpopulation, people could barely subsist on it!Similarly, as long as Indians didn't have horsesor weapons such as guns, they couldn't threatenthe buffalo. But the Indian standard of livingwas extremely low and their population sparse.Once people got beyond a primitive standard ofliving, common property became a seriousproblem, one that private ownership corrected.Private property assures accountability. Aperson who owns property will reap the rewardsof good stewardship and bear the consequencesof poor stewardship. The owner who lets hisland erode pays the price because the value ofthat land sinks as soon as the erosion becomesvisible. The owner who protects the land enhanc~sor sustains its value. In general, privateproperty makes good stewardship pay.When property rights are insecure or incomplete,so that someone else bears the costs orreaps the rewards, accountability is missing.That is the case with the Amazon rain-forest.In Brazil, government policies are encouragingdeforestation of the rain-forest through subsidiesand tax credits. The biggest effect is thatowners of land are reaping the rewards of ownershipwithout paying the costs, and thus areencouraged to act irresponsibly. A study by TheWorld Resources Institute (by no means a groupcommitted to private property) concludes thatcattle ranching and settlements by small farmersare the major factors behind deforestation. Bothof those activities are heavily subsidized by thegovernment. Author Robert Repetto says thatthe subsidies encourage the livestock industryto cut down trees to promote pastureland andencourage settlers to tum forests into farmland.(In addition, the government subsidizes the forestproducts industry.) "By supplying virtually- free money, the federal government invited investorsto acquire and clear large tracts of forestedlands," says Repetto.Under a system of true private ownership,where owners were required to pay the full costof their activities, the Amazon forest would befar more likely to be preserved. Yes, treecuttingwould occur, but not on today's scale.With so much forested land, some conversionof trees to pasture does not pose an environmentalproblem; some land undoubtedly will bemore productive as pasture. However, wherecutting is excessively costly, owners would refrainfrom cutting trees. In the U.S. , recent economicresearch has shown that contrary to receivedwisdom, cutting down forests in theMidwest during the 19th century was not waste-_ful. The trees were simply quite valuable whencut; to keep them standing longer would havebeen costly to society.Furthermore, in a system of private property,individuals who believe that the forests will bevaluable in the future have a strong incentive toprotect them. Some might be speculators whobelieve that the value of endangered species inthe future will outweigh the current cost of preservingthe land from cultivation. Under thepresent scheme in Brazil, the cost of preservationis high because taxpayers are subsidizingso many of the costs of devastation.Others who would preserve the rain-forest ina private property system are likely to be privategroups and individuals concerned about ecologicalbalance. In fact, today, non-profit organiz~tionssuch as the World Wildlife Fund andThe Nature Conservancy are taking steps tosave tropical forestlands in Latin America.(Since they have to work with governments,however, they face a number ofdifficulties theyprobably wouldn't face if the land were privatelycontrolled.)In conclusion, what causes environmentaldestruction is the lack ofprivate property rights,when resources are owned in common or by thegovernment. Strengthening private propertyrights will improve the chances for wildlife andforests.DJohn Hospers replies:Jane Shaw seems to assume that my quarrelis with private property. But it is not:the deforestation of the Amazon basinwould be an ecological tragedy regardless of bywhom or under what auspices it is done,whether by private owners, communal owners,or government owners. If Brazil had a Home-

PRIVATE PROPERTY AND THE ENVIRONMENT 41stead Act similar to that of the U. S.A. in thenineteenth century, and the new owners destroyedthe forests, the result would be the sameas it now is under a government program ofresettlement. It is what is done that portendsdisaster, not by whom it is done.But, one may say, ecological damage is farless likely to occur if property is in privatehands. Probably so: government programs areusually wasteful and counterproductive, andtake little thought for the environment, a matterwhich is not usually very high on politicians'list of priorities. Still, this issue is something ofa "mixed bag. " Sometimes it happens the otherway round: in a safari through the Okavangabasin in Botswana I found (and all safari guidesconfirmed this) that lions, leopards, giraffes,zebras, and antelopes continued to exist at allonly in those large areas designated by theBotswana government as national parks. In theareas owned by the native tribes themselves,there was not a single bit ofgame to be foundallthe animals had long since been slaughteredby the natives. The same is true in India andelsewhere, where hungry people do what theycan to eat today, with not much thought fortomorrow.Under private ownership, Botswanans arenow growing cattle, ecological intruders which(because oftheir form ofgrazing, the protectionthey need against the tsetse fly-to which all thenative animals are immune-and the constructionoffences, making it impossible for the wildgame to reach the rivers) after a time destroy thehabitat of the native animals. The native animalscan no longer roam free to find food andwater. Private ownership has sealed the doomof most African wildlife.You can, indeed, preserve some species ofplant or animal by owning a tract of land andgrowing the plant or animal on it. But this won'tdo in the case of migratory animals whose primaryneed is to roam, and who would be shotdown the moment they crossed the boundariesinto someone else's land. And it would hardlyapply at all to birds, which fly over people'slands. You can raise condors on your ranch, butunless there are strictly enforced conservationlaws the birds will be shot down by the ownersof other land who have no soft spot in theirhearts for condors."Individuals who believe that the forests willbe valuable in the future have a strong incentiveto protect them," writes Ms. Shaw. (1 ) Yes,and not to protect them if for one reason oranother they do not believe this. (2) Or theymay believe it but not act on it-perhaps theywant quick profits now; there are, surely, peoplewho care less about their children andgrandchildren than they care about themselves.(3) Or, like the Botswanan cattle-growers, theymay not have the luxury of thinking all thatmuch about tomorrow, because they desperatelyneed the game today, just to survive at all.The point I was making in the essay was thatvast ecological damage has been and is beingdone through the misuse of land in one part ofthe world, which affects soil and weather patternsin other parts ofthe world-that the fate ofthese parts is interdependent. (See my paper,"Ecology and Freedom," in the September1988 issue of Liberty.)Thus, the main problem is not whether youmake wise use of your own land for the sake ofyour own future and that of your children; theecological problem I was trying to dramatizeoccurs when the use of your land may havecatastrophic effects on the use by others of theirlands, which may be many thousands of milesaway. How does one provide a motivation fortaking care of your own land, not in order topreserve your land but to preserve that of oth­~? D

42A REVIEWER'SNOTEBOOKBasic EconolDicsby John ChamberlainIf there is a puzzle to Clarence Carson'sBasic Economics (American TextbookCommittee, P.O. Box 8, Wadley, Alabama36276, 390 pp., $12.00 paperback), it is thatthe author skips about when visualizing his audience.Much of the book is addressed to studentswho have barely learned in high school orfreshman year in college to parrot phrases aboutsupply and demand. But nothing remains simplefor long in Carson's expositions. The bookabounds in scores in qualifying distinctions.First, as an Austrian economist who believesthat individual choices are unpredictable, Carsonrejects the idea that mathematical certaintyin economics is possible. Statistics tell you whathappened yesterday. "All attempts to reducethe complexity of what occurs in the market andthe diversity of human motives in acting in themarket to some one explanation or to mathematicalprecision must ultimately fail . . . ,"says Carson. Still, Carson believes there areeconomic principles. Men have natures, and naturesmay be studied with an eye to determininglikely uniformities.One of the uniformities of behavior is thatmen try to establish their own monopolies."The most basic of all monopolies," says Carson,"is the exclusive right of free men to disposeof their services. Indeed, it is the specificdifference between freedom and slavery. It is anatural right, hence a natural monopoly, in thatthe individual is the only one who can direct theconstructive use of his services." Land, ofcourse, is a monopoly of its owner. So areshares in corporations, copyrights, patents, automobiles,and currencies.But, having established these points, Carsonfinds himself in semantic trouble. Most of ourhistoric debate about monopoly has not beencast in these terms. Carson has already said thatone of the definitions of monopoly is the grantby government of an exclusive privilege tocarry on the traffic in some good or service.Force enters the picture here. If an individualshould attempt to deliver a first-class letter, hemight find himself under arrest. When government,with its monopoly of legal force, intrudesinto the market, "it tends to bring habits formedin another arena with it."The Sherman Antitrust Act quickly becameunenforceable because no one could be sure ofwhat it meant. The Clayton Act, which supposedlyexempted labor organizations from theprovisions of the antitrust laws, declared thatlabor is not a commodity. But labor is nonethelessbought and sold in the marketplace. Congress,in its attempt to help the unions, was, soCarson writes, "caught once again in the illogicof trying to prevent what does not so clearlyexist, i.e., private monopolies, and doing it byhampering competition." The National LaborRelations Board, as the constituted clarifier,was supposed to bring order out of chaos byinsisting on bargaining in good faith. Alas, thephrase "good faith" eludes easy quantification.Land, labor, and capital are correctly acceptedby Carson as the basic factors of production.They are all scarce to varying extents. It is

43Basic Economics by Clarence Carson isavailable at $12.00 paperback from TheFoundation for Economic Education,Irvington-on-Hudson, NY 10533.when one turns them into "isms" that semantictroubles begin. Landism was particularly importantin the Middle Ages, when feudal overlordskept their serfs from moving about. Buttownspersisted, often on old Roman and Greeksites, so there were avenues ofescape from serfdom.The Black Death gave laborism its bigopening. But labor needed tools. Its guilds triedto monopolize tools. But fluidity had come tostay in Western economic systems. The capitalist,in his first guise as a mercantilist, had arrivedwith the eighteenth century.Karl Marx is described by Carson as a"cosmic thief." He advocated stealing both theland and all important tools from their owners,his justification being that all property is theftanyway. But the cosmic thief was deficient as acosmic thinker, as were Lenin, Trotsky, andStalin after him. The Russian peasants thoughtthey were going back to a peasant-owned landism.Bolshevik Party members, with their unionadherents, thought the new day would be one oflaborism. They were all fooled. What happenedwas that capitalism, in the form of state capitalism,took over in the developed or developingparts of the world.It is at this point that Carson falls back on hisremarkable descriptive powers. The last part ofhis book goes into detail to explain the variousformulations of mercantilism (in which the newnation-states vied with each other to comer goldand silver) and the big breakout in AdamSmith's Britain when mercantilism gave way tofree trade. With the lowering of tariffs and therepeal of the Com Laws, Britain became, forthe nineteenth century, the workshop of theworld. Carson goes to T. S. Ashton, amongother historians, for his knowledge of the"workshop" period. The tremendous growth ofpopulation in Britain during the Industrial Revolutionis explained by the "substitution ofwheat for inferior cereals . . . the use of brickinstead of timber in the walls. . . ." There wasmore soap and cheap cotton underwear. The"larger towns were paved, drained and suppliedwith running water. . . ." Many morepeople were surviving birth and childhood diseases.From England Carson moves on to America,where the British experience was repeated at amuch faster tempo. Carson includes a look atSweden, where capitalism fuels the welfarestate, which "keeps the cow fat in order to increasethe amount of milk it can get from it. " Ageneral description of welfarism throughout theWest, and a scathing chapter on Communism asa centrally planned economy, conclude a bookwhose biggest audience may want to tackle it atthe end before going to its beginning. DIN PURSUIT OF HAPPINESS ANDGOOD GOVERNMENTby Charles MurraySimon and Schuster, 1230 Avenue of the Americas, New York,NY 10020· 1988 • 301 pages • $17.95 clothReviewed by Joan Kennedy TaylorThe 1988 national election campaign offereda contest over whether Republicansor Democrats could create moreand better social programs to help the family,educate and care for children, and above all,alleviate poverty. ' 'Poverty," writes CharlesMurray, "has in recent years been to policyanalysts what damnation is to a Baptistpreacher. . . . It is the generic stand-in for thesocial problems of our age. Solve the riddle ofpoverty, we have often seemed to hope, and therest of our problems will solve themselves."Murray's first successful book, LosingGround, argued persuasively the now widelyaccepted thesis that poverty programs are partof the problem rather than the solution. Now, inthis new book, he suggests that, in an evenwider sense (no matter what the politicians say)the failure of social policy is not a failure ofcompassion or human feeling-it is a failure toconnect cause and effect; a failure to have realizablegoals and standards; a failure to see thatall policies have unintended outcomes, but that

44 THE FREEMAN. JANUARY 1989those unintended outcomes can be positiverather than negative, if they are policies thatrestrain government and maximize individualchoice.Adam Smith, Bastiat, Mises, Hayek, andMilton Friedman have explained unintendedoutcomes in economics. Now, Charles Murraydetails for us how both the invisible hand andthe invisible foot work in that vast spider web ofregulation, redistribution, and indoctrinationthat we call "social policy" today--coming tomany of the same conclusions as these freedomphilosophers, although his argument doesn'tbuild on theirs."First, I will associate myself with a particularset of views," he says bluntly. "Reducedto their essentials, these views are that man actingin his private capacity-if restrained fromthe use afforce-is resourceful and benign, fulfillinghis proper destiny; while man acting as apublic and political creature is resourceful anddangerous, inherently destructive of the rightsand freedoms of his fellowmen. I will explainthese views using the language and logic of theAmerican Founding Fathers. Next, I will suggestthat if one accepts that set ofviews of man,the way we assess social policy is pushed incertain directions. ' ,He starts this book by asking, "What constitutessuccess in social policy?" and goes on:,'For most of America's history, this was not aquestion that needed asking because there wasno such thing as a 'social policy' to succeed orfail. . . . As late as the 1930s, there was still nofederal 'policy' worthy ofthe label affecting thefamily, for example, or education, or religion,or voluntary associations."Murray finds complex answers to his questionby going back to the beginning, to the DeclarationofIndependence, and re-examining thatlittle-understood phrase, "the pursuit ofhappiness." He starts by asking, "What ishappiness?' ,There is a long philosophical tradition, orrather, there are two long philosophical traditionsthat assumed the question could be answereddefinitively and attempted to do so. Thefirst stemmed from Aristotle, focused on thenature of the good life, and attempted to defineand rank all aspects of happiness. The second,which arose in the eighteenth century, stressedindividual psychological satisfaction, but bothtraditions agreed substantially on how menshould pursue happiness--develop those talentsyou have, do your job well, raise a family, contributeto the community---even though theydisagreed profoundly on such issues as whetheror not an outsider could rank "happiness" forothers."It was not until the twentieth century, " saysMurray, "that social science dispensed with theintellectual content of both traditions and beganto define happiness by the response to questionnaireitems. " Despite this refreshing irreverence,he proceeds to examine more modem approachesto the question also, and summarizes awealth of argument, experiment, and data collectedby contemporary social scientists, toshow that there is hard evidence out there thatthere are objective criteria for the pursuit ofhappiness.Government, he says, can provide the "enablingconditions" for this pursuit, a frameworkthat has little or nothing to do with thedistribution of material resources other than toprotect a functioning market economy. Thewrongheaded focus on poverty has obscured theimportance of such things as safety from criminals,dignity and self-respect (Murray presentspersuasive evidence that self-respect cannot befaked, but results from the successful responseto challenge), and finally, the possibility ofself-actualization.Happiness, of course, pertains to individuals-groups,whether united by class, race,creed, or special interest cannot properly besaid to be happy. So taking the pursuit of happinessseriously as a standard exposes as meaninglessall the aggregate statistics that socialpolicy analysis relies on, statistics showing thata particular policy creates so many jobs, orsaves so many lives, or raises so many incomelevels. Murray hopes to tum the whole field ofsocial policy analysis on its head, by persuadinganalysts that they should ask instead, what effectwill this social policy have on the happiness(properly understood) of the individuals affectedby it?By this standard, our social policies arefound sadly wanting. The training program thatproduces such hopeful aggregate statistics isfound overwhelmingly more likely to teach any

OTHER BOOKS 45individual in it that he cannot succeed-onlyone in 25 trainees actually finds a job. Thespeed limit that "saves thousands of lives" is,on examination, only infinitesimally raising thechances that anyone individual will escape anaccident caused by someone else, but it exacts ameasurable price in time and money from thatsame individual. And happiness, properlyunderstood, Murray shows, requires the opportunityto build a self-respect based on efficaciousindividual action and choice-but thoseare precisely what most social programs limit oreradicate.For all its theoretical bent In Pursuit is full offacts, findings in sociology and social psychology,summaries of the differing views of scholarsand thinkers, and hardheaded, real worldarguments, as well as wonderful "thoughtexperiments" on how associations (" littleplatoons") can take the place of governmentaction-how, for instance, people might jointogether to hire teachers to educate their children,or to limit the depredations of crime.This is a book to treasure for a number ofreasons. Primarily, it is a rare example of amodem liberal arguing himself into a classicalliberal stance. Never mind that in the beginningthe author seems to imply, for instance, thateveryone thinks that food stamps are good-themore you read, the more you will realize thatthis is a book written by someone who has beena professional policy analyst, for the policyanalysis community as well as the generalreader, using language and data that can reachthat community. Never mind that, like the patronsaint of this book, Thomas Jefferson, Murray'sstandard for the pursuit of happinessseems to leave room for some government rolein fields such as education. A book that beginswith the Declaration of Independence and endsby quoting Jefferson on the need for some formof severely limited government is a valuableweapon in the fight for freedom, especiallywhen it is by a fine and original mind whoseargument is a pleasure to follow. 0Joan Kennedy Taylor is a former ContributingEditor of The Freeman and the editor of theFEE anthology, Free Trade: The NecessaryFoundation for World Peace.PUBLIC CHOICE ANDCONSTITUTIONAL ECONOMICSedited by James D. Gwartney and Richard E.WagnerJAI Press, Inc., 55 Old Post Road, No.2, Greenwich, Connecticut06830· 1988 • 422 pages, $56.50 (Available at $29.95 fromLaissez Faire Books, Department F, 532 Broadway, New York,NY 10012-3956: Telephone: 212-925-8992)Reviewed by Robert W. McGeeThis book is a compilation of eighteen articleswritten by authors from slightlydifferent perspectives. There are essaysby James D. Gwartney and Richard E.Wagner, James Dorn, James M. Buchanan,Knut Wicksell, Gordon Tullock, Roger Pilon,Richard Epstein, Terry Anderson and P. J.Hill, Peter Bernholz and Malte Faber, GaleAnn Norton, Peter H. Aranson, ForrestMcDonald, Robert Bish, Robert Higgs, DwightR. Lee and Richard B. McKenzie. But unlikemost compilations, there are few gaps oroverlaps, and the authors are writing from acommon viewpoint-public choice, broadlydefined. They all agree that government hasoverstepped its bounds. Their discussions rangefrom how things got out of hand to how we canget back on course.The first two chapters provide an especiallygood backdrop for those who are new to pU~licchoice theory. Gwartney and Wagner do a fInejob of outlining public choice theory in nontechnicallanguage. Over the last 200 years, theConstitution has protected political rights fairlywell, but economic rights have been seriouslyeroded. Politicians act in their own interestsrather than those of their constituents. Voterschoose candidates who promise them the most.The result is that democracy takes from the majority,whose power is dispersed, and gives toconcentrated special interest groups. A fewpeople benefit a lot, while every~ne else ha.s topay just a little bit. But the effect IS cumulatIve.Everyone is trying to live at the expense of ~veryoneelse. As the eighteenth-century ScottIshhistorian Alexander Tytler said:A democracy cannot exist as a permanentform of government. It can only exist until amajority of voters discover that they can vote

46 THE FREEMAN. JANUARY 1989themselves largess out of the public treasury.From that moment on, the majority alwaysvotes for the candidate who promises themthe most benefits from the public treasury,with the result being that democracy alwayscollapses over a loose fiscal policy.While government is not supposed to takeproperty for public use without just compensation,it now "takes" as a matter of course, forboth public and private use, seldom thinking ofcompensating the individuals whose propertyhas been taken. Rent control laws are but oneof many examples given. One of the most outrageousinstances is the 1984 Supreme Courtcase of Hawaii Housing Authority v. Midkiff,wherein the court permitted the State of Hawaiito use eminent domain to take land and apartmentsfrom their owners and sell them to theprevious tenants. This action not only was ataking, but a taking for private rather thanpublic use. Yet the action was declared constitutional,even though the Constitution grantsauthority to government to take only for"public" use. The definition of "public" hasbecome so twisted over the years that it hascome to the point where just about anythinggovernment does is for the "public."Federal spending is supposedly limited tocommon defense and the "general welfare."Yet many Federal expenditures go to benefitvery small groups, such as sugar farmers,artists at state universities, or any other groupthat can line up at the Federal trough. But governmentcontrol over our lives isn't limited togovernment spending. Government can takeour tax dollars and give them to others, althoughtax rates can be raised only to a certainpoint without generating a backlash. Ourelected representatives get around this by regulatingbusinesses and forcing them to pay forthings that otherwise would be paid for with taxdollars.Other constitutional protections of economicrights have been seriously eroded over theyears. The contract clause has withered anddied on the vine. Parties no longer can enterinto a contract without worrying about violatinga minimum wage law, antitrust law, civil rightslaw, labor law, or numerous other statutes andregulations. The equal protection clause hasbeen massaged to the point where it now meanswhatever the court says it means. None of theclauses in the Constitution still can be taken atface value. To learn what each sentence means,we now must look to case law rather than theoriginal wording. It is almost as though theConstitution is void where prohibited by law.Government is no longer restrained by thechains of the Constitution. The only limits arethose in the eyes of our elected and unelectedofficials. People are now using government todo what they would be prohibited from doingas private citizens.How did we get into this position? Several ofthe authors provide answers. As I read eachchapter I could see a multi-layered mosaicbeing woven before my eyes that, on thewhole, gives a good, detailed, and scholarlyexplanation. One of the most interesting interpretationsis given by Robert Higgs. Governmentpower (and abuse of individual rights) expandsduring times of crisis, and never fully retreatsafter the crisis has passed. Our variouswars, as well as the Great Depression, havegiven rise to new governmental powers. Overthe centuries, the power of government has expandedto the point where it now permeatesevery aspect of our lives.How can we get out of this mess? Higgs isnot optimistic. Electing better public officials isnot enough. Neither is appointing better judges.Things will start to tum around when publicsentiment demands that things be turnedaround. In the words of Abraham Lincoln,"With public sentiment nothing can fail;without it, nothing can succeed. Consequently,he who molds public sentiment goes deeperthan he who enacts statutes or pronounces decisions.".This book is one of the better ones on publicchoice theory. Its scholarly approach, detailedfootnotes, and case, name, and topical indexesprovide a wealth of references for furtherstudy. The fact that it was written by numerousauthors does not detract much from the unity ofthe presentation because the editors did a goodjob in selecting the articles to be included. DProfessor McGee, who holds doctorates in bothaccounting and law, teaches accounting at SetonHall University.

OTHER BOOKS 47THE PRESENT AGE: PROGRESS ANDANARCHY IN MODERN AMERICAby. Robert NisbetHarper & Row, Keystone Industrial Park, Scranton, PA 18512·1988 • 145 pp. • $17.95 cloth.Reviewed by Richard M. EbelingRobert Nisbet is one of the most respectedsociologists in America. Hisworks, The Sociological Tradition andSociology as an Art Form, have long been classicsin the field. Professor Nisbet also stands outbecause, unlike many in his discipline, he isneither a socialist nor a welfare statist. He viewshimself in the tradition of Edmund Burke andAlexis de Tocqueville, and espouses a conservatismthat blends a deep respect for spontaneoussocial order and cultural tradition with astrong belief in the dignity and autonomy of theindividual. This blending makes Professor Nisbeta powerful and eloquent defender of the freesociety and individual liberty. Two of his bestworks in this defense are The Twilight of Authority(1975) and Conservatism (1986).In his latest book, The Present Age: Progressand Anarchy in Modern America, ProfessorNisbet takes critical stock of the political, economic,and cultural status of the United States200 years after the founding of the Republic.He argues that a fundamental break occurredin American history with the entrance of theUnited States into the First World War in 1917.Prior to that, he explains, America was a land oflimited government with a small Federal presence.Americans believed in and practiced politicaland economic liberty. The U. S. had a"small town" orientation in which the individualsaw himself primarily as a member of alocal community to which he gave his allegianceand from which he received supportthrough a variety of voluntary, religious, andtraditional associations.This environment (and the social psychologythat went with it) was shattered by America'sentry into the war. Woodrow Wilson's idealwas of a "national community" that would beguided by strong governmental leadership emanatingfrom Washington and manned by a newintellectual elite that would regulate and moldeconomic and cultural affairs. The goal was thecreation of a new state-managed society for ahigher "moral good."Seventy years later, Professor Nisbet says,the United States has become a moralizingworld policeman, a vast bureaucratic state inwhich government intrudes into practically everycomer ofour economic and personal affairs,and a culturally bankrupt society in which pursuitof short-run monetary rewards has increasinglyreplaced loyalty and fidelity to all ethicalstandards in personal and social conduct.Since Wilson's crusade to "Make the WorldSafe for Democracy," Professor Nisbet insists,America has been armed with the vision that ithas a duty not only to offer a moral example tothe world, but also to take upon itself the responsibilityactively to intervene in the affairsof other nations to "teach them" good government.This policy has bred a vast military establishment,fostered an often-corrupting symbioticrelationship between the Pentagon andsizable segments of the business community,and produced disastrous outcomes in foreignpolicy. (As an example, Professor Nisbet discussesFranklin Roosevelt's naive fawning overStalin at the Tehran and Yalta Conferences, allin the name of getting "Uncle Joe" on "ourside" in making a better and more moral postwarworld.)Domestically, the emergence of a statemanaged''nationalcommunity" has politicizedevery facet of economic and social life. WhileAmericans constantly complain about the burdenand irritations of the new bureaucratic state,practically everyone wants to see it expand-inthe direction that materially benefits them. ProfessorNisbet explains that this has arisen froma subtle shift in the meaning of freedom. As heexpresses it, freedom no longer means "autonomyfrom power but participation inpower. " In the new lexicon, a free society isone in which each individual has an equal opportunityto plunder all the others.But it is in the social and cultural realm thatProfessor Nisbet sees the worst effects of thenew America that has grown up since 1917.The omnipresent state has created "the looseindividual. " It has intruded upon, disrupted,and, in many instances, fostered the demise ofthe cultural webs of spontaneous social order

48 THE FREEMAN. JANUARY 1989and stability. In so doing, the bureaucratic statehas severed both individuals and groups fromthe traditional networks of family, community,and religion that have historically taught, reinforced,and protected the ethical and social valuesessential for a sound, healthy, and growingsociety. Today the individual has fewer andfewer attachments to these traditional institutions.The individual has been increasingly,'atomized" as the State has destroyed or weakenedthe intermediary social institutions thathistorically separated and protected him frompolitical authority. Man in modem Americansociety has lost an Archimedean point to standon outside of himself. Hence, modem man collapsesinto an unending introspection abouthimself and how he "feels" about things, withnothing greater or more worthy outside· himselfto which he should aspire. His values have beenreduced to a narrow "cash nexus" and the pleasuresmoney can buy.The critical reader can find many points uponwhich to disagree with either the emphasis orthe argument in Professor Nisbet's analysis. Forexample, his conception of the "cash nexus" ina market economy ignores the positive role theanonymity of money transactions has played inenhancing and protecting individual liberty andfreedom of choice. His conception of the workingsof trading deals, and corporate takeovers infinancial markets, likewise, suffers from a fundamentalmisunderstanding of how a· competitivemarket establishes avenues for shifting controlof capital resources to more competenthands.But it is the general focus and orientation thatmake Professor Nisbet's reflections an insightfulcontribution to our understanding of latetwentieth-century America. The America of the1980s would have been radically different fromthe America of 1917 even without two WorldWars and the introduction of the Welfare State.What Professor Nisbet shows is that many ofthe most repellant features ofthe present age arethe unintended consequences of the plans ofthose in the political arena who wished to implementan American "new order" at home andabroad. The question now is, how do we undowhat has been done? 0Professor Ebeling holds the Ludwig von MisesChair in Economics at Hillsdale College.r\e"'\Basic Economics by Clarence B. Carson"Economics does not ... attempt to answer thequestion of why things are the way that they are. Itdoes, however, give help in answering a wholerange of other questions. It deals with an essentialand pressing aspect of life. Its subject matter is theproduction and distribution of goods and all that isentailed in it. Economics deals with such questionsas who gets what, with how prices are determined,with the operation of production, and evenwhy goods are goods. Since this is its field, it alsotreats of many matters that have to do with publicpolicy. Indeed, no single subject appears to occupymore attention in the issues that arise in thiscentury than economic questions."Order from:-CLARENCE B. CARSONBasic EconomicsThe Foundation for Economic Educationbvington-on-Hudson, New York 10533Basic Economics, unlike most present-daybooks on economic principles, is written in theAnglo-American and natural law tradition-a traditionwhich provided the foundations for theUnited States Constitution, which provided thepremises for full-fledged private property, free enterprise,free trade, and individual responsibility.paperback $12.00(The cloth edition of Basic Economics is available@ $24.95 from the publisher, The American TextbookCommittee, P.O. Box 8, Wadley, Alabama36276.)

THEFREEIDEAS ON LIBERTY52 Lessons in a SupermarketJohn A. Baden and Ramona Marotz-BadenVoluntary transactions lead to peaceful interaction.54 Growth Controls and Individual LibertiesJonathan Sandy and Dirk YandellThe personal and economic costs of government control of private property.57 Why Is There a Drug Problem?George C. LeefSeeking answers to a complex question.60 "What Do You Want to Be?"Margaret BidinottoEncouraging children to make choices.62 Responding to the Oil Shock: The U.S. Economy Since 1973Rodolfo Alejo Gonzalez and Roger Nils FolsomRational and nonrational responses to the energy "crisis."66 The Entrenchment of the StateMatthew HoffmanWhy has no major Communist government ever been overthrown from within?69 Blockading OurselvesCecil E. Bohanon and T. Norman Van CottWhat th~ blockade of Confederate ports teaches about protectionism.71 Popper, Hayek, and Classical LiberalismJeremy ShearmurWhich form of social organization would best enable us to learn from our mistakes?74 Islamic Capitalism: The Turkish BoomNick ElliottIndividual effort points the way to a prosperous future.76 Markets and MoralityPeter J. HillThe moral advantages of a social system that holds individuals accountable for theiractions.80 Taxation Versus EfficiencyRichard JonesHow taxation discourages the advantages of specialization.82 Myths of the Rich ManJoseph S. FuldaThe market process assures us that society will never be at the mercy of onemalevolent monopolist.84 Book ReviewsThe second volume in The Life ofHerbert Hoover by George Nash. Equity andGender by Ellen Frankel Paul. The Theory ofFree Banking: Money Supply UnderCompetitive Note Issue by George A. Selgin.CONTENTSFEBRUARY1989VOL. 39NO.2

THEFREEMANIDEAS ON LIBERTYPERSPECTIVEPublished byThe Foundation for Economic EducationIrvington-on-Hudson, NY 10533President ofthe Board: Bruce M. EvansVice-President:Senior Editors:Contributing Editors:Robert G. AndersonBeth A. HoffmanBrian SummersBettina Bien GreavesCarlO. Helstrom, IIIJacob G. HornbergerEdmund A. OpitzPaul L. PoirotThe Freeman is the monthly publication of TheFoundation for Economic Education, Inc.,Irvington-on-Hudson, NY 10533 (914) 591­7230. FEE, founded in 1946 by Leonard E.Read, is a nonpolitical educational champion ofprivate property, the free market, and limitedgovernment. FEE is classified as a 26 USC 501(c) (3) tax-exempt organization. Other officersof FEE's Board of Trustees are: Thomas C.Stevens, chairman; Ridgway K. Foley, Jr., vicechairman;Paul L. Poirot, secretary; H.F.Langenberg, treasurer.The costs of Foundation projects and servicesare met through donations. Donations are invitedin any amount. Subscriptions to The Freemanare available to any interested person in theUnited States for the asking. Additional singlecopies $1.00; 10 or more, 50 cents each. Forforeign delivery, a donation of $15.00 a year isrequired to cover direct mailing costs.Copyright © 1989 by the Foundation forEconomic Education, Inc. Printed in U.S.A.Permission is granted to reprint any article inthis issue, provided appropriate credit is givenand two copies of the reprinted material are sentto The Foundation.Bound volumes of The Freeman are availablefrom The Foundation for calendar years 1969 todate. Earlier volumes as well as current issuesare available on microfilm from UniversityMicrofilms, 300 North Zeeb Road, Ann Arbor,MI48106.The Freeman considers unsolicited editorialsubmissions, but they must be accompanied by astamped, self-addressed· envelope. Our author'sguide is available on request.Justice and CharityWhat is justice? The first thing to rememberis that justice is blind. We have been trying totell people that for a great many centuries.There leaps to mind the famous statue ofJusticewith scales held high and sword in hand, andblindfold over the eyes. Justice does not discriminate.It does not see whether one is ofhighor low class, rich or poor, black or white, workingor not working. It does not see one's nationalorigin. It does not detect one's religion. Ittreats all men alike and all men equally. That isthe essence of justice. The statue would alsoremind us by the sword that it is enforced by thecoercive power of the state. The principal businessof the state, of law and of government, isthe enforcement ofjustice, the protecting of therights of all people equally.On the other hand, charity is not based oncoercion, nor is it blind. Charity is discriminatingand voluntary. If you remove the voluntaryaspect of charity, it ceases to be charity. Whatwould you think if, after Robin Hood hadplaced his sword at the throat of some rich manand deprived him of his purse and scattered hiscoins to the poor, that rich man told his friendshow charitable he had been to the poor? Therewas no charity in what happened on the richman's part-not a penny's worth! If you takeaway the voluntary aspect of charity, it becomesdespoliation. It is legal plunder. It is robbery,not charity. Confusing justice and charityhas produced something called "socialjustice," the basis for the welfare state. Socialjustice is having a tremendous negative impactupon the economic well-being of this country.You cannot have charity or justice when youforcibly take money from A and give it to B.You have not charity because it was not freelywilled. You have not justice because you arenot treating A and B alike but are taking fromone and giving to the other. The rights of eachhave not been protected, but stripped.-excerpted from "The Bible andEconomics, " a sermon by Dr. D. JamesKennedy, Coral Ridge Ministries

PERSPECTIVEThe Decline ofMoral ConsciousnessThe great tragedy of the welfare state hasbeen the decline of moral consciousness amongthe. American people in the twentieth century.The use of the political process to provide special,privileged benefits to certain classes ofpeople is now considered to be as American asapple pie. The common belief is that since thewelfare system is now an ingrained part ofAmerican life, people should simply accept itslegitimacy and direct their efforts to making thesystem function more efficiently.This degeneration in moral consciousnesscan be found even in some of the most freemarketoriented people in the country. I recentlyattended a conference whose purposewas to promote an improved understanding ofthe free enterprise system. One keynote speakerat the conference·proudly attributed his businesssuccess to a Small Business Administrationloan. Another keynote speaker called for acloser partnership in business development betweenbusinessmen and politicians.Neither speaker even remotely suggested thatthe use of the political process to feather a person'snest is morally wrong. Equally tragic, thetalks appeared to be well-received by the audiences,almost as if the listeners were comfortedby this "practical approach" to free enterprise.We should never be ashamed or embarrassedto speak out against the immoral actions of ourown government. How else can we hope toeradicate the evil which pervades the entire politicalsystem? To remain silent in the face ofwrongdoing not only constitutes cowardice, italso is an implied acceptance of enshrined politicalimmorality.The only legitimate functions of law are theprotection of life, liberty, and property and thepreservation of peace. We have permitted thepoliticians to pervert law by using it to directlives, limit liberty, and plunder property. Theresult is not peace but rather perpetual conflictover the distribution of the loot. It is time toeliminate, not reduce or make more efficient,government welfare, social security, foodstamps, loan guaranties, subsidies, licenses,import restrictions, educational grants, and allother means by which some people use the politicalprocess to gain at the expense of others.Only by standing firm against the immoralnature of the welfare state can we hope to raisethe moral consciousness of our fellow citizens.-JACOB G. HORNBERGERThe Insanity of InflationSanity consists in limitation; the inordinate isalways insane and always ends in destruction.Because inflation is indeed inordinate, it too hasa certain insanity about it and naturally it tendsto end in an explosion of destruction, a nihilistact with money. The insanity of inflation leavesa mark of insanity on society; it changes a goodsociety into one which, so long as inflationlasts, is wholly and fraudulently unjust. All evilis a breach of order, but only some evil is abreach of order with unlimited effect; inflationis an unlimited monetary and economic evil.-WILLIAM REES-MOGGThe Reigning ErrorReader's Digest ReprintsFree Trade Article"The Political Economy of Protectionism,"by Thomas J. DiLorenzo, has been reprinted inthe February 1989 Reader's Digest. This articleoriginally appeared in the July 1988 issue ofThe Freeman.We have extra copies ofthe Digest version ofProfessor DiLorenzo's article. Please write toFEE, stating the quantity you'd like.

52THEFREEMANIDEAS ON LIBERTYLessons ina Supermarketby John A. Baden and Ramona Marotz-BadenBozeman, Montana, a town with 30,000people, contains a modest supermarketthat offers valuable lessons. This storehas tens of thousands of items of various sizesand brands, generic labels, and bulk products.Competition for the consumer's dollar occursamong this and other stores, among brandswithin the store, and among different productswithin individual brands.Information regarding consumer preferencestoward items in this huge mix of products iscontinuously generated by a simple procedure.People make decisions, a process with whichwe are all familiar. Consumers take their selectionof products to the check-out line. There,check-out clerks tally the price and automaticallyenter information about the sale on thestore's computer by passing the product's barcode across a scanner.Among the stores in Bozeman, as elsewhere,the shopkeepers compete in offering differingmixes of service and economy. Even the checkoutlines vary in lengths and the degree of service.Each self-interested grocer seeks to attractand satisfy consumers holding varying degreesof wealth, economic sophistication, nutritionalknowledge, and body-type preference associatedwith differing food groups.Competition responds to differing consumerpreferences for health, economy, convenience,and vanity. In these stores we see people asDr. John Baden is Chairman of the Foundation for Researchon Economics and the Environment (FREE), withoffices in Dallas, Texas, and Bozeman, Montana. Dr. RamonaMarotz-Baden is a Senior Associate ofFREE and aProfessor at Montana State University.diverse as ranchers who survived the dust bowlsof the 1930s, refugees of the counterculture ofthe 1960s who look like they are in a time warp,Park City blondes from Dallas summering atBig Sky, and neo-Spartan hedonists of all ageswho bounce among Montana's ski slopes,white-water rivers, and mountain trails. Wefind them all in Albertson's at the UniversityMall.Individuals representing all of these diversetypes shop cheek to jowl, sample ice cream andfajita strips in the aisles, and peacefully shufflethrough the check-out lines at the supermarketlocated between the Bonanza Steak House andYogi's Vegetarian Bakery. The stores and supplierswho fail to satisfy are passed by in favorof those who offer more attractive products.This selection of winners is determined byvoluntary transactions. The losers graduallylose shelf space. Ultimately they either improvetheir products or lose out and pass from thescene. The consumer really is sovereign. Themarket registers his preferences and automaticallymakes the adjustments which harmoniouslyreconcile demand with supply.This process is quite remarkable. It demonstratesthat the market is best understood as asystem which organizes information with trulyamazing efficiency and effectiveness. At root,the market is a social arrangement which efficientlygenerates information about peoples'wants and reservations while providing incentivesto heed the preferences of others. It is asystem which economizes on the informationrequired to make rational decisions.

53({jf\fj)~/p;The recent well-intended but thoroughly patheticSoviet efforts at economic reform offer avaluable lesson. The Soviet Union's failing attemptsto mimic the market's ability to respondto consumers' wants demonstrate the importanceof allowing buyers and sellers to communicatefreely. They also teach us how difficult itis to coordinate economic activities when peopleare not allowed to communicate.Price controls prohibit buyers and sellersfrom communicating their true preferences withone another. Thus, price controls are best understoodas a form of censorship. Fortunately,they are rarely found in their worst form inAmerican supermarkets. That is why thesestores work so well.Despite their success in meeting citizens' demands,however, supermarkets are often criticized.Some people object to products with alack offiber, some to products with an excess ofsugar. Some oppose plastic packaging or advertisementsthat appeal to children.In this setting offered by a free and openmarket system, each can satisfy his wants withoutimposing his preferences on others. In thismanner, diversity, freedom of choice, and innovationsare all encouraged. In this imperfectworld, we can hardly ask for anything more.Yet, there is another huge advantage we normallytake entirely for granted.Surely the store in the mall provides a modelfor efficiently responding to diverse and rapidlychanging preferences. But this efficiency, marvelousthough it is, is only the minor miracle.The,benefits of harmonious interaction fosteredby market exchange in accordance with the ruleof willing consent are even greater.Market exchange, subject to willing participationby full-facultied individuals, permitspeople with radically differing views to peace-fully coexist. In Bozeman we find a substantialnumber of hard-core vegetarians. They canshop peacefully and amicably with rancher andlogger meat eaters who consume vegetablesonly as a concession to their health.Bozeman is also a national center for teetotalingSeventh-Day Adventists. The supermarketaccommodates their preference for nonalcoholicwine, and they shop harmoniously withthose whose nightly ritual includes a bottle ofFrench wine. This peaceful interaction occursonly because all transactions are voluntary.Imagine the uproar if the decisions to permit theselling of wine were determined in the politicalarena.Nearly all analysts who have seriously studiedthe free market agree that the market promotesefficiency, diversity, and innovationswhich respond to consumers' changing preferences.Few, however, appreciate the degree towhich private property rights and free exchangefoster harmony and peace. This set of socialarrangements renounces coercion as a meansfor making choices. These arrangements enablepeople who feel strongly about such issues asvegetarianism or prohibition to coexist constructivelywith people holding antitheticalVIews.This great benefit of market exchange is oftenneglected or underrated. Essentially, marketseconomize on that most scarce resource,love in the Christian sense of the term.What if the stocking of a grocery store weredetermined politically? Think of the fights betweenvegetarians and meat eaters; the teetotalersand those who enjoy wine with dinner; thegranola organics. who argue against pesticidesand the farmers who find chemicals useful; thepopulists who are strongly opposed to corporateagriculture and those with an interest in thesefirms; employed mothers who want the storesopen 24 hours a day, seven days a week, andthe fundamentalists who believe they should beclosed on Sunday.Fortunately, we have pretty much kept thesedecisions out of the, political arena. Peoplemake decisions and exercise their consciencesinstead of imposing their preferences by usingthe force of the state. Peace, progress, and efficiencyare the result we have learned to ex­~ct.D

54Growth Controls andIndividual Libertiesby Jonathan Sandy and Dirk·YandellAfundamental freedom in the UnitedStates is the ability to travel, and tomove and live wherever an individualfinds the greatest opportunities. However, thisfreedom is increasingly coming under attack.Although no policies exist that directly regulatemovement, more subtle restrictions are emerging.Potential entrants to many regions face limitsin the form of housing shortages broughtabout by residential growth controls.The argument in support of growth controlsis that rapid population growth reduces the,'quality of life" of existing residents. Membersof existing communities often fear change,and want to protect themselves from the risks ofnew development. New residents require newhomes that lead to changes in the character ofanexisting community. Growth control proponentsargue that unregulated growth is the causeof crowding at beaches, parks, and· public facilities.Unregulated growth is also blamed fortraffic congestion, reduced air and water quality,the loss of open space, and the destructionof the natural environment.The proposed solution is to place a moratoriumon residential building permits as thoughhouses were the fundamental cause of allgrowth-related problems. In extreme cases amunicipality may even set a legal populationlimit, forbidding entry by law. The shortcomingsand inefficiencies of such growth controlsare numerous.Professors Sandy and Yandell teach economics at theSchool of Business Administration, University of SanDiego.The fundamental flaw in the argument forgrowth control is the perception that housinggrowth causes a regional expansion. In fact, thereverse is true. A strong regional economy attractsnew residents. New homes are built bydevelopers in response to this increase in demand.Restrictions on building during an expansionwill result in a deliberate shortage ofhousing and will do nothing to solve regionalproblems.Policies that reduce the housing supply simplydo not address the quality of life concernsthat are purported to be the major issues.Growth controls are offered as a blanket solutionfor such diverse issues as traffic, inadequatesewage facilities, overcrowding of alltypes, the deterioration of air quality, and theloss ofopen spaces. In fact, growth controls canincrease all of these problems if developmentshifts out from the controlled area.Traffic provides a good illustration. Can anyonedeny that traffic congestion results from theimproper management of our highways? Ifroads were operated in private competitive markets,drivers would pay some price for the service.This price would reflect the demand forroad use so that it would be highest duringprime driving times. The prices would givedrivers and firms the incentive to spread drivingout across the day, reducing traffic congestion.Rather than focusing directly on the trafficproblem with incentives, however, many metropolitanareas are proposing growth controls asthe solution. When a city restricts housing developmentit causes. developers to build on un-

55regulated land on the urban fringe. New homebuyers have no choice but to move farther fromthe central business district. The result is longerdaily commutes and a loss of open space. Theintent is to reduce traffic. The result is just theopposite-more traffic and the attendant increasein air pollution.Controls Lead to Higher PricesOf course, growth controls have a more obviousconsequence: higher housing costs andrents. The more severe and broad the controls,the higher the prices. Building restrictions limitthe supply of homes without reducing demand,increasing competition for available houses.Higher prices reduce the ability of low- andmiddle-income families to afford a home. Rentersfind that rents rise as housing prices climb,and that a larger percent of income must be paidfor housing. It becomes more difficult for rentersto acquire a down payment, and upwardmobility suffers.Those who own more than one house, on theother hand, will gain. They will receive bothcapital gains and higher rental income fromtheir investment property. Those with only onehouse may gain depending on the details of thegrowth control policy. For example, many suchpolicies define environmentally sensitive areasas off-limits to future construction. Owning ahouse adjacent to such an area will result inabove-normal appreciation.For other families who own only one housethe net result of a growth control policy is notclear. There will be an increase in capital gains,but this may not translate to an increase in afamily's standard of living. All houses in theregion will increase in value, so capital gainswill always be tied up in housing, even if thefamily moves within the city. The only way tocash out the capital gains is to move out of theregion.Renters, who as a group contain a large proportionof poor, young, and minority families,clearly are made worse off, so growth controlpolicies are regressive. Further, these policiesare at least somewhat discriminatory given thedemographic characteristics of renters.It is ironic that growth controls are increasingin popularity when one considers that a majorgoal of all prosperous countries is to provideadequate and affordable housing for its citizens.A variety of policies have been enacted in theUnited States to support this goal. Housing subsidiesfor the poor and elderly, FHA and VAmortgage subsidy programs, and the tax deductibilityof mortgage interest are all designed topromote home ownership. Growth control policiesare in direct conflict with these goals,since they increase prices and preclude manyfrom home ownership and upward mobility.The state of housing in many socialist countriesis dismal. It is not unusual to wait fiveyears for the chance to rent a single room in agovernment housing project. Parents in manyEastern bloc nations will place the name of anewborn child on the official state housingwaiting list so that the child will have a chanceof obtaining a small apartment when he or shegrows up and marries. Housing is regulated bythe state, and families often must share smallunits in crowded housing complexes.Rent control serves as an analogy in theUnited States. Trying to rent in controlled areasis a difficult task. It inevitably includes longwaiting lists (and occasionally kickbacks orother non-price allocation methods). The controlledrent makes investment in apartments unattractive,so the quality and availability ofrental units decline. The lesson is obvious: controllinghousing markets yields serious and detrimentalconsequences.Despite this, housing markets in the U. S. arealready highly regulated. Zoning regulationsand building codes restrict the quantity andquality of housing. Environmental impact reportsand planning studies require years of reviewbefore some developments are authorized,and substantially increase the cost of building.Even so, the market has had some flexibility torespond to the demands of consumers about thetypes and locations of housing that are preferred.Willing buyers and sellers have beenallowed to make mutually beneficial exchanges.The result is an increase in freedomand well-being.Growth controls change all that. Developersare simply not allowed to respond to the desiresof consumers. Instead, local bureaucrats determineevery aspect of new developments, includingwho can build, what can be built, when

56 THE FREEMAN. FEBRUARY 1989it can be built, and what facilities must be includedin the development.Housing markets play a major role in theU.S. economy, and the past success of the U. S.housing market is striking. New residential constructionexpenditure represents nearly five percentof Gross National Product, and over fourpercent of the labor force is employed in residentialconstruction. In 1985, about 64 percentof American households owned their ownhome. Growth controls threaten this success.Controls also reduce the freedom ofpeople tomove and live where they hope to find the greatestopportunities. A simple example shows thisclearly. Consider the declining cities in theNortheast or Midwest from which people areexiting in large numbers. This outward migration.has significant negative economic consequences.Local economies are stagnating andthe tax base is eroding. These cities would bebetter off if businesses and residents were notleaving. Should they mandate that no one mayleave so that the remaining residents can maintaintheir quality of life? This is obviously absurd,and would be seen as a blatant attack onpersonal freedom and civilliberties. Yet growthcontrol is really the same thing.Another example can be used to show thatgrowth controls are not in the best interests.ofsociety collectively. Suppose all people are initiallysuspended in time with no location. Allfamilies will be randomly assigned a residencelocation. If we initially had no location, wouldwe ever agree to growth controls? The answer isclearly no. We could get assigned to an undesirablearea and be unable to move to our preferredlocation.Simply put, the political process that institutesgrowth controls excludes the desires of allpotential entrants. The final policy is an "usagainst them" state where the "us" are currenthomeowners and the "them" consists of everyoneelse.When people in a region are asked to vote ongrowth control policies they must consider obvioustrade-offs. Foremost is the question ofhow much freedom they are willing to give upto obtain capital gains on their residences.Existing homeowners may feel that they canshift all costs resulting from a building freeze torenters and potential entrants to the housingmarket. To the extent that current owners willnot encounter the higher housing prices, theyare correct. Other costs do exist, however. Thehouse to which they aspire, for example, maynever be built. Residents may become less mobileand find moving within the city difficult. Inaddition, the local economy may suffer. Higherhousing costs can reduce the willingness offirms to locate in the area. Future employmentopportunities fall as a result.Developers and landowners have their propertyrights denied when control of building ispassed to government. Landowners will nolonger be able to determine the most efficientuse of their land, and the market-determinedtiming of development is altered.When property rights are given up they maynever be recaptured. A government bureaucracymust be put into place to administer thecontrols, and will exercise all rights concerningdevelopment. Politically, a return to the priorstate of a freer housing market is unlikely forseveral reasons. Everyone who owned a homeprior to the controls has the incentive to maintainthe controls to protect his capital gains.Everyone who purchases after the controls has avested interest in continuing them. Local politicianswill not give up their expanded role inhousing. In short, once adopted, growth controlsare very unlikely to be repealed.It is clear that appointed or elected officialswill have neither the necessary information northe incentives to effectively and efficiently controldevelopment. The results are economic inefficiency,the creation of deliberate shortagesof housing, more control over individual rights,and no guarantees that the negative aspects ofgrowth will ever be addressed. The personalcosts and economic costs of growth controlsmay prove to be exceedingly high. DREFERENCESBernard J. Frieden, "The New Regulation Comes to Suburbia,"The Public Interest, Spring 1979, pp. 15-27.Richard F. Muth, "National Housing Policy," in The UnitedStates in the 1980's, ed. by Peter Duignan and Alvin Rabushka(Stanford, Calif.: Hoover Institution Press, 1980), pp. 343-366.Jonathan Sandy, "City Deserves a Fate Better Than GrowthControls," San Diego Business Journal, June 13, 1988.Lawrence Smith, Kenneth Rosen, and George Fallis, "RecentDevelopments in Economic Models of Housing Markets," JournalofEconomic Literature, March 1988, p. 30.Dirk Yandell, ed., San Diego's Future Directions? (San Diego,Calif.: San Diego Union-Tribune/University of San Diego, 1987).

57Why Is There aDrug ProbleIn?by George c. LeefMany people in the United States reg-• . ularly use "recreational" drugs. But. drug use is not recreation at all. It isa foolish type of escapism.Now, there is nothing necessarily wrong withescapism. We all do it when we read novels orlisten to music or go to the movies. Drug use,however, is virtually always harmful to the onewho engages in it, and is frequently harmful toothers who are victimized by drug users. Thereis as much agreement as one ever finds in thiscountry with the proposition that we confront aserious drug problem and that we need to dosomething about it.Most of the discussion about the drug problemhas been about proposed solutions. But, asis so often the case, most ofthe "solutions" failto analyze and deal with the causes of the problem.Attempting a solution before you know thecauses is usually a waste of time and money,and often makes things worse. So, what I intendto do in this essay is to venture some thoughtson this subject: Why are so many people choosingto use drugs?Let us first keep in mind that drug use is anindividual matter. It is a misuse of language tosay that the United States has a drug problem."The United States" does not and cannot takedrugs. What we should say is that a large numberofpeople in the United States use drugs, andthat their use leads to serious harm to themselvesand often harm to others. We should focuson the problem at an individual level andask: Why do so many people make the stupidand self-destructive decision to take drugs?George c. Leefis Associate Professor ofLaw and EconomicsatNorthwood Institute, Midland, Michigan, and adjunctscholar with the Mackinac Center.Almost everyone knows that drug use is expensiveand debilitating-a threat to one'shealth, job prospects, and family relationships.Perhaps there are a few who begin using drugsin the mistaken belief that it is just a harmlesspleasure which they can quit at will, but theymust be a very small minority. The typical druguser begins and continues his habit knowingthat the long-range consequences of his actionswill be decidedly negative.Now, why would anyone risk losing thechance to live a long, healthy, and happy life inexchange for some immediate pleasure? I canthink of two possible answers. First, someonewho thinks he has no chance to live such a life,and who faces immediate problems which seemvery severe, might think that taking drugs isdesirable. Second, someone who is verypresent-oriented in his decision-making, ignoringor heavily discounting future considerations,might be taken in by the blandishmentsof the drug pusher. What I conclude is that druguse will rise as the number of people who fallinto the above two categories (which are notmutually exclusive) rises.Throughout most of our history, drugs havebeen legal, but use has been minimal. So, whyhas drug use risen so much in the last two decades?I submit that the answer, or a major partof it at least, must be that we have more peoplein the country who are prone to make the decisionto use drugs. That is, there are more peoplewho are very short-sighted or who view lifewith despair or indifference.Why are there more people who fall intothese categories? Historically, the United Stateshas been the premier land of hope and opportunity.Millions ofpeople have immigrated here

58 THE FREEMAN. FEBRUARY 1989for that reason. The work ethic has been exceptionallystrong here. The vast majority ofAmericansfor the last two centuries have acceptedthe idea that the proper.way to live your life isto work hard, save, and improve yourself sothat you and your family may have a more prosperousfuture. That ethic is missing in any druguser. If we can figure out why the work ethic isin decline, we will have made a big step towardunderstanding why there is a drug problem inthis country.Seeking an AnswerI doubt that I know the entire answer, but Ibelieve that I know some parts of it.First, we should look at our system of education.As a professional educator, I see proofevery day that our primary and secondaryschools are failing to prepare young people forthe challenges of a competitive world. The horrorstories about our educational collapse aretrue. Many students graduate from high schooltoday with the most feeble reading, writing, andreasoning skills. (The large numbers who dropout are even worse off.) In many schools, standardsare so low, and the dogma that a student'sself-esteem is sacred is so pervasive, that passingis virtually automatic. In this pathetic environment,little is taught, little is expected, andlittle is learned.One lesson, however, is learned all too well:You don't have to try to get by. Young peoplewho see that there is no penalty for failing towork, to plan, and to exercise personal disciplinewill want and expect the rest of life to bethat way. That is the mind-set of the druguser-short-sighted, indifferent, illogical.A good education does more than just teachspecific skills and facts. It also inculcates certainhabits of mind which make the use of drugs(and many other forms of destructive, antisocialbehavior) unthinkable. A good educationteaches one not only how to use his mind, butalso to appreciate it as his primary tool for successin the competition oflife. It should come asno surprise that many young people who havean education in name only are attracted to mindlessdiversions, of which drug use is the mostharmful manifestation.Let us also keep in mind that people withlittle education are ill-equipped to cope with theproblems which life inevitably presents. Whena well-educated person confronts a problem, heis usually able to use his mind to analyze it,figure out what information he needs, obtain it,and then use it. But the poorly educated persondoesn't have those abilities, and is apt to try toescape from his problems rather than to dealrationally with them. That escape, of course,includes turning to drug use.Furthermore, for the ill-educated, job opportunitiesare very scarce. The high school dropoutor the graduate who can hardly read a set ofinstructions isn't likely to be able to find andhold a job. The absence of discipline, cooperation,and courtesy, which are also learned aspart of a sound education, makes it harder stillfor the ill-educated to keep a job. Idleness andboredom lure many into drug use.Second, I think that the growing welfare stateis also part of the explanation of our drug problem.The concept of welfare (now often referredto as the "safety net") says that you'll be takencare of without regard to your actions or lack ofactions. Welfare encourages, especially in thepoorly educated, a feeling of indifference andirresponsibility. A child who sees one or both ofhis parents doing little or no work and justbarely making ends meet at the government'sexpense is apt to conclude that life will be thesame no matter what you do. And it is peoplelike that who are most prone to the short-livedescape which drugs offer. The huge expansionof the welfare state during the "Great Society"of the mid-1960s corresponds closely with theonset of the drug problem. Temporal correlationsdon't necessarily demonstrate causality,but I am convinced that there is a connectionhere.Third, I believe that some aspects of our nation'seconomic policy are to blame for the risein drug use. Because of a plethora of laws andregulations, it is very difficult today for a poorlyeducated person to obtain employment. Sixtyyears ago, even an illiterate immigrant couldget a job rather easily. Of course, his wageswould be low at first, and he wouldn't haveguaranteed job security or any fringe benefits,but that is exactly why an employer could affordto give him a chance.

WHY IS THERE A DRUG PROBLEM? 59Today, the poorly educated run up againstminimum wage laws. If their labor isn't worththe minimum wage (plus employer Social Securitycontributions and other governmentmandatedcosts), they won't be hired. Moreover,' 'anti-discrimination' , statutes raise thepossibility that an employer will face a lawsuitif he dismisses a worker. The unhappy workermay charge discrimination even if the employer'sdecision was made strictly on merit, andmay win if the employer can't persuade thecourt that he had a good business reason for hisaction.These laws make it more costly and risky fora ·business to hire people with few skills, andthus opportunities for gainful employment arerestricted. The number of people prone to druguse is further increased.In Losing Ground, Charles Murray arguesthat the "welfare problem" is rooted in sociologicalchanges which made welfare dependencyeasier and more acceptable from the mid­1960s on. The same is true, I maintain, aboutour current drug problem. The decline of qualityeducation, the rising availability of welfarebenefits, and rules which militate against thehiring of unskilled people have changed the socialenvironment for millions. Where previ­0usly young people almost universally had reasonto hope for a better future and possessed themental acumen to bring it about, today a tragicallylarge number are unable to read, write,and think well enough to take advantage of thelimited opportunities open to them. Quite a fewof our problems have their roots in this changein the social environment. The drug problem isone of the most serious.Market InterferencesThe common thread in these three factorswhich lead to increased drug use is that they areinterferences with the natural order of the freemarket. Public schools are a non-market phenomenon,as are the welfare system and restrictionson freedom in the labor market. Nobodywanted these institutions to foster a drug problem,but I believe that they have contributedsignificantly to it. At work here is the law ofunintended consequences. Laws which interferewith the free market have negative unintendedconsequences. The laws I have mentioned,rather than making life better for people, haveharmed the lives of many.Even if there were no drugs at all, a nationwith large numbers of ill-educated, indifferent,and unemployable people would experience seriousproblems. If these people didn't tum todrugs, they would surely tum to some othervice. A completely successful war on drugswhichis probably impossible no matter whatlevel of effort-would simply lead to otherproblems we'd have to wage war on.The drug problem is not the disease itself, butone of the symptoms of a disease. The drugproblem will go away when we again have anation in which no one has any desire to takedrugs. The problem lies in the demand fordrugs, so that is where we must look for thesolution.If my analysis is correct, curing the diseasewill necessarily include the restoration of asound educational system. People who are welleducated-Dr at least not badly educated-willsee the utter irrationality ofdrug use and abstainfrom it. Precisely how we can best go aboutrestoring a sound educational system is thetopic for many other essays, but I doubt that anysignificant progress will be made so long aseducation is publicly financed and run.Solving the drug problem will also necessitatechanging our welfare system so that itdoesn't breed indolence and hopelessness. Thatis much easier said than done. And we will needto open up our labor market so that even thosewith few skills will have a chance at findingjobs.I don't know if these changes by themselvesare sufficient to eliminate the drug problem, butI am confident that they would reduce it greatly.Without making these changes, it is doubtfulthat significant progress can be made.People in the free market movement havebeen advocating privatization of schools, welfarereform, and repeal of labor market interferencesfor years, and despite impeccable argumentshave made little headway againstdetermined opposition from powerful specialinterestgroups. We may be more successful inovercoming that opposition if we can show howmuch is at stake-a United States without aserious drug problem. 0

60"What Do YouWant to Be?"by Margaret Bidinotto"What do you want to be when yougrow up?" is a question mydaughter, Katrina, has heardcountless times from adults unsure of how tostart a conversation with a six-year-old. Likemost children her age, she has a different answerfor each questioner-artist, dancer,teacher, bus driver, actress, mother, storeowner-you name it, she's going to be it.We adults smile to ourselves at the infinitevariety and scope of our children's ambitions.But we sometimes fail to realize that an ideavital to the existence of liberty is taking root intheir young minds-an idea that we instill almostaccidentally, and then spend years inadvertentlydestroying."What do you want to be?" is not a universalquestion. Many if not most societies have beenstructured for sons to follow in their fathers'footsteps, while daughters repeat the lives oftheir mothers. Individuals have few choices tomake and rarely expect any. Even in the earlyyears of this country, choices, if not ambitions,were often severely limited by the primitiveconditions of the society. But with everincreasingwealth and well-being, men's optionsgrew, and "What do you want to be?"became a valid and meaningful question.By asking !bem what they want to be, wecreate in children the expectation that they willchoose their own roles in life. Lacking maturity,children seldom fix upon one goal; butthen, rarely do they question the belief that theysomeday will. Their observations of what appearto be fascinating adult occupations bringout a natural eagerness to be involved, and theyMargaret Bidinotto is a free-lance writer in New Castle,Pennsylvania.look forward to that magical day when they willget to "pick for real. "Making ChoicesHuman beings need to make choices, to functionand thrive as their nature designed them todo. Liberty is the only condition under whichlegitimate decisions can be made. But for libertyto survive, people must expect-and, moreimportantly, want-to make choices. The individualwho does not expect to make choices, orwho does not want to do so, is in no position todefend liberty, or his own individual humanity.It is ironic, then, that this country, full ofopportunity, has so many well-intentioned naysayers.Doting aunts tell a young person, "youcan't do that," while concerned uncles grumble,"nobody's done that before." Exasperatedteachers tell him to "get serious and grow up, ' ,as his parents lecture him to "come down toearth and be realistic."By the time he is in his late teens, a personhas heard enough adult -exhortations to convincehim that his goals and ambitions were foolishand nonsensical. By the time he is in his earlytwenties, he's been exposed to enough adultscomplaining about their "lot" in life, shirkingtheir work, playing the lottery, and gripingabout their "lousy luck," to be convinced thatlife is just a crapshoot with overwhelming odds.It is the rare individual who makes it to adulthoodwith his youthful ambitions intact.Most would agree that it would be the heightofcruelty to tell a starving child, "just step intothis room and you'll have all you can eat"­only to have him walk into an empty room. Noone would be surprised if the child became cyn-

61ical or bitter. Nor should it come as surprisewhen young people, once promised a rich dietof unfettered choice, become cynics whenforce-fed the thin gruel of pragmatism and determinism.These young cynics can only look back ontheir childhood ambitions with nostalgic longingand, eventually, pain. They will feel somewhatguilty as a small reproachful voice insidetells them they should have stuck to their goals;but as time progresses, they will convincethemselves that they "couldn't help it," thatcircumstances rule their lives, and that theydon't want to make their own decisions. Then,they will eagerly embrace any collective thatwill absolve their guilt and offer to relieve themof the personal responsibility of deciding theirown fate. Finally, in time, they will work torelieve others of that same burden.The next time a breathless six-year-old bubblesenthusiastically about his plans to be "adoctor, then a veterinarian, and then a singer, ' ,check your amusement and offer him warm approvalinstead. Share you own dreams and ambitionswith the next teenager you encounterand encourage him to strengthen, not repress,his own interests. Tell him to close his ears tothe voices preaching pragmatism and determinism,and ask him instead: "What do you wantto be?" 0

62Responding to the OilShock: The U.S.EconolDY Since 1973by Rodolfo Alejo Gonzalez and Roger Nils FolsomIn 1981 the price of crude oil peaked at $36per barrel; today it is less than half as high.Meanwhile, prices in general have risen almost30 percent. 1 The price-setting power ofthe Organization of Petroleum Exporting Countries(OPEC) cartel clearly has waned as oilconsumers reduced their oil use, as the end ofoil price controls encouraged oil production inthe U.S. (the second largest producer in 1987,producing less than the Soviet Union but morethan Saudi Arabia), as non-OPEC countriessuch as Britain, Norway, and Mexico greatlyexpanded their oil output, and as OPEC's memberssurreptitiously produced above their OPECquotas and discounted below OPEC prices. Occasionalintermittent truces in this economicwarfare still twitch the oil markets from time totime, as will the end of the Iran-Iraq war, butOPEC's power is much diminished if not totallygone.In the face of these developments, neitherKeynesians .nor monetarists have been able tosupply a consistent explanation for the macroeconomicbehavior of the U. S. economy sincethe first oil shock in 1973. Nevertheless, themain economic events of this period can be explainedby assuming that private decision mak-Professor Gonzalez teaches in the Department ofAdministrativeSciences at the Naval Postgraduate School. ProfessorFolsom teaches in the Department ofEconomics at SanJose State University. Although solely responsible for theviews expressed here, as well asfor any errors, the authorsgreatly appreciate comments by J. Paul Leigh, Tim Sass,and David Saurman.ers responded rationally to the energy "crisis"while policy makers, particularly the monetaryauthorities, did not.In terms of aggregate economic output, energyis a complementary resource to both laborand real capital (including other natural resources).The shocks that decreased the availabilityof oil to the U. S. in the 1970s must havegreatly decreased the (marginal) productivity oflabor and also capital at that time. In contrast, iflabor and the owners of real capital both believedthat the energy crisis was temporary, andthat energy would once again be plentiful, theoil shocks may not have significantly depressedthe expected future opportunities for labor andcapital in the 1980s.Workers and capitalists may have been unimpressedby the argument-advanced by manyenergy "experts" in the 1970s-that the rise inoil prices was a sign of dwindling worldwideenergy sources. Instead, they may have realizedthat high oil prices almost certainly would induceenergy conservation and the discovery anddevelopment of new oil supplies not controlledby the cartel, and might stimulate the developmentof alternatives such as solar power. If theycorrectly perceived the energy situation as atemporary disruption caused by the OPEC cartel,they should have assigned a high probabilityto a recovery of energy supplies in a nottoo-distantfuture.Cartels rarely prevail for long against competitivemarket forces that move investment to

Thus the oil supply contractions of the 1970sand the resulting decline in productivity had anegative effect on real national output and income,which was magnified by rational decisionsto shift the sale of labor and the use ofplant capacity to an expected more productivefuture.Given the expectation that after the temporaryoil shortage was over, supplies oflabor andcapital would be higher than during the shortage,households must have believed that theircurrent income was substantially below what itwould be in later years. Therefore, consumptionspending was relatively buoyant, leading toa steep decline in the savings rate measuredagainst current national output and income.63the activities expected to be most profitable.Moreover, even if a profit-maximizing oil cartelhad a perfect and unassailable monopoly, itwould not reduce oil production permanently,but would merely shift production to the future.If we suppose that the suppliers of labor andcapital anticipated the return of more plentifulenergy supplies, and responded rationally to thedifference between existing and expected futureopportunities created by the oil crisis - and bygovernment policies that were at least partlyreactions to the oil crisis 2 - by reallocatinglabor effort, leisure, and capital use over time,then the economic history of the U. S. in the1970s and first half of the 1980s could read asfollows: 3The demand for labor decreased with the fallin its productivity, but real wages did not fallsignificantly because workers did not expect theoil crisis to last, and therefore they were reluctantto accept real wages lower than those theyexpected in the future. Instead they acceptedunemployment and greater leisure, expecting toincrease their labor supply to above-normal levelsin the future, when energy supplies and laborproductivity had returned to normal.Decreased productivity also reduced the demandfor capital, and owners of capital respondedin the same general way that workersdid. Capital depreciation increases with use, sorather than accept lower returns, capital ownersopted for a lower rate of depreciation andgreater excess capacity, expecting to use thesaved capacity in the future, when capital againwould earn high returns.Inflation and RecessionThe supply of money-which governmentpolicy has largely insulated from marketforces-did not adjust quickly enough to theslowdown in real economic activity. In fact, theFederal Reserve encouraged the banking systemto provide more money than the public waswilling to hold, in an apparent attempt to inducemore economic growth than was compatiblewith the reduced supplies of oil, labor, and capital.The result was a rise in the inflation rate, asthe public tried to exchange excess money forgoods. and services. With stagnant output andhigh spending levels, the worsening inflationdecreased the public's willingness to holdmoney even more.By the end of the 1970s, accelerating inflationhad so impaired public confidence in thegovernment's willingness to exercise monetarydiscipline that there was talk of a flight frommoney and possible hyperinflation. This processcontinued until the Federal Reserveabruptly decreased the money supply growthrate and induced the 1981-82 recession, whichlasted until sharply lower inflation rates finallychanged the expectation that inflation would getworse and worse. Unfortunately, the FederalReserve reduced the money supply growth rateso erratically that it took unnecessarily long forpeople to realize that monetary policy had infact changed.Meanwhile, Ronald Reagan's 1980 Presidentialcampaign suggested tax cuts that promised

64 THE FREEMAN. FEBRUARY 1989long-run benefits but that inevitably generatedshort-run uncertainty: whether a tax cut wouldbe adopted at all, what its detailed provisionswould be if adopted, and how long it would lastbefore the next major tax change. As occurswith any tax cut proposal, the uncertain promiseof lower tax rates encouraged people to shifteconomic activity to the future, when marginaltax rates might be lower (and almost certainlynot higher), and when the best way to structurebusiness decisions from a tax standpoint wouldbe less obscure.Unfortunately, these unavoidable incentivesto postpone productive economic activity werecompounded by the fact that the Economic RecoveryTax Act adopted in August 1981 phasedits tax rate reductions so that they did not becomefully effective until January 1984. Also,there were continual serious Congressional proposalsto repeal or modify much or all of the1981 tax cut, particularly its investment incentives,as occurred in the Tax Equity and FiscalResponsibility Act adopted in late 1982. Peoplewere encouraged to postpone economic activitynot only until 1981, but also until the lowermarginal tax rates became fully effective andthe details of the 1982 tax act (and the associatedInternal Revenue Service regulations) becameclear. Thus, fiscal policy contributed tothe economy's below-capacity output betweenthe 1979 and 1981-82 recessions, and worsenedthe length and severity of the 1981-82 recession.During this period of low productivity andrelatively high desired spending, many householdswere credit-constrained and unable toborrow as much as they wished. These householdspressed for the Federal tax cuts discussedabove, for state and local tax cuts (for example,Proposition 13 in California and Proposition"2.5" in Massachusetts), and for continued expansionof transfer payments and other governmentspending, and were unwilling to let governmentpay for increased defense spending bysignificant reductions in nondefense spending.In short, these households-unable because oftheir credit constraints to dissave as much asthey wished for themselves-pressed for governmentdissaving. The U.S. government deficitexploded. 4After 1982 the demand for real investmentincreased substantially, to prepare for the expectedhigher productivity of capital after thereturn of normal oil supplies and prices. 5 Butbecause of the decreased saving by householdsand dissaving by government, this increase inreal investment had to be financed by a largechange in the international flow of financialcapital, so that the U.S. would have a large netinflow instead of its usual net outflow. Realinterest rates in the U. S. rose very high in orderto attract this· net inflow of financial capital,which showed up statistically as a very largeU. S. international trade deficit. The capital inflowincreased the foreign demand for investmentassets in theU.S., raising the internationaldemand for dollars and consequently lifting thedollar's international exchange rate value to unprecedentedheights.An Inflow of CapitalThe net flow of capital was from the rest ofthe world into the U.S., rather than the reverse,because the rise in the demand for investmentrelative to domestic savings was more pronouncedin the U.S. than elsewhere. Althoughthe oil shocks affected the whole Westernworld, oil was a more important productive inputin the U.S. (Oil input per dollar of GrossDomestic Product was, and is, much higher inthe U. S. than in Europe and Japan.) Consequently,the oil shocks decreased productivity-andcontracted national income and saving-morein the U. S. than in other importantcenters of economic activity, while the needand willingness to invest in preparation for agreater abundance of oil was also higher in themore oil-reliant U.S.Other things equal, high real interest ratesraise the time value of money and encourage oilproduction out of existing fields, but simultaneouslydiscourage oil exploration investments(along with other real investments). Thus thehigh real interest rates of the. early and middle1980s hit the major oil producing states such asTexas, Louisiana, and Oklahoma particularlyhard, by driving oil prices even lower than theywould have dropped otherwise and by decreasingoil exploration below even the levels thatwould be expected as a result of very low oilprices.

RESPONDING TO THE OIL SHOCK 65Once the expectation of lower oil prices haddramatically-albeit unsteadily-come true,the results were quite straightforward: confirmedexpectations of much lower oil pricesexpanded economic output and greatly reducedunemployment, excess capacity, real interestrates, the government budget deficit, and thesize of the trade deficit relative to Gross DomesticProduct, and dropped the internationalvalue of the dollar. The most recent data suggestthat our trade deficit has begun to declinenot only relative to Gross National Product, butalso absolutely.Here ends our history. Note that our initialassumption, that actors in the U.S. economyexpected the oil shortages and resulting declinesin productivity to be temporary, plays a key rolein explaining most of the significant features(also known as "problems") of the U.S. economyin the 1970s and early 1980s: slow realeconomic growth, severe inflation, high unemployment,excess capacity, low savings rates,huge government budget deficits, extraordinarilyhigh real interest rates, large trade deficits,and a very high exchange-rate value of the dollar.Given the steady improvement in the V.S.economy since 1982, there is no need to raisetaxes in order to deal with the government budgetdeficit, which after peaking in fiscal 1986then dropped by 30 percent. Nor is there anyneed to impose inefficient protectionist measuresin order to reduce the trade deficit. Highertaxes (whether on personal or corporate income,oil, or energy), or higher trade barriers,would in fact be counterproductive.The impatient may argue that because the improvementin the U. S. economy since 1985 hasbeen not only steady but also slow, our optimismis too reminiscent of Pollyanna's. But thesluggishness of the economy since 1985, as in1980-82, can be explained easily within theframework of this paper. In May 1985, afterdigesting angry criticisms of V.S. Treasury taxreform proposals 6 issued in late November1984, the Reagan administration seriously proposedmassive tax law revision and lower rates.The promise of lower future marginal tax rates,together with the enormous uncertainties generatedby very different alternative proposals formassive revision of the tax code, encouragedpeople to postpone productive economic activity.Tax uncertainty lasted at least until the newtax law was enacted in late 1986 (numerousimportant regulations still remain to be written),and lower tax rates did not become fully effectiveuntil January 1988. And now we face newuncertainties about the tax and other economicpolicies to be adopted by President Bush and theCongress elected in 1988. In addition, adjustingto lower oil prices involves some costs: as resourcesare reallocated, some activities contractbefore others expand.The economy is in transition. We need onlyto enjoy the supply-side benefits that will continueto come as the economy adjusts to loweroil prices and lower effective marginal taxrates. This prediction, of course, assumes thatour legislators and monetary authorities will refrainfrom actions that would derail the currenteconomic expansion. 01. As measured by the Gross National Product Implicit PriceDeflator, which rose from 94.0 in 1981 to 121.8 at the end of thesecond quarter of 1988. In contrast, the "crude petroleum" componentof the Producer Price Index fell 58 percent, from 109.6 in1981 to 46.0 at the end of the second quarter of 1988.2. The U.S. government could have taken steps, such as pricedecontrol of natural gas, to moderate the decrease in energy availability.Instead, the government decreased the supply of U.S. oil bycontinuing existing price controls (introduced by the Nixon administrationas a general anti-inflationary measure in 1971) on oil andpetroleum products, and in 1980, by imposing windfall profit taxeson domestic oil producers.3. Our history reads as if there were a single oil shock to the U. S.economy in the early 1970s when in fact there was an initial shockwith the Arab-Israeli war of 1973, followed by a partial recovery ofoil supplies, and a second shock following the Iranian revolution in1979. But to treat each shock separately would add substantially toour history's length without altering its substance.4. Our analysis of household behavior builds on two ideas: first,that consumption depends primarily not on transitory income fluctuationsbut on expected permanent or "life-cycle" income; second,that credit constraints can significantly alter households' abilities tospend as much as would be appropriate given their expected permanentor "life-cycle" income. The first of these ideas was introducedby Milton Friedman (A Theory of the Consumption Function,Princeton, 1957), and then in a series of papers by FrancoModigliani, Richard Brumberg, and Albert Ando (see, for example,Modigliani's "The Life Cycle Hypothesis of Saving, the Demandfor Wealth, and the Supply of Capital," Social Research 33, 1966).The modifications necessary to incorporate credit constraints intothese expected permanent "life cycle" income models are beingdeveloped by Thayer Watkins, in papers that have not yet beenpublished.5. Some real capital investments undoubtedly were delayed asinvestors waited to see whether Congress would respond to thegovernment budget deficit by repealing the lower tax rates enactedin 1981 and raising taxes even more than they were raised in 1982.6. See Charles E. McClure, Jr. and George R. Zodrow, "TreasuryI and the Tax Reform Act of 1986: The Economics and Politicsof Tax Reform," Journal of Economic Perspectives, 1 (Summer1987), pp. 37-58. The same issue contains a number of relatedpapers.

66The Entrenchmentof the Stateby Matthew HoffmanMikhail Gorbachev's new themes forthe Soviet Union, glasnost (openness)and perestroika (reform), andtheir scant but widely publicized concrete manifestations,have caused a great stir in the West.Speculation about what has caused the Sovietleaders to attempt such changes varies widely,but one of the most popular theories is that theyare desperate: their empire is crumbling fromwithin, and if they do not change their systemand relax controls, they will lose their powercompletely.To classical liberals, this line of reasoning isappealing, for it is consistent with the principlesof the free market. The lack of productivity incentives,supplied in a private property order bythe availability of profit, as well as the inefficiencyofa vast, corrupt, bureaucratic system ofeconomic management devoid of the benefits ofmonetary calculation, will cripple the economyof any socialist nation. As Ludwig von Miseswrote, "In the face of the ordinary, everydayproblems which the management of an economypresents, a socialist society would standhelpless, for it would have no possible way ofkeeping its accounts. ,,1The theoretical unworkability of socialism is,without a doubt, consistent with socialist experience.To dispute this would be to contradictthe implications of almost all available datagathered from numerous failures of socialismaround the world.Mr. Hoffman is a senior in the media department of theHigh Schoolfor the Performing and Visual Arts in Houston,Texas.It is wrong, however, to conclude that thefailures of the stated goals of socialism, and theresulting public dissatisfaction with the system,are the causes of the reformation movementcurrently under way in the Soviet Union. Inreality, the popularity of an entrenched Communistgovernment is not a factor in its behavior.To such governments, public opinion is irrelevant,because it is for all practical purposesimpossible for the populace to rebel successfullyagainst their rulers. In fact, no major Communistgovernment has ever been overthrownfrom within. To discover why this is so, wemust analyze the system.The Use of TerrorOne of the principal ways a Communist totalitarianregime maintains its grip on the populaceis the unconstrained use of terror.The Bolshevik Party, for instance, had onlyan estimated 200,000 members when it overthrewRussia's Kerensky regime in 1917. 2Aleksandr Kerensky was a member of the SocialistRevolutionary Party, which had the supportof vast numbers of peasants, and received58 percent of the vote in the elections of theConstituent Assembly, a congress elected byuniversal suffrage. 3 The Bolsheviks quicklyabolished the Assembly, but the fact remainedthat the majority was clearly against them.How, then, did they maintain their power?A short lull followed the Bolshevik: coup, butpreparations to consolidate their power beganalmost immediately. On December 20, 1917,

67Lenin established the Cheka, a secret police organizationdesigned to "combat counterrevolution,speculation, and sabotage.' ,4Several months later, after a failed assassinationattempt directed at Lenin, the Central Committeeresolved that, "To the white terror oftheenemies of the Workers' and Peasants' Governmentthe workers and peasants will reply by amass red terror against the bourgeoisie and itsagents. ,,5With this decree, the Cheka was unleashedupon the population, indiscriminately arrestingand torturing thousands of people, especiallyintellectuals. They paralyzed the country withfear, eliminating trust by creating false resistanceorganizations, and extracting "confessions"from victims at any cost. 6The Cheka, today called the KGB, has grownover time, and now penetrates every sphere ofSoviet society. It contains hundreds of thousands,if not millions, of people and maintainsa vast network of informants. 7 Dissidents areregularly arrested by the KGB and tortured inmental institutions. 8 The country is held in aniron grip of fear.The use of terror to consolidate power hasbeen adopted by many, if not all, Communistregimes. The Chinese Communists, after promisingto maintain private property and free enterprisein 1949, began in 1950 a program ofmass terror against property owners and"counter-revolutionaries," in which millionsdied. 9 The Khmer Rouge annihilated approximatelyone-third of the Cambodian people duringtheir four-year reign. toGeorge Orwell, who ironically was a socialist,had a keen understanding of the ability oftotalitarians to maintain their power, despite alack of popular support. He modeled the workingsof his futuristic police state in 1984 afterthe Bolsheviks, who practiced most of the repressivemeasures that Orwell's imaginary Oceaniaused. Orwell has the novel's antagoniststate: "Obedience is not enough. Unless [aman] is suffering, how can you be sure that heis obeying your will and not his own? Power isin inflicting pain and humiliation. Power is intearing human minds to pieces and putting themtogether again in new shapes of your ownchoosing. ' ,11After a Communist government secures controlover a people, it usually sets out to constructthe utopia it has promised them. This oftensatisfies the socialistic intellectuals whomay have been spared in the initial purges, aswell as the masses, who often believe the partyline. Many are convinced that their economicand political hardships are merely temporary,and will fade away as the Communist paradiseevolves. In the new atmosphere offear and loftypromises, dissent tends to abate. The governmentthen will attempt to implement its policies'which usually include the complete abolitionof private industry and free trade, thecollectivization of farmlands, and bureaucratizationof the economy.In China, after the initial purge and the end ofthe Korean War, the government set out to doall these things, as did the Soviet Union after itsCivil War. The Soviets enacted programs suchas "War Communism" and the "New EconomicPolicy" (which allowed limited privateenterprise), and finally settled on their systemof five-year plans. Mao Tse-tung attempted"the Great Leap Forward," the failure of whichultimately led him to unleash the "CulturalRevolution. "None of these policies stimulated the economiesof the two countries or improved the citizens'standards of living. However, they didput the economies under strict central control,exercised through immense bureaucracies. Today,for example, the People's Republic ofChina has approximately ten million governmentofficials. 12Governments of such size and economicpower are not overthrown. The only coups thattake place do not result from mass uprisings,but from struggles within the bureaucracy. ViktorSuvorov, a defector from the Soviet Army,describes gigantic hierarchical factions withinthe government, supported by a system ofinterdependency. 13 These struggles may lead togovernment manipulation of the general populace,often using mob psychology.When Stalin wished to collectivize Sovietfarms in the late 1920s and early 1930s, he metwith great resistance from the upper class ofpeasants (the kulaks) as well as the vast middleclass (the seredniaks). Both groups had nothing

68 THE FREEMAN. FEBRUARY 1989to gain from the collectivization of their lands.However, the lower class, called bedniaks,were quite poor and favored the plan.Stalin turned the bedniaks against the othergroups, allowing them to attack the other peasantsand take what they would. A great civil warerupted in the rural areas of the Soviet Union,and Stalin used the opportunity to force the collectivization.In doing so, he caused a faminethat killed between 5 and 10 million people.Yet, they did not rebel against the governmentitself. Stalin had transformed a statist impositioninto a conflict between groups. 14When the paranoid Stalin perceived thegrowing power of his rivals, he began to eliminatethem one by one, in numerous assassinationsand bogus trials. In order to consolidatehis personal control of the state, he engineeredthe Great Terror, which resulted in millions ofdeaths. Under these horrible political conditions,the people did not rebel.Similarly, with the failure of Mao Tse-tung's"Great Leap Forward" in China, various factionswithin the government suggested revisingpolicies in order to cope with the economicproblems of the country. Mao perceived this asa direct threat to his power, and struck at hisenemies within the party by unleashing the"Great Proletarian Cultural Revolution" inwhich children and teenagers were organized in,'Red Guard" groups, and told to annihilateanything "traditional," "luxurious," or,'revisionist. " They swept over the country inwhat may have been the most phenomenal orgyof destruction in history, and successfullypurged the party ranks of anti-Maoists. Theeconomy was left in ruins. The people, however,did not rise up against the government. ISAs the antagonist in 1984 said: "It is time foryou to gather some idea of what power means.The first thing you must realize is that power iscollective." 16Entrenchment in theUnited StatesBecause of the growth of government powerin the United States during the last century,America has acquired some of the characteristicsof the totalitarian nations that facilitate theentrenchment of power.Our government continues to send its tentaclesdeeper and deeper into the nation's economiclife. The federal, state, and local governmentsemploy almost 16.7 million people,about 7 percent of the entire population! 17The collectivization and factionalization ofour society continue, as special interest groupsvie for coercive privileges, power, and governmentlargess. Today, 90 million Americans dependon the government for support. 18In addition, the state controls our children'sintellectual development through compulsoryeducation laws, public schools, and school licensing.The regulation of thought is essentialto the entrenchment of the state.If we do not wish to meet the Orwellian fateof the citizens of the Communist nations, wemust halt the growth of our government, andreverse the coercive, collectivist trends thatthreaten to deliver us to a potentially eternaltyranny. Walter Cronkite wrote in his preface to1984: "It has been said that 1984 fails as aprophecy because it succeeded as a warning.Well, that kind of self-congratulation is, to saythe least, premature. 1984 may not arrive ontime, but there's always 1985. ,,19 01. Ludwig von Mises, Liberalism (Irvington-on-Hudson: TheFoundation for Economic Education, 1985), p. 72.2. Robert E. Elson, Prelude to War (New York: Time-LifeBooks, 1976), p. 45.3. Ibid., p. 53.4. William R. Corson and Robert T. Crowley, The New KGB(New York: William Morrow and Company, 1985), p. 31.5. Edward H. Carr, The Bolshevik Revolution 1917-1923, vol. 1(New York: W. W. Norton and Company, 1952), pp. 151-183.6. Corson, pp. 41-42.7. John Barron, KGB Today: The Hidden Hand (New York:Berkley Books, 1985), p. 385.8. Ibid., pp. viii-ix.9. H. E. Chen, The Chinese Communist Regime (New York:Frederick A. Praeger, 1967), pp. 3-4.10. "A Mass Murderer's Exit," Maclean's (September 16,1985), p. 22.11. George Orwell, 1984 (New York: New American Library,1949), p. 220.12. Encyclopaedia Brittanica, 1986, vol. 16, pp. 57-58.13. Viktor Suvorov, Inside the Aquarium (New York: BerkleyBooks, 1986), pp. 81-82.14. Basil Dmytryshyn, USSR: A Concise History (New York:Charles Scribner's Sons, 1984), pp. 170-171.15. Anne F. Thurston, Enemies ofthe People (New York: AlfredA. Knopf, 1987).16. Orwell, p. 218.17. U.S. Department of Commerce, Statistical Abstract of theUnited States (Washington D.C., 1987).18. Hans F. Sennholz, Debts and Deficits (Spring Mills: LibertarianPress, 1987), p. 11.19. Orwell, p. 3.

••.69Blockading Ourselvesby Cecil E. Bohanon and T. Norman Van CottBlockading enemies is a standard wartimetactic. The objective, of course, is toprevent an adversary from trading withother countries. At the same time, warring nationstry to keep their own seaports open. Inlight of this centuries-old wartime tactic, it iscurious that nations at peace regularly blockadethemselves by pursuing policies which restrictimports. The irony of nations turning a wartimeweapon on their own citizens during peacetimehas escaped attention in the flood ofrecent commentaryon international trade.One might object to this wartime/peacetimeeontradiction on the grounds that it is an imperfectanalogy. Note, however, that the goals ofwartime blockades and peacetime import restrictionsare similar in that both seek to preventforeign goods from entering a particular market.Logical consistency implies that if wartimeblockades hurt enemies, peacetime restrictionshurt our own economies. Alternatively, ifpeacetime restrictions improve a nation's economicstrength, wartime blockades are treasonous.A Lesson from U.8. HistoryDuring the U.S. Civil War, the North blockadedthe major seaports ofthe South. Historiansgenerally agree that the South's economicstrength was sapped by the blockade. Enteringand leaving Confederate seaports became morecostly, usually requiring the skills of blockaderunners.Professors Bohanon and Van Cott teach in the DepartmentofEconomics at Ball State University, Muncie, Indiana.The adverse economic effects ofthe blockadeon the South were twofold. First, the blockademade imported goods less available, so that theConfederacy had to eliminate certain uses towhich imports heretofore had been put. The resourcesthe Confederacy previously had beenusing to pay for these imports had to be redirectedto less-preferred goods. Second, the importsthat did slip through the blockade came ata greater cost. More costly imports meant theConfederacy had to send more of its productionto foreigners as exports to obtain these imports.Today's media pundits sing the praises of exportsand consistently denigrate imports. Fortunatelyfor the North, Abraham Lincoln and hisSecretary of the Navy, Gideon Welles, knewbetter. The purpose of the blockade from theNorth's point of view was to reduce the Confederacy'saccess to imports. Admittedly, theNorth also tried to prevent Confederate exportswhen, for example, it intercepted cotton-ladenships bound for England. But these export interruptionsserved the North's interest only becausethey reduced the Confederacy's ability topay for imports. The North surely would havebeen willing to permit Confederate exports,provided it could have completely eliminatedConfederate imports. Popular wisdom aside,exporting without importing is counter to a nation'swell-being; it reduces the availability ofgoods and services to the inhabitants.From the time of Adam Smith and DavidRicardo, economists have carried the torch forfree trade. It is common to hear people say thateconomists have won all the formal debates onthe subject, but have been steady losers in the

70 THE FREEMAN. FEBRUARY 1989political arena. Curiously, economists have nottrumpeted the fact that governments' wartimeactions are consistent with the free-trade doctrinesof Smith and Ricardo. Perhaps the economists'reticence reflects what Milton Friedman,in The Optimum Quantity of Money andOther Essays, describes as a tendency amongeconomists "to discard war years asabnormal. ' ,We submit, however, that government officials'wartime actions should not be overlooked.Indeed, the contradiction between theirwartime and peacetime actions can be explainedin terms of the first principles of economics.These same principles suggest, moreover, animportant consideration if the dream of freetrade is to become a reality.Why do government officials behave as theydo? The personal benefits and costs to politiciansobviously playa key role. Peacetime importrestrictions benefit politicians because theycan confer privileges on domestic industriesthat are facing foreign competition. Politiciansbear little personal cost because consumersharmed by the restrictions are spread throughoutthe economy and are too unorganized to bepolitically important. Politicians cover theirtracks with rhetoric to the effect that imports"weaken the economy," "deter economicgrowth, " and "destroy jobs."However, if one believed this political rhetoric,one would never suggest a wartime blockade.Quite the opposite-a better wartime strategywould be to encourage neutral nations totrade with your enemies. Indeed, why not subsidizeyour own citizens' trade with enemy nations,since it supposedly saps your enemies'economic strength?Any schoolchild, of course, can see the follyof this logic. Such policies risk national disaster,which in this case translates into personaldisaster for the policy-makers. For this reason,the lessons of Smith and Ricardo necessarilyloom large in the calculations of wartime politicians.When viewed in this perspective, thecontradiction becomes more understandable.At the risk of belaboring the wartime/peacetime imagery, the contradiction is similarto the foxhole religious conversions that occurduring every war. Soldiers under heavy firepromise God they will "walk the straight andnarrow" if God will get them out of their predicament.Once safe, however, they return totheir "backsliding" ways. So it is with governmentofficials and international economic policy.Peace reduces their personal costs of actingcontrary to national economic efficiency.Raising the CostsAside from pointing out the logical inconsistencyof protectionist rhetoric, what does theforegoing tell us? Perhaps the salient point ofthe contradiction relates to how personal costsinfluence government policy-makers. This intum suggests that the path to reform of internationaleconomic policy must go beyond merelyexplaining the economics of trade, ·as desirableas this may be. That is, essential to internationaleconomic reform is the idea that peacetime protectionismmust be personally more costly togovernment policy-makers. It is quite likelythat reform along v these lines encompasseschanges that are of a quasi-constitutional orconstitutional nature. 0

71Popper, Hayek, andClassical Liberalismby Jeremy ShearmurKarl Popper, who turned 86 years oldthis past July, is justly famous for hiswork in the philosophy of science. Asa young man, Popper was inspired by the wayin which Einstein called into question the ideasof Isaac Newton. Einstein put forward a theorythat, if true, explained why Newton's work hadbeen so successful. From Einstein's theory,however, there could also be deduced consequencesthat differed from those of Newton'stheory; predictions that could be put to the test.Now Newton's Principia was possibly thebest-confirmed scientific theory of all time. AlexanderPope, when composing an epitaph forNewton, wrote:Nature and Nature's laws lay hid in night,God said: Let Newton Be! and all was light.It would scarcely be an exaggeration to saythat, as more and more impressive confirmationsof Newton's work were discovered, a majorproblem for philosophers became: How canwe explain that, on the basis of experience, wehave knowledge oftruths such as Newton's theory.Popper reflected on the character of Einstein'sachievement, and was led to a new accountof the development of scientific know1-Jeremy Shearmur was educated at the London School ofEconomics, University of London, where he worked foreight years as Assistant to Professor Sir Karl Popper in theDepartment ofPhilosophy. His Ph.D. dissertation was onthe political thought ofF. A. von Hayek. He is currently aSenior Research Fellow at the Institutefor Humane Studies,George Mason University, Fairfax, Virginia 22030.The author would like to thank Sheldon Richman andPamela Shearmur for their comments on an earlier versionofthis paper.edge. In Popper's account, science is theproduct not of induction, but of a process ofconjecture and of refutation. Science, which forPopper is probably mankind's greatest culturalachievement, always remains conjectural in itscharacter, and human beings are seen as inescapablyfallible.All this also led Popper to a more generalview of our condition. Popper sees human beings,like other animals, as involved in problem-solving.We have various inbuilt expectationsand mechanisms by which we interpret theworld around us. But our expectations and ourinterpretative mechanisms are fallible. We needto learn by trial and error. Unlike animals, however,it is possible for man, using the descriptiveand argumentative functions of his language,to construct a world of culture, outsideof himself, in which he is able to externalize,and thus to criticize, his knowledge. By thismeans, as Popper has often said, men differfrom the animals, because it is possible for manto let his theories die in his stead.Popper is also well-known for his writings onpolitical philosophy, notably his The Open Societyand Its Enemies. In this work, written duringthe Second World War, Popper drew uponthemes from his philosophy of science. He criticizedthose who, like Plato, wished to claimpower on the grounds that they had access tosecure knowledge. And he criticized those likeMarx who had allowed their essential humanitarianismto be channeled into directions thatwere hostile to the Open Society, because theyheld false theories of knowledge and of history.Popper's Open Society contains much detailed

72 THE FREEMAN. FEBRUARY 1989critical discussion of both Plato and Marx. Inaddition, it contains Popper~s own picture of anOpen Society. Popper is here concerned withthe freedom and well-being of all citizens. Hepictures a democracy as functioning very muchin the spirit of the scientific community. Politics,for Popper, is a matter of our discoveringproblems and putting forward tentative solutionsto them. Just as in science, we should thenhold our conjectures open to criticism-to feedbackand critical responses from all citizenssothat we can most effectively discover wherethings are going wrong.Learning from Our MistakesWhen Popper was writing, he considered thatthe big issue after the war would be the defenseof the ideals of a free society against those whocalled them into question, from the left andfrom the right. Today, however, we may lookto Popper's work with a different question inmind. What form of social organization wouldbest enable us to learn from his insights abouthuman fallibility and the need for us to learnfrom our mistakes?Considered from this perspective, Popper'swork does not fit too easily within the usualapproaches to politics. Popper, when writingThe Open Society, showed great sympathy forworking people. He had no time at all for conservativeswho felt that working people wereunfit for citizenship, and he was also critical ofthe policy of "laissez faire. " At the same time,Popper strongly emphasized the importance ofmarkets and of the government's acting onlythrough a legal framework.Bryan Magee, at one time a member of theBritish Labour Party, has argued that "theyoung Popper worked out what the Philosophicalfoundations of democratic socialism shouldbe. ,,1 And Popper has been hailed as a kind ofsecular patron saint of social democracy by anumber of leading political figures, especiallyin West Germany. 2 Magee himself notes thatPopper's own views have changed and that hewould now describe himself as a liberal in the"old-fashioned" sense. And Popper, in his autobiography,has said that "if there could besuch a thing as socialism combined with individualliberty, I would be a socialist still.,,3But is it the case that the logic of Popper'sargument points toward one rather than anotherform of social organization? I believe that, perhapsdespite the views of the younger Popper,the logic of his argument points toward a formof social organization in which the market playsa major role, and politics a rather restricted one.I would thus suggest that the best way of makinguse of Popper's ideas about politics wouldbe through those ideas that have been advocatedby his old friend, Friedrich Hayek.Popper and Hayek have influenced one anotherin many ways. Hayek has told us that hisviews on science were importantly changed as aresult of his contacts with Popper. And Popper'spolitical writings seem to bear the mark ofHayek's work (notably in his appreciation ofthe importance of markets and of a legal frameworkfor government action). 4 There are certaincommon themes to their writings. Both see humanfreedom and well-being as of the greatestimportance. They both see all human beings asfallible, and give great weight to the idea that,in designing social institutions, we should put apremium upon our ability to learn. They bothbelieve that, in an affluent society, we have anobligation to help those who need it. And theyboth recognize the importance of our being ableto change governments through elections,rather than only by force.There are differences between them, however.Hayek views the market and a liberal constitutionalorder as a mechanism, by which individualscan learn by trial and error. ForPopper, learning by trial and error in social affairsis made more the responsibility of government.Politicians and civil servants would diagnoseour problems and offer solutions to them.Democratic politics is regarded as a mechanismby which they may learn that they have gotthings wrong.But which is the most effective meansthrough which we can learn in the realm ofsocial affairs? Let us contrast the behavior ofthe entrepreneur and of the politician.The entrepreneur wishes to discover if he iswrong. Ifhe has backed a bad idea, he will wantto discover this as quickly as possible and abandonit, because a bad idea will lose him money.He cannot peddle his bad ideas to people, becausethey will buy his ideas-his goods----only

POPPER, HAYEK, AND CLASSICAL LIBERALISM 73if they consider them worthwhile. And while noone likes to discover that they have made a bigmistake, the entrepreneur has every incentive toabandon old failures and to move on to new andbetter ideas. He also has every incentive to tryout bold and daIing ideas. There is nothingwrong with his doing so, for only those citizenswho choose to adopt his idea will share the risk.And there are excellent mechanisms to tell theentrepreneur when he has made a mistake.Contrast with this the politician. When didyou ever hear a politician who still had an electionto fight admit that he had made a seriousmistake? And if he did admit it, would he everbe allowed to forget it? Unless he was verylucky, it would dog him to his grave. Indeed,politicians typically die with their mistakes.And so--they seldom admit they are wrong. Ifthey are wrong, they will attempt to cover it up.And if they are in power, they will be able touse the mechanisms of government to forcetheir errors onto the rest of us, while telling usthat they are successes. Above all, politiciansare interested in power: and thus, in democraticcountries, in their popularity, and in not sayinganything out of tum. After spending over a yearas Director of Studies of a public policy institute,I was still amazed by the unwillingness ofpoliticians to say what they really felt aboutanything, even in private conversation.In a country in which government plays amajor role, much of the power is in the hands ofcivil servants. Civil servants, while usuallydedicated to their work, are creatures of routine.And there simply do not exist mechanismsfor assessing whether most of what governmentactually does should be undertaken at all, letalone whether it is being undertaken effectively.5Above all, it is difficult for us to tell ourmasters-whether politicians or civil servants-inwhat respect they have got thingswrong, or what in our view the trade-offsshould be between, say, expenditure on onething or another, and letting us keep our moneyin our own pockets.The lesson in all this, it seems to me, is thatwe should put into the hands of governmentnothing that we can organize by other means.And we should also be reluctant to take fromindividuals the power of deciding what theywant and to give it to anyone else. Once thatpower is shifted, we move decisions away fromour most effective mechanism of accountability:accountability to individuals in the marketplace.Many years ago, Friedrich Hayek came to theconclusion that it was not socialism (in whichhe had believed as a young man), but institutionsin the tradition of classical liberalism thatwould do most for the well-being of his fellowcitizens, especially the poor. It seems to me thatit is the tradition of classical liberalism, as exemplifiedby Hayek's work, that also offers usthe best institutional model for putting intopractice Karl Popper's insights about our needto learn by trial and error in political and socialaffairs. 01. Bryan Magee, Popper (London: Fontana Books, 1973), p. 84.2. Cf. G. Luehrs et al. (eds.) Kritischer Rationalismus und Sozialdemokratie,I and II (Berlin and Bonn-Bad Godesburg, 1975,1976).3. Karl Popper, Unended Quest (London: Fontana Books, 1976),p. 115.4. It is largely in this context that Popper refers to Hayek in hisnotes to The Open Society and Its Enemies.5. If this seems an exaggeration, I would suggest the perusal ofthe discussion of rationality and decision-making in any standardtext on policy making in the public sector, such as Christopher Hamand Michael Hill, The Policy Process in the Modern Capitalist State(Brighton: Wheatsheaf Books, 1984) or Brian Hogwood and LewisGunn, Policy Analysis for the Real World (Oxford: Oxford UniversityPress, 1984).

74Islamic Capitalism: TheTurkish Boomby Nick ElliottOnce dismissed as the "sick man ofEurope," Turkey is now building aprosperous future. The Turkish economyhas been growing at a faster rate than thatof any other country in the OECD (Organizationfor Economic Cooperation and Development)-includingJapan, Great Britain, and theUnited States. The Turks seem to have evolveda successful union of Islam and capitalism, notalways a comfortable mix.My own impressions were formed on a recenttrip to Istanbul, during which I witnessed thefrenetic commercial activity that is fueling theTurkish economy. Istanbul is a city with a fastpace, a whirlwind of people hurrying abouttheir business, working hard.For a country that is still relatively poor, it isa surprise to find no beggars. Instead, everyoneworks, in whatever niche he can find. To theWestern eye, some of these jobs appear verymenial: outside the railroad station a row ofmencrouch over jars of polish, offering to shineshoes. Everywhere men and boys squat besideflagons, with a drink of cold water for sale. Tothe Turk, these simple jobs are a way to make aliving; and all of these people in their smallways are contributing to the economic expansion.Turkey needs a booming economy to supporta booming population. The current populationof52 million may reach 75 million by the end ofthe century.Mr. Elliott works for the Adam Smith Institute, a freemarketthink tank in London. He is a regular contributor tothe journal Economic Affairs, published by the Institute ofEconomic Affairs.In Istanbul, children are everywhere. Turkeyis still emerging from a Third World culture, inwhich children are a valued part of the familyeconomy. They go to work in the family business,and they provide for their parents in oldage. In Istanbul, young children work in shops,sell packets of postcards to tourists, sell birdseedto visitors who want to feed the pigeons, orlearn the trade of shoe-blacking.To the visiting Briton, the sight of a smallchild cleaning shoes clashes with the taboos wehave constructed around "child labor." In Britainwe have legislated to make children attendschool until the age of 16. We force children tobe taught about kings and queens and glacialstriations, and to go on cross-country runs.Many of the children who pass through the systempick up little in the way of useful knowledgeor values.In Istanbul, children start learning early howthe world works. They learn the rewards ofhardwork and application. They learn somethingabout the pressures and pleasures of independenceand responsibility. The sight remindedme of the bootblack hero in Horatio Alger'sRagged Dick.Younger Turks have realized that a large partof their future will depend on working with foreignersfrom the West. Many of the young childrenhave learned the benefits of being able tosell in more than one language. Stopping at apostcard shop in Istanbul, I was surrounded bya group of small boys who asked me where Iwas from, and proceeded to tell me in fluentEnglish what I could buy. When a Germanstopped to look, they spoke to him in German.

75These boys had learned their skills from findinga use for them in everyday life.Istanbul is a city that bridges two continents,in more than the geographical sense. On Turkey'seastern border is Iran, the focus ofa worldfundamentalist revival, a movement for vigorousand uncompromising imposition of HolyLaw. In Istanbul women cover their faces, andthe wailing from the mosques resonates aroundthe city, part of a culture that stretches acrossIslamic Asia. Yet modem Turkey is foundedupon the ideas of Kemal Atatiirk (1881-1938),who sought to make Turkey a secular republic.The Turks are serious about their religion, butrecognize that it has its place.One reason why Moslems are sometimes suspiciousof capitalism is that it can disrupt theIslamic pattern of society. Capitalism entails anextension of choice, as its foundation and as itsresult. By making available new arrays of materialgoods, it tempts the Moslem with Westernvalues. Capitalism pays no respect to hierarchiesof power. It allows individual people tolive independently of government, and dispersespower to the many. It opens up new networksof communication, beyond the criticalsupervision of the guardians of Holy Law.Where Islam is imposed as a rigid code of uniformity,capitalism is a threat.In Istanbul, alongside the mosques are shopsselling Japanese cameras. In amongst the symbolsofa traditional and ancient culture you findthe trappings of Western materialism. A contrastit may be, but it is also a compliment to thetolerance ofTurkish society. Turkey remains anIslamic country-a member ofthe Islamic ConferenceOrganization-but Turkish society retainsa flexibility that can admit deviation. It ismarked by an openness that has never beenmore valuable than today.From the East, Turkey must incorporate thepull of the fundamentalist revival, popular inuniversities. From the West come the attractionsof liberalism and permissiveness. Potentiallya conflict of values that could fracturetheir society, this meeting of East and West ismore likely to be the making of modem Turkey.Turkey can find prosperity and status as thego-between in trade and international relations.Some Turks frown upon the changes thathave accompanied new riches. In Britain someobservers already have started to lament the lossof the "simple life" in Turkey. Their fears aregroundless: Turkish culture is too deep to besubsumed by Western life. To most Turks thefuture must be an exciting prospect, in a countrygaining respect and influence.Many Third World governments have founderedin their attempts to modernize their countriesby pursuing false ideas to unworkable conclusions.Turkey is one of the better examples,a country where progress is succeeding by beingleft to evolve through the efforts of individuals.0

76Markets and Moralityby Peter J. HillIn terms of sheer ability to provide goodsand services, most people would agree thatcapitalism wins hands down when comparedwith alternative economic systems suchas socialism. Even so, many critics of privateproperty and markets prefer a more socialisticsystem or at least one that places more power inthe hands of the government. They argue thatalthough capitalism delivers the goods in a materialsense, it doesn't deliver them morally.That is, capitalism doesn't satisfy certain basicstandards of justice.This article challenges that position by examiningseveral areas where moral issues weigh inon the side of the marketplace. This is not anargument that a society based on free markets isthe same as a moral society; people can behavemorally or immorally in a free market systemjust as they can in other systems. However,capitalism does have a number of moralstrengths that are lacking in other economic systems.Although the "market" is often consideredan alternative to central planning or state ownership·of the means of production, it is not arigid institutional order like socialism or communism.What we call capitalism or a freemarketsociety is a society based upon privateproperty rights. Individuals may own, buy, andsell property (including their own labor) if theydo not do so fraudulently, and they are free todo what they want with their property as long asthey do not harm others. Individuals may decideto exchange their property with others,Peter J. Hill is George F. Bennett Professor ofEconomicsat Wheaton College (Illinois) and a Senior Associate ofthePolitical Economy Research Center (PERC) in Bozeman,Montana. This article was originally published as part ofthe PERC Viewpoints series.thereby creating a market. This market processis not mandated by anybody and requires only awell-defined and enforced system of privateproperty rights in order to exist.Inherent in capitalism is the ability to: providefreedom of choice, encourage cooperation,provide accountability, create wealth for largenumbers of people, and limit the exercise ofexcessive power.Freedom of ChoiceA market system assumes very little aboutthe ideal way to organize economic life. Othersocieties may mandate cooperatives, or communes,or cottage industries, or they may prohibitthem. But a system of private propertyoffers a wide range of possible forms of organization.If cooperatives are desirable, they canbe used; but other forms for organizing productionare also permissible. And, in fact, the individualwho wishes to ignore the market orconstruct alternative institutional arrangementsis perfectly free to do so.Throughout history certain groups have chosento operate largely outside the market. Onesuch group, the Hutterites, lives in the northernGreat Plains of the United States and Canada.The more than 200 Hutterite agricultural colonieshave been remarkably successful in maintainingtheir identity and expanding their population.Yet they are far from capitalistic. Allproperty within the Hutterite colony, except themost basic personal items, is owned in common.All income is shared equally within thecolony, and no wages are paid for labor.The Hutterites were able to establish theircolonies without prior approval from anyone insociety. No committee, government agency, or

77group of well-meaning citizens had to meet anddecide if the Hutterite lifestyle should be allowed.The freedom to choose such alternativesis unique to a free-market society.In contrast, a centrally planned society doesnot grant freedom to those who want to engagein market transactions. It limits voluntary tradein the interest of some other goal, and undoubtedlywould constrain groups like the Hutteritesif the people in power disliked the Hutterites'form of organization.Cooperation vs. ConflictA free-market, private-property system usuallyis labeled competitive. Yet one of the majoradvantages of the market system is that it encouragescooperation rather then mere competition.Competition does exist in a market-basedsystem, but competition is prevalent in any societyin which scarcity exists.In the marketplace successful competitors cooperatewith, or satisfy, others in the society. Inorder to succeed in a private property system,individuals must offer a "better deal" than theircompetitors. They cannot coerce people to buytheir products or services. They must focustheir creative impulses and energy on figuringout ways to satisfy others. The person who doesthis best is the one who succeeds in the market.Thus, participants in a market economybuyersand sellers~ontinually look for areasof agreement where they can get along, ratherthan concentrating unproductively on the areasof disagreement.In contrast, under a collective order, rewardsfrequently come from being as truculent anduncompromising as possible. With collectivedecision-making those in stronger political positionshave little reason to look for areas ofagreement; generally, they have a better chanceto succeed by discrediting the opposition to justifytheir own position, compromising onlywhen others are strong.A good example of the dissension caused bycollective decision-making is the controversyover teaching the origins of mankind. Schoolboards-which must make collective decisions-generallyhave to decide to teach eitherthat human beings were created or that theyevolved. Such decisions are fraught with con-flict. People who disagree with the board's decisionmarch, write letters to the newspaper,lobby, hire lawyers, and, in general, becomequite exercised. This is almost inevitable whenhighly emotional issues are involved since anycollective decision, including one made by majorityvote, is likely to be contrary to the wishesof a minority. Thus, the decision-makers are ina no-win situation. If the board allows creationismto be taught, evolutionists will be irate. Ifthey decide to teach evolution, creationists willbe outraged.In contrast, consider the decision to be vegetarianor carnivorous. There are individualswho feel every bit as strongly about this issue asthose involved in the origins-of-mankind debate.Nevertheless, there is little chance that adecision about diet will generate public controversy.Diet is not determined by a collectivedecision-making process, so people can interactrather peacefully about it. The person who believesthat avoiding meat is healthier or morallycorrect can pursue such a diet without arguingwith the meat eater. Advocates of a meat dietcan find producers and grocery stores eager tosatisfy their desires. In fact, vegetarians and themeat eaters can shop at the same stores, pushingtheir carts past each other with no conflict. It isthe absence of collective decision-making thatpermits this peaceful proximity.The social harmony that results from a marketorder should be of great interest to thoseconcerned with moral issues. People of verydifferent cultures, values, and world views canlive together without rancor under a system ofprivate rights and markets. A market order requiresonly minimal agreement on personalgoals or social end-states.In contrast, alternative institutional orders aremore oriented toward centrally determinedgoals. The very existence of such orders requiresa more general agreement on what is"good" for society. A centrally planned systemnot relying on willing exchange of work for paymust direct individuals to labor to achieve certainends, and those ends are not necessarily thesame as workers or consumers would choosefreely. For instance, in the Soviet Union verylittle freedom is allowed in occupational choice,and once one has been assigned a job it is verydifficult to move to a different one.

78 THE FREEMAN. FEBRUARY 1989Another reason that a system based on privateproperty rights encourages social harmonyis that it holds people accountable for what theydo to others. Under a private property regime, aperson who injures another or damages' another'sproperty is responsible for the damages,and courts enforce this responsibility. The mereknowledge that damage must be paid for leadspeople to act carefully and responsibly. Whenpeople are accountable for their actions, individualfreedom can be allowed.In contrast, a centrally planned system holdsindividuals far less accountable. Although intheory the government is charged with enforcingpeople's rights, rights in such a system areill-defined and the government can and doesrespond to the wishes of powerful people withlittle regard for the rights or wishes of the powerless.Even in democracies, if government hasthe power to grant favors, powerful groups tryto use the government to take what they want.What they take may have been worth far moreto those from whom it was taken.Zero-Sum vs. Positive-SumViews of the WorldMany objections to private property hinge onincome distribution. Well-intentioned peopleoften think that it is unfair for some to live inluxury while others have very little. I am sympatheticto the view that the affluent are morallyobligated to share their wealth with those whohave less. But that doesn't mean that the state isthe appropriate agency for such redistribution.A significant number of people who object tothe relative position of the wealthy do so becauseof a basic misapprehension about wherewealth comes from. They believe that thosewho live in luxury do so at the expense ofotherswho live in poverty. In general this is not true.The world is not zero-sum. That is, thewealth of the world is not limited so that it hasto be divided up among everybody, with somepeople getting more and others getting less.While wealth can be obtained by taking it fromothers, wealth also can be created by properlymotivated human action. When that happens,wealth represents a net addition to the wellbeingof a society. The significant increases inper capita wealth since the Industrial Revolutionhave come about primarily through the creationof wealth, not by taking from others.Under a set of well-defined and enforcedproperty rights, the only transactions people engagein are "positive-sum" or wealth-creatingtransactions, those that occur because all partiesto the transaction believe they will be better offas a result. In a society where people have securerights to their property, they will exchangeproperty only voluntarily, and they will do soonly when they see the potential for improvingtheir situation. The people they are dealing withwill do the same-engage in transactions onlywhen they expect to be better off as a result.A zero-sum world, where one accumulatesmore wealth solely by decreasing the wealth ofothers, occurs only in the absence of propertyrights. In such a world people-either by themselvesas brigands and thieves or through theuse of governmental power~an obtain commandover resources without obtaining the consentof the owners of the resources.Some critics argue that many market transactionsare not voluntary, that some people areforced by circumstances to enter into transactionsthey don't want. For instance, they arguethat an employer is exploiting workers by hiringthem at the lowest possible wage. Yet in a societyin which people act voluntarily, withoutcoercion, the acceptance of such an offer meansthat no better wages are available. Indeed, theemployer is expanding the opportunities for theunfortunate. A law mandating a $4.00 minimumwage, for example, actually decreases theopportunities for those whose work is worthonly $2.00.The only way a government-as opposed tothe private sector, which acts through voluntarygiving~an help these people is to give themwealth that it takes from someone else. Yet thefact that wealth usually has been created by itsowners, not taken from others, weakens themoral case for such redistribution. A personwhose creative effort adds to the stock of wealthwithout decreasing the well-being of otherswould seem to have a moral ·claim to that newwealth.Moreover, under a private property systemthat relies on the market process, net additionsto wealth roughly reflect how much one hasadded to the wealth ofother people. In a market

MARKETS AND MORALITY 79system, the only way to become wealthy is toplease others, and the way to become verywealthy is to please the masses. Henry Fordcatered to the masses with his automobile, satisfyingtheir need for relatively cheap transportation,and he became immensely wealthy. Incontrast, Henry Royce chose to serve only thosewith high incomes by producing an expensiveautomobile, and he did not become nearly asrich. To penalize people who carry out actionslike Henry Ford's by forcibly taking largeamounts of their income seems perverse.Unfortunately, the mistaken zero-sum viewof the world is quite prevalent. Many participantsin discussions about Third World povertybelieve that if only the wealthy nations weren'tso well off, the poor nations would be richer.Although it certainly is possible that some ofthewealth of some people has been taken from others,this is not usually the case. And if suchtakings occur, the solution is to move to a regimethat protects people's rights to their property.Ironically, the view that the world is zerosumoften makes conditions worse. Proponentsof the zero-sum view usually favor Im;ge-scalepolitical reallocation of rights. Such reallocationencourages, indeed requires, that everybodyenter the fray. War is expensive whether itoccurs on the battlefield or in the halls of Congress.When government has the ability to handout numerous favors, many citizens competefor these favors, while others lobby vigorouslyto retain their assets. Typically, the net result isless wealth remaining after reallocation than beforereallocation.PowerThe gravest injustices in the history of mankindhave occurred when some people have hadexcessive power over others. This power sometimeshas been economic and at other times political,but in either case the ability to controlothers' choices has caused enormous suffering.What sorts of institutions best fragment powerand prevent some people from holding toomuch sway over the lives of others?This question must be answered in the contextof a realistic understanding of how theworld operates. Whatever institutional arrange-ments exist, some people will be more powerfulthan others. The relevant issue is not what set ofrules keeps people from having any control overothers, but rather what institutions best limit theaccumulation of power.History is replete with examples of the misuseof coercive power in the hands of the state.One should therefore be suspicious of institutionalarrangements that rely upon massive concentrationsof power in the hands of the state,even though the explicit goal is to correct forinjustices in the private economy. Societieswithout private property rights concentratelarge amounts of power in the hands of a few,and that power traditionally has been badlyabused.A strong case can be made for an institutionalorder under which the state enforces clearly definedrules that keep people from imposingcosts on others without their consent, but one inwhich the state is also limited in terms of thecosts it can impose on individuals. A societywhere the government is responsible for definingand enforcing property rights, but where itsrole is also constitutionally limited, represents aviable combination. Such a system fragmentspower and restrains people from imposing costson others without their consent.ConclusionA private-property, market system has muchto recommend it. A system is more moral if itholds individuals accountable for their actionsand encourages them to help others than if itallows them to impose costs on others withouttheir consent.This is not to argue that a market system canserve as a replacement for a society in whichpeople act on the basis of moral conscience.Individual morality certainly will enhance capitalism,as it would any system. Honesty, compassion,and empathy make our world more livablewhatever the institutional arrangement.Capitalism is not inimical to these qualities.When alternative economic systems are evaluatedwithin a moral framework, sound reasonsemerge for favoring private property rights andmarkets. Markets and morality can serve asuseful complements in maintaining a just society.[]

80TaxationVersus Efficiencyby Richard JonesAdam Smith appreciated specialization.In The Wealth ofNations. he cited theexample of pinmakers. By Smith's estimatean eighteenth-century pinmaker couldproduce, working by himself, fewer than 20pins a day. However, by dividing the tasks involvedin pinmaking, and with the aid of somespecialized tools, 10 pinmakers could tum out48,000 pins a day-or about 4,800 per worker.In our day a skilled plumber can assemblepipes more efficiently than a carpenter. Notonly does he have more experience at his job,he has specialized tools. By the same token acarpenter can frame a house more efficientlythan a surgeon. And that surgeon can perform aheart bypass operation better than a mechanic.And the mechanic can . . . well, you get theidea. Specialization increases efficiency. Efficiencyincreases productivity. Productivity increasesabundance.All this should be obvious to anyone.Well, almost anyone. It doesn't seem so obviousto those who tax us.Consider an example. Bob the Baker wantsto build a new house. His plans call for a relativelymodest structure costing $60,000. Goingby a rule of thumb, Bob knows that half of the$60,000 will go for materials, the other half forlabor. The $30,000 for labor represents twelvemonths' work, say that of three framers for twoRichard Jones is a winemakerlwriter who built his ownhouse in Sapello, New Mexico.months each, a cabinet maker for two months,a plumber for a month, an electrician for amonth, a painter for a month, and a roofer/floormechanic for a month. Twelve months of laborfor $30,000.As a hard-working baker, Bob earns $30,000a year. Over the past five years he has saved the$30,000 to pay for the materials. Now youwould suppose that since he earns $30,000 ayear, he can work a year, give the builders that$30,000 and have his new house paid for.Right?Wrong.Of his $30,000, Bob must tum over approximatelyhalf to Federal, state, and local governmentsin direct and hidden taxes. He' faces salestaxes, property taxes, excise taxes, Social Securitytaxes, amusement taxes, state and Federal(and perhaps even city) income taxesindeedtaxes on virtually anything you can thinkof. By the time Bob finishes paying his directand indirect taxes he has about $15,000 of his$30,000 left. Consequently, after taxes it willtake him two years, not one, working as a bakerto pay the workmen to build his house.But suppose Bob is pretty handy with tools.He has learned a little bit about carpentry,plumbing, and wiring. The roofing and flooringhe can figure out when he gets there. By hisestimate Bob can build the house by himself in18 months. That's six months more than thecombined labor of his specialists. Bob figures

81that he can quit his job as a baker, spend 18months building his house, then go back towork baking the last six months of the secondyear and come out $7 ,500 ahead (after paying$7,500 in taxes on his $15,000 income).Bob stashes his bread pans and shuts downhis ovens. He saws and nails and plumbs andwires for 18 months. His house· is finished.Compared to hiring specialists to do thework, Bob not only has his new house, but anextra $7,500, too. Everything's okay, right?Well, it may be as far as Bob is concerned,but what about the economy as a whole? Eighteenmonths of work went into building a housewhich should have consumed only twelvemonths of labor. Six months of lost productionmeans that fewer goods are produced. Theeconomy suffers a net loss.Whether taxation discourages the employmentofcarpenters or mechanics, ofelectriciansor plumbers, the results will be the same. Themore taxation discourages the advantages ofspecialization, the fewer goods will be produced.High taxes might appeal to some people,but they would seem plain foolish to the keenmind of Adam Smith. 0

82Myths of the Rich Manby Joseph S. FuldaWhen privatization is contemplated forsuch necessaries as potable water orthe streets, the discussion is oftenclouded by fear of what "the rich man" whoprovides the resources might or might not do.The rich man might acquire all the drinkingwater and let no one else drink, or all the streetsand let no one emerge from his house. Or therich man might charge a small fortune for aglass of water or an afternoon walk on thestreets, with none to stop him, since he is theowner. The rich man, it is further feared, mightprovide no water and build no streets. If thestate does not provide for us by marketing theseresources, perhaps no one will, and society willperish.These fears are little more than myths. Afterall, there are plenty of other things we needfood,clothing, shelter-and yet none of thefears people have of the rich have materializedin any free market system. Economics teachesus why these fears are fallacious, and since theyare nevertheless so prominent in discussions ofprivatization among the general public, it iswell to review those teachings here.Society is not at the mercy of the malevolentrich man controlling its necessities. A man whoholds vast reservoirs of water or large parcels ofland and makes no economic use of it out ofspite (and it is fear of spitefulness that is behindthis myth) will soon find the management costsof his properties causing him to lose all. TheJoseph S. Fulda is an assistant professor ofbiomathematicalsciences at the Mt. Sinai School of Medicine and residesin Manhattan.water will lose its potability, the pipes will becomerusty, and the whole system will becomeworthless; the streets will fall into disrepair andrequire endless reconstruction. Certainly that isnot how the rich man acquired his wealth!But, still, what if? All that will happen is thatlarge holdings of real estate will be converted tostreets and reservoirs by others, rich or poor. Aslong as free entry-competition-is allowed,the rich man who has but will not market spitesonly himself and will lose his fortune. Someoneelse will see the need, convert his property tothe now-more-marketable use and take the richman's erstwhile profits away.Nor can the rich man buy up all the streets orreservoirs and charge arbitrarily large sums forthese necessaries. As he raises the price, conversionof other resources to these purposes becomesmore attractive. Furthermore, substitutes,once far too expensive even to becontemplated let alone developed, begin to becomeattractive as well. All it takes is one personwith a vision-be he rich or poor-and theconsumer demand for a water-substitute or astreet-substitute will be satisfied. As Julian Simondemonstrated in The Ultimate Resource,the human mind, throughout history, has beenuniformly able to find alternatives which satisfythe very same need as some resource previouslythought to be indispensable.Finally, we must remark that the situationitself-a malevolent rich man monopolizing allbut providing none, or providing only at impossiblysteep prices-is most artificial. People arenot like that. Besides, empirical studies have

83shown that as capitalist society progresses, thedistribution of resources and funds for capitaltends to become more diffuse and mobile. It istherefore doubtful on both psychological andeconomic grounds whether (without state grantsof monopoly power or the equivalent) the scenariosthat underlie the myths of the malevolentrich man could ever come to pass. But the freedom-lovermay rest assured that even if suchconcentrations of wealth and malice somehowdid befall society, all that would occur is adjustment-theredistribution and reallocation ofnatural resources, capital, labor, and entrepreneurialtalent-nothing worse than a temporaryinconvenience for the masses, coupled withspecial opportunities for those who would tumthe situation to their advantage.Nor does society, to consider the oppositefear, depend on the beneficence of the rich manto provide its necessities. Were none of the richinterested in providing water or streets, the pooraspiring to become rich would provide, althoughperhaps not in large quantities mediatedthrough big corporations.Perhaps water would be sold by local vendors.Perhaps streets would be owned by thehomeowners and shopkeepers on the block, insmall lots. Or perhaps workers would acquirestreets in their neighborhood with their unionpension funds, an investment linked to the generaleconomic performance of the area, muchlike stocks or bonds. I repeatedly say"perhaps," for no one can know just how themarket arrangements for, say, water and streetswould work out.But work out they would-the price systemguarantees it. As water and streets becomescarcer their prices will rise. As prices rise, theopportunities available for entrepreneurs willbecome increasingly irresistible. In a societywith an economy in which everyone is free totake advantage of the available opportunities,one need not worry about the do-nothing richany more than the spiteful rich.Again, of course, the situation is artificial.Those with the most capital acquired theirriches by taking advantage of opportunities, notby ignoring them. But even if somehow the richwill not provide, things will work out as newentrepreneurs replace the old rich and exercisetheir resolve to provide and thus be providedfor. []Promoting COlDpetitionBy competition, I refer to a situation that exists when the basic rulesof the free society are observed - when everyone possesses thebasic rights of private property and freedom of contract. Competitionis not a mode of conduct that anyone has to promote institutionally.It develops naturally and necessarily among persons who are free to pursuetheir own interests. Whatever one's personal interest or objective may be- businessman, sculptor, or preacher - the consequence of pursuing itputs him in competition with all who share that objective. That being thecase, preoccupation with promoting competition is at best a diversion ofeffort which could have been used to protect private property and freedomof contract.-SYLVESTER PETROIDEASONLIBERTY

84A REVIEWER'SNOTEBOOKThe Life ofHerbertHooverby John Chamberlain"FOOd will win the war." So we weretold in 1917 by Herbert Hoover, whowas just home after a three-year periodof feeding Belgian and French civilians whowere trapped in back of the contending Alliedand German armies. Accordingly I signed up towork on a school farm in Windsor, Connecticut,where I did my bit by shingling a hen houseroof and chopping stumps out of a field destinedfor com. At the age of fourteen I was sure thatHoover was a man for the ages.I was not so certain at a later age, whenHoover, as President, couldn't contend withwhat he called "the Mississippi Bubble of1927-29." We forget that Hoover, in the WhiteHouse, pioneered many of Franklin Roosevelt'sNew Deal devices. His Reconstruction FinanceCorporation tried to save weak banks, his FederalReserve Board bought millions of governmentnotes in the open market, his Farm Boardtried to prop up wheat prices. His excuse wasthat he had to compete with Europe in a worldthat had lost touch with Adam Smith. Rooseveltbeat him at the polls in 1932, partly by a promiseto balance the budget. Then Roosevelt proceededto double Hoover's New Dealism inspades.George H. Nash, the able historian of Americanconservatism, is doing a multi-volumedlife of Hoover. He will be wrestling with thecontradictory White House career of Hoover,the "chief," at some later date. We have alreadyhad a remarkable account from his pen ofHoover's pre-1914 days as a mining engineerall over the world, from the Australian "outback" to Burma, Siberia, and northern China atthe time of the Boxer Rebellion. Hoover was agreat competitor then. He made his million,dominating his ventures in silver and other metalsfrom a London office, and was ready forpublic service when the outbreak ofwar came inAugust of 1914.Nash's current installment of the Hooversaga is called The Life ofHerbert Hoover: TheHumanitarian, 1914-1917 (New York: Norton,497 pp., $25.00). It is a wonderfully researchedstory of a venture in practical benevolence thatbelies Hoover's outward demeanor of coldheartedefficiency.In the beginning, when he was setting up hisCRB, or Commission for Relief in Belgium,Hoover was threatened with competition fromthe Rockefeller Foundation. The Swiss also hadideas ofgetting into the act. But Hoover insistedon a monopoly. He couldn't quite have it all hisown way. The Spanish diplomat Villalobar andthe Belgian banker Emile Francqui dogged himfor three years. There had to be an agency insideBelgium to help distribute food in Germanoccupiedterritory. But by February of 1915 theBritish Admiralty and the Germans, withFrench concurrence, agreed that only a Hoovercould properly coordinate tens of thousands ofpeople on several continents in saving9,000,000 Belgians and a much smaller numberof Frenchmen from starvation.The tens of thousands in the Hoover organizationincluded volunteer fund-raisers in America,Australia, Canada, Great Britain, Italy, andSpain; farmers, bankers, accountants, shippers,and grain merchants in the U. S.; the crews andowners of dozens of cargo ships crossing theoceans to British ports and Rotterdam in Holland;diplomats in Madrid and Berlin and LeHavre; stevedores operating 600 tugs andbarges along canals from Rotterdam into Belgium,where 40,000 volunteers stored the foodin regional warehouses for distribution to hungrypeople in more than 2,500 communes.Hoover, says Nash, appeared to sense theepic actualities of his endeavor as early as

OTHER BOOKS 85March of 1915. To a Belgian priest he wrote:"To beg, borrow and buy nearly $1,800,000worth of food every week; to ship it overseasfrom America, Australia, the Argentine and India;to traverse three belligerent lines; to transportit through a country with a wholly demoralizedtransportation service; to distribute itequitably to over 7,000,000 people; to see thatit reaches the civilians only and that it is adaptedto every condition from babyhood to old age... is a labour only rendered possible by themost steadfast teamwork on the part of all. . . .We are under daily zealous surveillance of allthe governments involved; . . . we maintain aninvestigation department of our own . . . andwe have the right to demand the absolute confidenceand support of our fellow countrymen."Hoover, if he had written to the Belgianpriest again in 1917, would hardly havechanged a word in his estimation ofwhat he haddone. But the difficulties of traversing belligerentlines were multiplied by the shifting attitudeof the Germans in regard to submarine warfare.The sinking of the Lusitania, and the tum tounrestricted attacks on all shipping into British,Dutch, and French ports, forced Hoover to fightthe Germans to obtain respect for the symbolCRB on the sides of his ships. The matter wasnever really settled.Hoover's blunt ways of operating did not sitwell with Brand Whitlock, the American ambassadorto Belgium. Whitlock understoodHoover's virtues, but couldn't regard the eternalsquabbling with Francqui over jurisdictioninside of Belgium with equanimity. He camealmost literally to dislike Hoover. For his part,Hoover thought Whitlock was something of aweakling. He would have called him a wimp ifhe had known the word.Hoover had to get along with the French andBritish governments to get regular subsidies forhis "practical institution. " But, although he aspiredto play a big part in the Wilson administrationonce we were in the war, he regardedmost governments as obstacles to be shuntedaside. His way of dealing with governments involvedhim in undercover operations to plantstories in the press of two continents. He was amaster of what we would now call media subversion.He ghostwrote articles for Ambassadorto Britain Walter Hines Page and for others inembassy headquarters; he "edited" materialsfor the Associated Press. With him, freedom ofthe press was freedom to manipulate the press.He did not butter up the young men whoworked selflessly for him. The most he wouldsay was a cool "well done." But his youthfulsupporters loved him for his assumption thatgood men should make correct decisions as amatter of course.The British had always to be reassured thatthe Germans weren't stealing neutral-intendedfood from the regional warehouses. There were"angry egos" involved in the disputes aboutpossible thefts. The relief of Belgium dependedon German forbearance. This forbearance wasnever total, but what there was of it sufficed.Hoover's one great disappointment was thebehavior of his good friend Lindon Bates, headof the New York office. Bates feared Hooverwas guilty ofinfringing the Logan Act and makingforeign policy. No doubt he was. But9,000,000 people remained alive. DEQUITY AND GENDERby Ellen Frankel PaulTransaction Books, Rutgers University, New Brunswick, NJ08903 • 1988 • 192 pages • $24.95 cloth, $12.95 paperReviewed by Clint BolickEllen Frankel Paul's new book may begreeted with skepticism: Why do weneed another book on "comparableworth," when that theory is deader than a doornail?The answer is simple: rumors of comparableworth's well-deserved demise are greatly exaggerated.Though presently discredited as a viablediscrimination theory in Federal litigation,comparable worth is very much alive in statelegislatures and in the hearts and minds of radicalfeminist groups and their allies.As .Paul notes, ten states have implementedthe results of comparable worth studies, and 20have commissioned studies. Some states areconsidering proposals to extend comparableworth to the private sector. And Congress isconsidering imposing comparable worth at the

86 THE FREEMAN. FEBRUARY 1989Federal level, at a potential cost of billions ofdollars. In a new administration, comparableworth advocates may gain even greater momentum.Of course, it's not called "comparableworth" anymore, but rather the more benignsounding"pay equity. " But scratch the veneerof pay equity and the same old beast emerges: aconcept that, as Paul describes it, would destroy"the very foundation of our market-based economicsystem."Paul, who is affiliated with the Social Philosophyand Policy· Center at Bowling Green StateUniversity, has a superb ability both to takecomplex issues and translate them into English,and to take simplistic rhetoric and explain itsserious ramifications. Since comparable worthis at once both deceptively simple and enormouslycomplex, Equity and Gender provides avital tool with which to effectively defend themarket.Paul begins with a dispassionate and comprehensivereview of the arguments in favor ofcomparable worth. She observes at the outsetthat" '[e]qual pay for equal work' is not theobjective of the comparable worth advocates,for that standard has been the law of the landsince 1963." Rather, they believe the market"is corrupted by discrimination, for nothingelse can sufficiently explain discrepancies betweenwomen's wages and men's."This discriminating "wage gap" can be redressed,the theory holds, by a scientific assessmentof the objective worth of jobs to employers,,''to which salaries would be calibrated.Thus, Paul explains,. "comparable worth providesthe hope of a quick and easy fix for theinjustices foisted upon women by themarketplace. "Paul then presents the arguments of comparableworth opponents, which she observes areprimarily economic. The wage gap, they argue,is created by the combined impact of women'sjob choices, expanding work-force options forwomen, and entry by women into the labormarket in growing numbers. And, they add, thewage gap is diminishing as women gain moreexperience and enter traditionally male jobs.Moreover, they argue that comparable worthwould be enormously expensive to implement,thereby reducing America's ability to compete.Paul then turns to the progress of comparableworth in the courts and legislatures, and findsthat while comparable worth has been dealt serioussetbacks in the courts, it is winning theday in the legislative arena. The bulk of thebook thus comprises a useful summary of thearguments pro and con and the futurt? prospectsfor comparable worth.Paul concludes with her own views on theissue, and comes down solidly in favor of themarket as the arbiter of salaries. Jobs do nothave inherent value apart from the market, sheargues. She concludes that comparable worth"depend[s] upon some rather dubiousassumptions" and "embrace[s] a view that is atodds with our American tradition, [is] unpersuasiveas an ideal, and incapable of being putinto practice without chaotic results."But the bottom line for Paul is that comparableworth destroys the freedom of choice thatthe market provides. She observes that the"women's movement in the late 1960s and 70semphasized women's capacity, women's abilityto perform jobs traditionally monopolized bymen. Comparable worth sets a different agenda,portraying women in an unflattering light thatenshrines their incapacity. Instead of encouragingwomen to engage in new ventures, it concedesthat they will be secretaries, nurses, andteachers for a long time to come and only asksthat they be paid more."Nonetheless, Paul does not claim the moralhigh ground for adversaries of comparableworth. At the outset, Paul agrees with comparableworth proponents that ultimately "justiceand equity must triumph over efficiency. " Butshe fails to make the point strongly enough thatin bargaining over wages, these values go handin hand. While Paul seems to acknowledge thatpurely utilitarian arguments are inadequate toresist comparable worth, she does not present acompelling moral argument in favor of the market.What defenders of the market must do is toexpose comparable worth as a paternalistic theorythat assumes women are incapable of succeedingon the level playing field guaranteed bythe present anti-discrimination laws. They mustalso show it to be an elitist concept, denigratingthe value of blue-collar jobs. And they mustraise the Orwellian specter of a commission of

OTHER BOOKS 87,'experts" determining wages in some mysticalfashion and supplanting the will of individuals.Paul makes these points, but not graphicallyenough to recapture the terms of the debate.These were the points I attempted to illustratewhen I represented several female prison guardsin opposing the American Nurses Association'sunsuccessful comparable worth lawsuit againstthe State ofIllinois in 1984-85. My clients werewomen who defied societal stereotypes andtook on dangerous and unpleasant jobs in orderto earn higher wages--nly to have a board ofexperts conclude that entry-level secretarieswere "worth" more than prison guards. Such anotion falls under the weight of its own absurdity.Tactics like these betray comparable worth asnot a "women's" issue at all, but as an issue ofgovernment control versus individual autonomy.The dignity and freedom of women requiresthe demise of comparable worth. Paul'sbook, thankfully, provides a wealth of ammunitionto hasten that demise.D(Clint Bolick is director ofthe Landmark LegalFoundation Center for Civil Rights in Washington,and author of Changing Course: CivilRights at the Crossroads [New Brunswick, NJ:Transaction Books, 1988].)THE THEORY OF FREE BANKING:MONEY SUPPLY UNDERCOMPETITIVE NOTE ISSUEby George A. SelginRowman & Littlefield, 81 Adams Drive, Totowa, New Jersey07512· 1988 • 218 pages • $33.50 clothReviewed by Matthew B. KibbeBanks are in trouble. But an even greater, crisis lurks beneath the political surface,on the university blackboards, and inthe principles texts and academic journals. Considerthe following argument, made recently byDavid Warsh in the May-June 1988 issue of theHarvard Business Review: "Money is funnystuff. Like language, it has meaning only insofaras people agree to share it. Unlike language,however, it requires supervision."Here we have the "conventional wisdom,"accepted by virtually every politician and thevast majority of professional economists.Money is different. Money cannot manage itself.End of story.Enter, or should I say "re-enter," the Austrians.Standing firmly on the intellectual shouldersof Carl Menger, Ludwig von Mises, andF. A. Hayek, George Selgin has boldly challengedthe status quo in monetary theory. In hisrecently published book, The Theory of FreeBanking, Professor Selgin argues that moneywill, and must, manage itself.Ever since Menger, the founder of the Austrianschool, wrote his Principles in 1871, Austrianeconomists have been highly critical ofgovernment involvement in the business ofmoney and banking. In Menger's view, moneycannot be arbitrarily created by legislative fiatprecisely because it came into being as the unintendedconsequence of individuals seeking tobetter satisfy their wants. Money, to be acceptedwidely, must be the product of voluntaryexchange.Ludwig von Mises refined and extendedMenger's monetary theory in The Theory ofMoney and Credit, published in 1912. Employinghis famous "regression theorem," Misesdemonstrated that the value of money alsoevolves through a historical process of humaninteraction. According to Mises, the value ofmoney today is linked to the "price" of moneyyesterday, and the expected value of money tomorrowwill be based on the "price" of moneytoday. When left alone by government, thevalue of money is both dynamic (responsive toever-changing economic conditions) and stable(linked with the remembered past and an imaginedfuture).Because of its historical continuity, moneyprovides a reliable "unit" for economic calculation,the means by which the millions of individualswithin a society are able to coordinatetheir activities. This theoretical understandingof the nature of money provided the Austrianswith a devastating critique of planning in generaland of central banking in particular.Unfortunately, this rich tradition in monetarytheory was all but forgotten in the turmoil of theKeynesian revolution. Divorced from the plansand purposes of individuals, monetary theory

88 THE FREEMAN. FEBRUARY 1989was pushed deeper and deeper into the mysticalworld of Keynesian "macro-economics." Theintentions of individuals were replaced withfunctional relationships between imaginary aggregates--equationsto be manipulated by governmentofficials to serve government ends.The appearance of The Theory ofFree Bankingsignals a well-written, well-organized shiftiri intellectual currents. Professor Selgin's bookwill shock some. I am delighted.Soon after opening the book, the reader willnotice the quick precision ofSelgin's prose. Aftera brief overview of a number of historicalepisodes of free banking, Selgin moves directlyinto a theoretical discussion of the evolution ofmoney and banking. Here, Menger's influenceis strong and obvious.The second part of the book develops thenotion of "monetary equilibrium," borrowedfrom economists such as J. G. Koopmans,Gottfried Haberler, Fritz Machlup, and DennisRobertson. This is the idea that there is both ademand for and a supply of bank notes whichmust continually adjust toward a coordinatedequilibrium.Selgin fuses the theory of monetary equilibriumwith the Austrian critique of central bankingas developed by Mises and Hayek. Centralbanking, they argued, is neither responsive norstable. Besides the obvious political incentiveswhich discourage sound money managementwithin a central banking system, central bankerssimply cannot obtain the relevant knowledgerequired to match the supply of money withmoney demand.Only market competition and competitivenote issue, Selgin concludes, provide both theincentives and information necessary to maintainmonetary equilibrium. Free banking is theonly monetary system that can properly adjustto changes in the market demand for bank noteswithout flooding the market with unneeded, unbackedpaper currency. Selgin reminds us thatfractional banking, when disciplined by freecompetition, provides an altogether superior alternativeto centralized control and supervision.While Mises might have objected to the useof such a mechanical metaphor, the insight of"monetary equilibrium" is clearly consistentwith the Austrian understanding of moneyevenmore so than Selgin is willing to admit. InThe Theory ofMoney and Credit, Mises definedinflation as ' 'an increase in the quantity ofmoney . . . that is not offset by a correspondingincrease in the need for money. . . ." Furthermore,"deflation ... signifies a diminution ofthe quantity of money . . . which is not offsetby a corresponding diminution of the demandfor money...."The difference between Selgin and Mises appearsto be one of emphasis. We can quibbleover the proper interpretation of Mises on thispoint, but the fact remains that the real-worldproblem confronting Mises during the years hewrote was the rampant inflation generated bythe central banks of both Europe and the UnitedStates. Naturally, Mises emphasized the distortiveeffects of an over-supply of money. But healso saw the solution, arguing in 1949 in HumanAction that "free banking is the onlymethod available for the prevention of the dangersinherent in credit expansion." Accordingto Mises, there was "no reason whatever toabandon the principle of free enterprise in thefield of banking. ' ,Either way, the importance of Selgin's contributionshould not be underrated. Mises did,in fact, tend to neglect the importance of "thedemand side" of money. With the publicationof The Theory ofFree Banking, Selgin joins asmall but growing number of economists whoseek to revive and extend the forgotten Austriantradition of free banking. I am thinking also ofF. A. Hayek (Denationalization of Money),Hans Sennholz (Money and Freedom), andLawrence White (Free Banking in Britain).With books such as Selgin's, there is hope forthe future of ideas and our banking system. D(Matthew Kibbe is a doctoral student in economicsat George Mason University and afellowat the Center for the Study ofMarket Processes.)

THEFREEIDEAS ON LIBERTY92 How Smart Is Big Brother?James L. PayneWhen it comes to knowing things, government agencies are inherentlyflawed.94 Why Deny Health Care?Robert K. OldhamCountering the dangerous notion that "if everyone can't have it, no oneshould. "CONTENTSMARCH1989VOL. 39NO.396 Socialized Medicine: The Canadian ExperiencePierre LemieuxAn analysis of Canada's universal, compulsory national health care system.101 The British Way of Withholding CareHarry SchwartzRationing medical care to save money.103 Moral Criticisms of the MarketKen S. EwertDefending the free market from the attacks of Christian critics.110 Scandal at the Welfare StateTibor R. MachanWhy the welfare state is so susceptible to misconduct.113 Private CitiesJ. Brian PhillipsA look at master-planned communities.116 1992: Which Vision for Europe?Nick ElliottWhat will happen when the Single European Act comes into force in 1992?122 My Son and the Guatemalan IndiansC. F. Fischer, IIIA. young entrepreneur learns about the "system" in his efforts to marketCentral American Indian jewelry.124 Book ReviewsJohn Chamberlain looks at The Velvet Prison: Artists Under State Socialismby Miklos Haraszti. Reviews of When Government Goes Private: SuccessfulAlternatives to Public Services by Randall Fitzgerald, Searching for Safetyby Aaron Wildavsky, and The Art ofReasoning by David Kelley.

THEFREEMANIDEAS ON LIBERTYPERSPECTIVEPublished byThe Foundation for Economic EducationIrvington-on-Hudson, NY 10533President ofthe Board: Bruce M. EvansVice-President:Senior Editors:Contributing Editors:Robert G. AndersonBeth A. HoffmanBrian SummersBettina Bien GreavesCarlO. Helstrom, IIIJacob G. HornbergerEdmund A. OpitzPaul L. PoirotThe Freeman is the monthly publication of TheFoundation for Economic Education, Inc.,Irvington-on-Hudson, NY 10533 (914) 591­7230. FEE, founded in 1946 by Leonard E.Read, is a nonpolitical educational champion ofprivate property, the free market, and limitedgovernment. FEE is classified as a 26 USC 501(c) (3) tax-exempt organization. Other officersof FEE's Board of Trustees are: Thomas C.Stevens, chairman; Ridgway K. Foley, Jr., vicechairman;Paul L. Poirot, secretary; H.F.Langenberg, treasurer.The costs of Foundation projects and servicesare met through donations. Donations are invitedin any amount. Subscriptions to The Freemanare available to any interested person in theUnited States for the asking. Additional singlecopies $1.00; 10 or more, 50 cents each. Forforeign delivery, a donation of $15.00 a year isrequired to cover direct mailing costs.Copyright © 1989 by the Foundation forEconomic Education, Inc. Printed in U.S.A.Permission is granted to reprint any article inthis issue, except "The British Way of WithholdingCare" and "Scandal at the WelfareState," provided appropriate credit is given andtwo copies of the reprinted material are sent toThe Foundation.Bound volumes of The Freeman are availablefrom The Foundation for calendar years 1969 todate. Earlier volumes as well as current issuesare available on microfilm from UniversityMicrofilms, 300 North Zeeb Road, Ann Arbor,MI48106.The Freeman considers unsolicited editorialsubmissions, but they must be accompanied by astamped, self-addressed envelope. Our author'sguide is available on request.Cover illustration: © Geoffrey Moss,Washington Post Syndicate.Economics and EcologyOnly under certain institutional arrangementsdo we find complementarity between economicand ecologic goals. Specifically, only institutionsthat tightly link authority to act with responsibilityfor the outcome of the action fosterboth. Political management often weakens oreliminates the link between authority and responsibility.One good way to produce these benefits is todesign institutions that rely upon clear and enforceableproperty rights which can be freelyexchanged. A free market promotes such exchange.For example, such a system holds peopleand firms accountable for the costs of pollution.It also permits them to capture thebenefits of sound environmental management,as International Paper has done, by blendingwildlife and timber management. In this way,the reforms advocated by "free market environmentalists"encourage entrepreneurship as individualsface incentives to seek more efficientand valuable outcomes.-JOHN A. BADEN, ChairmanFoundation for Research onEconomics and the EnvironmentAutomotive GeniusWho rules the marketplace? Consider this excerptfrom "Charles Kettering: AutomotiveGenius," by Mark Bernstein, in the July 1988issue of Smithsonian:"When Kettering joined General Motors in1920, the sales figures and efficiency of GM'sarray of vehicles badly trailed Henry Ford's singleModel T. By 1927, the organizational brillianceof GM's celebrated president, Alfred P.Sloan Jr., coupled with a plethora of improvementsfrom Kettering's busy lab, had helpeddrive the Model T into retirement. With a Ford,went the inevitable wisecrack, you could haveany color you wanted, provided it was black. AtGM, you could have all sorts of colors. Andyou could have higher horsepower for morezoom, and the new 'baBoon' tires for asmoother ride, as well as all the other improve-

ments that made each year's model comfierthan last year's."Americans loved it, turning the nation intothe world's first automotive society. To theBoss [Kettering], this was the test that mattered;not results in the laboratory, but response in themarketplace, which Kettering unquestionablybelieved consumers ruled. Once the public sawsomething better, Kettering held, it would settlefor nothing less. Henry Ford once told Ketteringthat the Model T would never adopt a selfstarter.Kettering replied, 'Mr. Ford, that issomething you yourself are not going to haveanything to say about.' "Man AloneThere is a qualitative distinction between thebehavior of an individual and that of the humancrowd in an extreme situation. A people, nation,class, party, or simply crowd cannot gobeyond a certain limit in a crisis: the instinct ofself-preservation proves too strong. They cansacrifice a part in the hope of saving the rest,they can break up into smaller groups and seeksalvation that way. But this is their downfall.To be alone is an enormous responsibility.With his back to the wall a man understands: "Iam the people, I am the nation, I am the party,I am the class, and there is nothing else at all. "He cannot sacrifice a part of himself, cannotsplit himself up or divide into parts and stilllive. There is nowhere for him to retreat to, andthe instinct of self-preservation drives him toextremes-he prefers physical death to a spiritualone.And an astonishing thing happens. In fightingto preserve his integrity, he is simultaneouslyfighting for his people, his class, or hisparty. It is such individuals who win the rightfor their communities to live-even, perhaps, ifthey are not thinking of it at the time."Why should I do it?" asks each man in thecrowd. "I can do nothing alone."And they are all lost."If I don't do it, who will?" asks the manwith his back to the wall.And everyone is saved.-VLADIMIR BUKOVSKY"The Soul of Man Under Socialism"PERSPECTIVESoviet AgricultureIn a speech calling for farmers throughout theSoviet Union to be freed from the state-run systemof collective agriculture, Mikhail Gorbachevremarked:"Comrades, the most important thing todayis to stop the process of depeasantization and toreturn the man back to the land as its realmaster."-The New York Times,October 14, 1988Facing the FactsAt Phoenix House, the highly regarded drugrehabilitationcenter in New York, a typicaltherapy group will start out by listening quietlyto all the victim chatter of a recently arrived.addict. Then someone will say something like:"It isn't your mother or society or even thepushers who put the needle in your arm. Youdid." And therapy starts from there.-JOHN LEO, writing in the October 17, 1988issue of U.S. News & World ReportA Vital DifferenceAmerican borrowing from abroad in the 19thcentury bore little relation to our rising indebtednessof the 1980s. When foreign investors inthe 19th century bought stocks and bonds fromour companies, the money generally was put toproductive use. In many cases, the profits fromthose enterprises far exceeded the cost of thecapital that was provided.In contrast, in recent years the U.S. Treasuryhas been borrowing heavily abroad to financedeficits arising from rapid expansions in defenseoutlays, entitlements, farm subsidies, andinterest payments. No matter how socially worthyor politically necessary those items of federalexpenditure may be, they represent currentconsumption. These federal expenditures arenot investments that generate a future return torepay or even cover the interest on the Treasurysecurities issued to help finance them.-MURRAY WEIDENBAUMCenter for the Study of American Business

92THEFREEMANIDEAS ON LIBERTYHow SlDart IsBig Brother?by James L. PayneOne ofthe attractions ofgovernment as a. problem-solver is its presumed advantagein information and technical expertise.We tend to assume that governmentwill be better informed than anyone else, andtherefore better able to deal with the complexproblems of our age.To some extent, this faith in government isjust a blind, primitive trust. For centuries, menwere conditioned to believe that the king wasalways right. He was supposed to be God'sagent, and therefore he knew better than anyoneelse what was good for the country. We havedone away with kings, but an aura of divinewisdom still surrounds the state and its officials.When you complain about a law, someone islikely to say, "But Congress wouldn't have approvedit if it weren't right. "Another reason we attribute extraordinarypowers to government is its size. We assumethat the larger an organization, the more itknows. After all, aren't two heads better thanone? By this logic, a government agency withthousands of employees must have enormousknowledge.Normally, we don't get a chance to check thisbelief in governmental wisdom, since governmentagencies rarely put what they know intotestable form. A recent General Accounting Office(GAO) study of the Department of Agriculturefor the years 1972 through 1986, however,has uncovered a case where an agencyJames L. Payne has taught political science at Yale, Wesleyan,Johns Hopkins, and Texas A&M. His latest book,The Culture of Spending, examines the popular argumentsfor big government.took, in effect, a quantitative test of its knowledge.The results are dismaying.Each year, the Department of Agriculture attemptsto estimate how much all the farm subsidyprograms are going to cost, so that it cansubmit its budget requirements to Congress. Toarrive at this figure, it employs an extensiveprocedure involving 18 sub-units within the Department.These different offices funnel informationinto the decision-making process: projectedsupply and demand for commodities,projected prices for commodities, farmer participationin various programs, and so on.The expense of operating this system easilyruns into the millions; depending on how youdo the accounting, it may be as much as 100million dollars each year. For example, one unitin the process is the Foreign Agricultural Service;its 1985 budget was $86 million. A $2million World Agricultural Outlook Board alsoplays a role, as does the Agricultural Stabilizationand Conservation Service ($119 million)and the Agricultural Marketing Service ($32million), not to mention budget offices, undersecretaries,and assistant secretaries. Arrivingat agricultural projections isn't the only functionof these bodies, but it is one of their majorresponsibilities.With all these resources, how well does theDepartment of Agriculture do in forecasting itscommodity subsidy costs? The GAO found theDepartment's budget estimates were "substantiallyincorrect," with an average absolute errorof 4.3 billion dollars. To put this figure in perspective,if you predicted that this year's costswould be the same as last year's, your error

93J,~I",Government agencies~i~always have 1\something to )defend orsell, and thisprompts theiremployees todistort facts andestimates.Iwould have been 4.1 billion. In other words,the most simple-minded extrapolation wouldhave done a better job in predicting the Departmentof Agriculture's commodity expendituresthan the Department's own multi-million dollarforecasting organization!Government, it appears, may not be smart atall. If the experience at the Department of Agricultureis any indication, its intellectual competencerates below that of an ordinary citizen.Why should this be? The problem is not withthe intelligence of the public officials themselves.Individually, they are as bright as therest of us. It is the system in which they functionthat produces the feeble-mindedness.First, government infonnation systems arebiased. Government agencies always havesomething to defend or sell, and this promptstheir employees to distort facts and estimates.The cumulative result of these distortions canbe whopping misconceptions about the world.In the case of the Department of Agriculture,it wants Congress and the public to approve ofits subsidy programs. It wants to make theseprograms seem less expensive, so people won'tbe shocked by the high price. This bias encouragesofficials in the budget forecasting processto underestimate: over the years, the averagenet error in the commodity budget forecasts hasbeen $3.1 billion below the actual cost.The second problem with government informationsystems is size. It is not true that morepeople means more knowledge. Useful knowledgeabout what will happen in the worlddoesn't come from just collecting more andmore facts and opinions in one building or inone report. It involves rejecting points, too,leaving aside that which is unsound, misleading,or irrelevant. Large entities typically lackthis ability to discriminate. Every cook is givena chance to spoil the broth. In the Department ofAgriculture's forecasting system, the inputsfrom the different sub-agencies all go into thefinal estimate, yielding an unfocused blend oftrue, false, and irrelevant.When it comes to knowing things, governmentagencies are inherently flawed. Thosewho are looking to the intelligence of governmentto solve our problems may be waiting a~~ti~.D

94Why Deny Health Care?by Robert K. OldhamMost Americans would agree that"Health care should be availableequally to everyone." But now thethesis of equal availability of health care is beginningto translate into a sub-thesis of "If everyonecan't have a health-care service, then noone should have it."Recent medical advances have made availablea variety of in-depth approaches to thetreatment of serious disorders such as cancer,AIDS, and major organ failure that allow forcorrection, or a research-based attempt at correction,of the disorder. Transplantation bringsforth a large number of potential recipients, asmall number of donors, and huge costs foreach kidney, heart, or liver transplant. Thesetransplant stories are often in the news and mayinvolve distressing reports of the need for atransplant in a child, a young mother, or a productive,breadwinner father.The relative infrequency of the transplant dilemmahas been a major saving grace. Our sympathiesgo to each patient, and many of us havecontributed to help a specific patient. No effectivesystem-wide solution to the limited availabilityof this expensive technology has comeforth.Robert K. Oldham, M.D. is Chairman and Scientific DirectorofBiotherapeutics Inc., based in Franklin, Tennessee,a firm which conducts cancer research for patients inthe private sector.Dr. Oldham is Director ofthe Biological Therapy Institutewhere he conducts clinical trials ofnew treatments forcancer patients. He was the first director of the NationalCancer Institute's Biological Response Modifier Program.His articles have appeared in numerous publications, includingThe New England Journal of Medicine and TheWall Street Journal.Individuals who can afford to pay for thesetransplants represent a major revenue stream forhospitals with transplant services. There is littlediscussion when the individual has the capabilityto pay for a transplant. Is it not a wonder thatthe issue of restricting availability to those whocan afford the transplant hasn't been raised byethicists? There has been broad negative reactionto the idea of "selling" organs, but transplantprograms go forward when organs areavailable for individuals who can pay for theprocedure.More difficult is the issue of a new cancertreatment or a new approach to the devastatingproblem of AIDS. In both of these situations,there has been much discussion about accessand opportunity, the cost of research and medicalservices, and the issue of availability. Governmentand university officials have oftenvoiced the view that a certain number of research-basedapproaches should be availablethrough their hospitals. Individuals should lineup and wait for the opportunity to avail themselvesof these research services.Such a system resembles the National HealthService of Britain, except that in the UnitedStates, contacts, political pressure, and moneyoften can abridge a system of equal opportunityfor all. One is reminded of kidney dialysis in itsearly days-an expensive technology for whichcommittees were created to judge the worthinessof individuals in need. In spite of suchcommittees, patients with resources were generallyable to avail themselves of dialysis.Once rejected from such a system or once ona too-long waiting list with too little time, why

95restrain an individual with resources from pursuingprivate options? It would seem obviousthat an individual with resources should be ableto use those resources as he or she sees fit,while alive and able to make rational decisions.Yet, there is an increasing call to restrain suchindividuals from pursuing private-sector opportunitiesto gain access to new medical technologiesfor the treatment of cancer or AIDS.The arguments go something like this: "If amedical service isn't available for everyone,should it be available for a few? Isn't it unethicalor morally repugnant for someone with assetsto be able to pursue a new, research-basedtreatment approach when others, without theseresources, cannot? Shouldn't there be restraintson the private sector in the delivery of medicalservices to those who wish to pay for them?"This thought process would indeed be bizarreif it were applied to a vital product such as food.At the moment, no one is crying foul if someonewith resources chooses to eat more than theminimum daily requirement. In a similar manner,there has been no call to restrict the availabilityof air conditioners for those who wish topurchase them in spite of the obvious healthadvantages of air conditioning to the sick andelderly who can't afford them. There has beenno call to remove private rooms or executivesuites from hospitals where they are available topatients with resources. There has been no callto restrain travel by those who wish to fly toSwitzerland or Italy or to a distant clinical facilitywithin the United States for specializedmedical care.Different Standards of Ethics?As a physician, I often receive calls fromindividuals who ask if I have access to a specializedtechnology, a research-based approach,for the treatment ofa relative. I am struck by thefact that the individual, often a practicing physician,has not called me about his patients. Iam struck that such individuals often work ingovernment or universities. Some have beenopenly critical of private-sector systems of cancerresearch that might provide opportunitiesfor those with the resources to afford themuntilsomeone close needs access and opportunity.What are the ethics of one standard for arelative and a different approach for a patient?This curious schizophrenia between the ideathat everyone should have equal access, but thatif everyone can't have it, no one should, representsa dangerous thought process.To translate that to a system where no onecan have access to more health care beyond aset standard would be a grievous error. Suchthinking outside of the health field is clearlyanomalous. Let's not apply a unique standard tohealth-care services, but let's apply the samerules of logic to all basic services that individualsmight use, given their resources. 0Arguments Against SocializedMedicineIt is a mistake for the government to consider the problems of the sick. apart from those of society as a whole.... the broader problem is, ina moral sense, one of promoting respect for the individual and thefurtherance of initiative and self-providence; in an economic sense, one ofincreasing production for the benefit ofall citizens; and in a political sense,one of removing government as a battlefield for special favor and substitutingcohesion and solidarity for division and disintegration.-DARRYL W. JOHNSON, JR.IDEASONLIBERTY

96Socialized Medicine: TheCanadian Experienceby Pierre LemieuxThe Canadian public health system is oftenput forward as an ideal for Americansto emulate. It provides all Canadianswith free basic health care: free doctorsvisits, free hospital ward care, free surgery, freedrugs and medicine while in the hospital-plussome free dental care for children as well as freeprescription drugs and other services for theover-65 and welfare recipients. You just showyour plastic medicare card and you never see amedical bill.This extensive national health system was begunin the late 1950s with a system of publiclyfunded hospital insurance, and completed in thelate 1960s and early 1970s when comprehensivehealth insurance was put into place. Thefederal government finances about 40 percentof the costs, provided the provinces set up asystem satisfying federal norms. All provincialsystems thus are very similar, and the Quebeccase which we will examine is fairly typical.One immediate problem with public healthcare is with the funding. Those usually attractedto such a "free" system are the poor and thesick-those least able to pay. A political solutionis to force everybody to enroll in the system,which amounts to redistributing incometowards participants with higher health risks orlower income. This is why the Canadian systemis universal and compulsory.Even if participation is compulsory in thesense that everyone has to pay a health insurancepremium (through general or specifictaxes), some individuals are willing to pay aMr. Lemieux is an economist and author living in Montreal.second time to purchase private insurance andobtain private care. If you want to avoid thisdouble system, you do as in Canada: you legislatea monopoly for the public health insurancesystem.This means that although complementary insurance(providing private or semi-private hospitalrooms, ambulance services, etc.) is availableon the market, sale of private insurancecovering the basic insured services is forbiddenby law. Even if a Canadian wants to purchasebasic private insurance besides the public coverage,he cannot find a private company legallyallowed to satisfy his demand.In this respect, the Canadian system is moresocialized than in many other countries. In theUnited Kingdom, for instance, one can buy privatehealth insurance even if government insuranceis compulsory.In Canada, then, health care is basically asocialized industry. In the Province of Quebec,79 percent of health expenditures are public.Private health expenditures go mainly for medicines,private or semi-private hospital rooms,and dental services. The question is: how doessuch a system perform?The Costs of Free CareThe first thing to realize is that free publicmedicine isn't really free. What the consumerdoesn't pay, the taxpayer does, and with a vengeance.Public health expenditures in Quebecamount to 29 percent of the provincial governmentbudget. One-fifth of the revenues comesfrom a wage tax of 3.22 percent charged to

97employers and the rest comes from generaltaxes at the provincial and federal levels. Itcosts $1,200 per year in taxes for each Quebeccitizen to have access to the public health system.This means that the average two-childfamily pays close to $5,000 per year in publichealth insurance. This is much more expensivethan the most comprehensive private health insuranceplan.Although participating doctors may notcharge more than the rates reimbursed directlyto them by the government, theoretically theymay opt out of the system. But because privateinsurance for basic medical needs isn't available,there are few customers, and less than onepercent of Quebec doctors work outside thepublic health system. The drafting of virtuallyall doctors into the public system is the firstmajor consequence oflegally forbidding privateinsurers from competing with public health insurance.The second consequence is that a real privatehospital industry cannot develop. Without insurancecoverage, hospital care costs too muchfor most people. In Quebec, there is only oneprivate for-profit hospital (an old survivor fromthe time when the government would issue apermit to that kind of institution), but it has towork within the public health insurance systemand with government-allocated budgets.The monopoly of basic health insurance hasled to a single, homogeneous public system ofhealth care delivery. In such a public monopoly,bureaucratic uniformity and lack of entrepreneurshipadd to the costs. The system is slowto adjust to changing demands and new technologies.For instance, day clinics and homecare are underdeveloped as there exist basicallyonly two types of general hospitals: the nonprofitlocal hospital and the university hospital.When Prices Are ZeroAside from the problems inherent in all monopolies,the fact that health services are freeleads to familiar economic consequences. Basiceconomics tells us that if a commodity is offeredat zero price, demand will increase, supplywill drop, and a shortage will develop.During the first four years of hospitalizationinsurance in Quebec, government expenditureson this program doubled. Since the introductionof comprehensive public health insurance in1970, public expenditures for medical servicesper capita have grown at an annual rate of 9.4percent. According to one study, 60 percent ofthis increase represented a real increase inconsumption. 1There has been much talk of people abusingthe system, such as using hospitals as nursinghomes. But then, on what basis can we talk ofabusing something that carries no price?As demand rises and expensive technology isintroduced, health costs soar. But with taxesalready at a breaking point, government has littlerecourse but to try to hold down costs. InQuebec, hospitals have been facing budget cutsboth in operating expenses and in capital expenditures.Hospital equipment is often outdated,and the number of general hospital bedsdropped by 21 percent from 1972 to 1980.Since labor is the main component of healthcosts, incomes of health workers and professionalshave been brought under tight governmentcontrols. In Quebec, professional fees andtarget incomes are negotiated between doctors'associations and the Department of Health andSocial Services. Although in theory most doctorsstill are independent professionals, the governmenthas put a ceiling on certain categoriesof income: for instance, any fees earned by ageneral practitioner in excess of $164,108 (Canadian)a year are reimbursed at a rate of only25 percent.Not surprisingly, income controls have had anegative impact on work incentives. From 1972to 1978, for instance, general practitioners reducedby 11 percent the average time they spentwith their patients. In 1977, the first year of theincome ceiling, they reduced their averagework year by two-and-a-half weeks. 2Government controls also have caused misallocationsof resources. While doctors are inshort supply in remote regions, hospital bedsare scarce mainly in urban centers. The governmenthas reacted with more controls: youngdoctors are penalized if they start their practicein an urban center. And the president of theProfessional Corporation of Physicians has proposeddrafting young medical school graduatesto work in remote regions for a period of time.Nationalization of the health industry also

98 THE FREEMAN. MARCH 1989In Canada, sale of private insurancecovering the basic insured services isforbidden by law. Even if a Canadianwants to purchase basic privateinsurance besides the public coverage, hecannot find a private company legallyallowed to satisfy his demand.has led to increased centralization and politicization.Work stoppages by nurses and hospitalworkers have occurred half a dozen times overthe last 20 years, and this does not include a fewone-day strikes by doctors. Ambulance servicesand dispatching have been centralized undergovernment control. As this article was beingwritten, ambulance drivers and paramedicswere working in jeans, they had covered theirvehicles with protest stickers, and they weredangerously disrupting operations. The reason:they want the government to finish nationalizingwhat remains under private control in theirindustry.When possible, doctors and nurses havevoted with their feet. A personal anecdote willillustrate this. When my youngest son was bornin California in 1978, the obstetrician was fromOntario and the nurse came from Saskatchewan.The only American-born in the deliveryroom was the baby.When prices are zero, demand exceeds supply,and queues form. For many Canadians,hospital emergency rooms have become theirprimary doctor-as is the case with Medicaidpatients in the United States. Patients lie in temporarybeds in emergency rooms, sometimesfor days. At Sainte-Justine Hospital, a majorMontreal pediatric hospital, children often waitmany hours before they can see a doctor. Surgerycandidates face long waiting lists-it cantake six months to have a cataract removed.Heart surgeons report patients dying while ontheir waiting lists. But then, it's free.Or is it? The busy executive, housewife, orlaborer has more productive things to do besideswaiting in a hospital queue. For these people,waiting time carries a much higher costthan it does to the unemployed single person.So, if public health insurance reduces the costsof health services for some of the poor, it increasesthe costs for many other people. It discriminatesagainst the productive.The most visible consequence of socializedmedicine in Canada is in the poor quality ofservices. Health care has become more andmore impersonal. Patients often feel they are onan assembly line. Doctors and hospitals alreadyhave more patients than they can handle and nofinancial incentive to provide good service.Their customers are not the ones who write thechecks anyway.No wonder, then, that medicine in Quebecconsumes only 9 percent of gross domesticproduct (7 percent if we consider only publicexpenditures) compared to some 11 percent inthe United States. This does not indicate thathealth services are delivered efficiently at lowcost. It reflects the fact that prices and remunerationsin this industry are arbitrarily fixed,that services are rationed, and that individualsare forbidden to spend their medical-care dollarsas they wish.Is It Just?Supporters of public health insurance replythat for all its inefficiencies, their system atleast is more just. But even this isn't true.Their conception of justice is based on theidea that certain goods like health (and education?and food? where do you stop?) should be

SOCIALIZED MEDICINE: THE CANADIAN EXPERIENCE 99made available to all through coercive redistributionby the state. If, on the contrary, we definejustice in terms of liberty, then justice forbidscoercing some (taxpayers, doctors, andnurses) into providing health services to others.Providing voluntarily for your neighbor in needmay be morally good. Forcing your neighbor tohelp you is morally wrong.Even ifaccess to health services is a desirableobjective, it is by no means clear that a socializedsystem is the answer. Without market rationing,queues form. There are ways to jumpthe queue, but they are not equally available toeveryone.In Quebec, you can be relatively sure not towait six hours with your sick child in an emergencyroom if you know how to talk to thehospital director, or if one of your old classmatesis a doctor, or if your children attend thesame exclusive private school as your pediatrician'schildren. You may get good services ifyou deal with a medical clinic in the businessdistrict. And, of course, you will get excellentservices if you fly to the Mayo Clinic in Minnesotaor to some private hospital in Europe.The point is that these ways to jump the queueare pretty expensive for the typical lowermiddle-classhousewife, not to talk of the poor.An Enquiry Commission on Health and SocialServices submitted a thick report in December1987, after having met for 30 months andspent many millions of dollars. It complainsthat''important gaps persist in matters ofhealthand welfare among different groups.,,3 Now,isn't this statement quite incredible after twodecades of monopolistic socialized health care?Doesn't it show that equalizing conditions is animpossible task, at least when there is someindividual liberty left?One clear effect of a socialized health systemis to increase the cost of getting above-averagecare (while the average is dropping). Some poorpeople, in fact, may obtain better care undersocialized medicine. But many in the middleclass will lose. It isn't clear where justice is tobe found in such a redistribution.There are two ways to answer the question:"What is the proper amount of medical care indifferent cases?" We may let private initiativeand voluntary relations provide solutions. Orwe may let politics decide. Health care has to berationed either by the market or by political andbureaucratic processes. The latter are no morejust than the former. We often forget that peoplewho have difficulty making money in the marketare not necessarily better at jumping queuesin a socialized system.There is no way to supply all medical servicesto everybody, for the cost would be astronomical.What do you do for a six-year-oldMontreal girl with a rare form of leukemia whocan be cured only in a Wisconsin hospital at acost of $350,000--a real case? Paradoxicallyfor a socialized health system, the family had toappeal to public charity, a more and more commonoccurrence. In the first two months, thefamily received more than $100,000, includinga single anonymous donation of $40,000.This is only one instance of health servicesthat could have been covered by private healthinsurance but are being denied by hard-pressedpublic insurance. And the trend is gettingworse. Imagine what will happen as the popu­1ation ages.There are private solutions to health costs.Insurance is one. Even in 1964, when insurancemechanisms were much less developed than today,43 percent of the Quebec population carriedprivate health insurance, and half of themhad complete coverage. Today, most Americansnot covered by Medicare or Medicaidcarry some form of private health insurance.Private charity is another solution, so efficientthat it has not been entirely replaced by theCanadian socialized system.Can Trends Be Changed?People in Quebec have grown so accustomedto socialized medicine that talks of privatizationusually are limited to subcontracting hospitallaundry or cafeteria services. The idea of subcontractinghospital management as a whole isdeemed radical (although it is done on a limitedscale elsewhere in Canada). There have beensuggestions of allowing health maintenance organizations(HMO's) in Quebec, but the modelwould be that of Ontario, where HMO's aretotally financed and controlled by the publichealth insurance system. The government ofQuebec has repeatedly come out against forprofitHMO's.

100 THE FREEMAN. MARCH 1989Socialized medicine has had a telling effecton the public mind. In Quebec, 62 percent ofthe population now think that people should paynothing to see a doctor; 82 percent want hospitalcare to remain free. People have come to believethat it is normal for the state to take care oftheir health.Opponents of private health care do not necessarilyquarrel with the efficiency of competitionand private enterprise. They morally opposethe idea that some individuals may usemoney to purchase better health care. They preferthat everybody has less, provided it is equal.The Gazette, one of Montreal's Englishspeakingnewspapers, ran an editorial arguingthat gearing the quality of health care to theability to pay "is morally and sociallyunacceptable. ,,4The idea that health care should be equallydistributed is part of a wider egalitarian culture.Health is seen as one of the goods of life thatneed to be socialized. The Quebec EnquiryCommission on Health and Social Services wasquite clear on this:The Commission believes that the reductionof these inequalities and more generally theachievement of fairness in the fields of healthand welfare must be one of the first goals ofthe system and direct all its interventions. Itis clear that the health and social servicessystem is not the only one concerned. Thisconcern applies as strongly to labor, the environment,education and income security. 5A Few LessonsSeveral lessons can be drawn from the Canadianexperience with socialized medicine.First of all, socialized medicine, although ofpoor quality, is very expensive. Public healthexpenditures consume close to 7 percent of theCanadian gross domestic product, and accountfor much of the difference between the levels ofpublic expenditure in Canada (47 percent ofgross domestic product) and in the U.S. (37percent ofgross domestic product). So if you donot want a large public sector, do not nationalizehealth.A second lesson is the danger of politicalcompromise. One social policy tends to lead toanother. Take, for example, the introduction ofpublicly funded hospital insurance in Canada. Itencouraged doctors to send their patients to hospitalsbecause it was cheaper to be treated there.The political solution was to nationalize the restof the industry. Distortions from one governmentintervention often lead to more intervention.A third lesson deals with the impact of egalitarianism.Socialized medicine is both a consequenceand a great contributor to the idea thateconomic conditions should be equalized by coercion.If proponents of public health insuranceare not challenged on this ground, they will winthis war and many others. Showing that humaninequality is both unavoidable and, within thecontext of equal formal rights, desirable, is along-run project. But then, as Saint-Exuperywrote, "ll est vain, si l'on plante un chene, d'esperers'abriter bientot sous son feuillage."6 D1. Report of the Enquiry Commission on Health and Social Services,Government of Quebec, 1988, pp. 148, 339.2. Gerard Belanger, "Les depenses de sante par rapport al'economiedu Quebec," Le Medecin du Quebec, December 1981, p. 37.3. Report of the Enquiry Commission on Health and Social Services,p. 446 (our translation).4. "No Second Class Patients," editorial of The Gazette, May21, 1988.5. Report of the Enquiry Commission on Health and Social Services,p. 446 (our translation).6. "It is a vain hope, when planting an oak tree, to hope to soontake shelter under it."

101The British Way ofWithholding Careby Harry SchwartzThe problems associated with socializedmedicine can be symbolized by the fateof two children, David Barber and MatthewCollier, who died in early 1988 in theBritish city of Birmingham.Both children needed heart transplants to survive.Their parents became so desperate thatthey sued Britain's National Health Service toforce the NHS to provide the necessary medicalcare. Their efforts were in vain: Neither childgot the operation, and neither child is alive today.The point is not that those who run socializedhealthcare systems would rather see childrendie than give them the care they need to survive.Rather, the point is that all socialized systemslack one thing: enough money to provide qualitymedical care and to take full advantage ofmodem medical technology.In other words, the propagandists are stretchingthe truth a long way when they insist thatsocialized medicine provides a bountiful distributionof all the medical care people could wantor need. In reality, medical care is rationed insocialized systems. Managers must decidewhich patients will be sacrificed because thetotal amount of care provided is based on thetotal amount of money available.J. Enoch Powell, a former British cabinetmember who ran the NHS for three years,summed up the situation when he said that theDr. Schwartz, who lives in Scarsdale, N.Y., has been writingan editorial column on important people and events inmedicine for Private Practice magazine for more than eightyears.ReprintedJrom Private Practice, May 1988.demand for free medical care is infinite andcannot be satisfied by a country's limited resources.David Barber and Matthew Collier aretwo depressing examples of what can happenwhen the demand for care outstrips the supplyof money.Britain is not the only country plagued by thepitfalls of socialized medicine. UntiI recently,the Soviet Union's medical system was praisedto the skies by Soviet propaganda and by naiveAmericans who were taken in by that propaganda.But now that the current Soviet ruler,Mikhail S. Gorbachev, has called for open andhonest discussion ofhis country's problems, thetruth has emerged: Russia's health-care systemis-and has long been-a disaster. Basic medicinesare in short supply, while equipment totreat serious illnesses such as kidney disease isvirtually unavailable.For instance, the Soviet media have revealedthat the country's infant-mortality rate in recentyears has been two-and-a-half to three timesgreater than that of the United States. The deathrate for all Soviet citizens actually is rising, andmany hospitals lack even basic supplies andequipment. These revelations explain why, formost of the past two decades, the Soviet Unionhasn't bothered to report statistics on its infantmortality and death rates.As more and more of American medicine issocialized through the Medicare program for seniorcitizens and the Medicaid program for thepoor, rationing-the denial of care to savemoney for the government-is becoming evidenthere, too.

102 THE FREEMAN. MARCH 1989For example, in Oregon, legislators recentlydecided that the state would not finance heartand liver transplants. Instead, they made moremoney available for preventive activities suchas prenatal care. As a result, a number of Oregoncitizens whose lives could have been savedby transplants were told, in effect, to go aheadand die because the Oregon Medicaid programwould not help them.Diagnosis Related GroupsThe chief method of rationing care in theMedicare program is the system of diagnosisrelated groups, under which hospitals are paid afixed amount to treat beneficiaries. The reimbursementsare based on each patient's initialdiagnosis. As a result, hospitals try to dischargesenior citizens as quickly as possible becausethe less time they stay in the hospital, the moreprofit the hospital makes.Medicare managers already are trying to introducea much more radical method of rationinghealth care by getting as many senior citizensas they can to enroll in health maintenanceorganizations.Ifthis effort to boost HMO enrollment is successful,the government will save money becauseHMOs will receive a fixed amount annuallyfor each member, regardless of how muchmedical care that member receives. This meansthat HMOs have an incentive to give as littlecare as possible. The less care provided, themore money HMOs will make.One or two generations ago, many peopledreamed that socialized medicine would provideevery citizen with all the health care heneeded or wanted. But history has proved irrefutablythat socialized medicine is simply ameans of imposing Procrustean rationing on theentire population. In other words, some citizensreceive care and live, while others are deniedcare and are permitted to die as quickly as possible.[]F·E·E / 1989Summer SeminarsJuly 23-29August 13-19Join us in Irvington to explore the philosophy of freedom. Our 5-acrefacilities in suburban Westchester County provide the ideal settingfor intellectual pursuit. For full details and applications, write or telephoneJacob G. Hornberger, Director of Programs, Foundation for EconomicEducation, (914) 591-7230.

103Moral CriticislDs ofthe Marketby Ken S. EwertA· ccording to an author writing in arecent issue of The Nation maga-• zine, "The religious Left is the onlyLeft we've got." An overstatement? Perhaps.However, it points to an interesting fact,namely that while the opposition to free marketsand less government control has declined in recentyears among the "secular left," the political-economicviews of the "Christian left"seem to remain stubbornly unchanged.Why is this so? Why are the secular critics ofthe market mellowing while the Christian criticsare not?Perhaps one major reason is the different criteriaby which these two ideological allies measureeconomic systems. The secular left, aftermore than half a century of failed experimentsin anti-free market policies, has begrudginglysoftened its hostility towards the market for predominantlypragmatic reasons. Within theircamp the attitude seems to be that since it hasn'tworked, let's get on with finding something thatwill. While this may be less than a heartfeltconversion to a philosophy of economic freedom,at least (for many) this recognition hasmeant taking a more sympathetic view of freemarkets.However, within the Christian camp the leftistintellectuals seem to be much less influencedby the demonstrated failure of state-directedeconomic policies. They remain unimpressedwith arguments pointing out the efficiency andMr. Ewert, a graduate ofGrove City College, is working ona master's degree in public policy at CRN University.productivity of the free market, or statistics andexamples showing the non-workability of traditionalinterventionist economic policies. Why?One likely reason is that the criteria by whichthese thinkers choose to measure capitalism arefundamentally moral in nature, so much so thatsocialism, despite its obvious shortcomings, isstill preferred because of its perceived moralsuperiority. In their eyes, the justness and moralityof an economic system are vastly moreimportant than its efficiency.If indeed the Christian critics of the marketare insisting that an economic system must beultimately judged by moral standards, weshould agree and applaud them for their principledposition. They are asking a crucially importantquestion: is the free market a moral economicsystem?Unfortunately, these thinkers have answeredthe question with a resounding "No! " Theyhave examined the free market and found itmorally wanting. Some of the most commonreasons given for this indictment are that themarket is based on an ethic of selfishness and itfosters materialism; it atomizes and dehumanizessociety by placing too much emphasis onthe individual; and it gives rise to tyrannicaleconomic powers which subsequently are usedto oppress the weaker and more defenselessmembers of society.If these accusations are correct, the market isjustly condemned. But have these critics correctlyjudged the morality of the free market?Let's re-examine their charges.

104 THE FREEMAN. MARCH 1989I. SELFISHNESSThe market, it is suggested, is based on andencourages an ethic of selfishness. Accordingto critics of the market, mere survival in thiscompetitive economic system requires that weeach "look after Number One." Individuals areencouraged to focus on the profit motive to theexclusion of higher goals and as a result selfishnessbecomes almost a virtue. And this, it isnoted, is in stark contrast with the selfsacrificiallove taught by the Scriptures. Insteadof rewarding love, compassion, and kindnesstowards others, the free market seems to rewardself-orientation and self-indulgence. Instead ofencouraging us to be concerned about ourneighbor, the free market seems to encourageus to be concerned about ourselves. Individualswho might otherwise be benevolent, accordingto this view, are corrupted by the demands of aneconomic system that forces them to put themselvesfirst. In the thinking of these critics, themarket is the logical precursor to the "megeneration. ' ,However, this charge is superficial and misleadingin several respects. It is important toremember that while the free market does allow,'self-directed" economic actions, it does notrequire "selfish" economic actions. There is animportant distinction here. It should be obviousthat all human action is self-directed. Each ofushas been created with a mind, allowing us to setpriorities and goals, and a will, which enablesus to take steps to realize these goals. This isequally true for those who live in a market economyand those who live under a politically directedeconomy. The difference between thetwo systems is not between self-directed actionversus non-self-directed action, but rather betweena peaceful pursuit of goals (through voluntaryexchange in a free economy) versus acoercive pursuit of goals (through wealth transferredvia the state in a "planned" economy).In other words, the only question is how willself-directed action manifest itself: will it takeplace through mutually beneficial economic exchanges,or through predatory political actions?Clearly the free market cannot be singled outand condemned for allowing self-directed actionsto take place, since self-directed actionsare an inescapable part of human life. But can itbe condemned for giving rise to selfishness? Inother words, does the free market engender anattitude of selfishness in individuals? If we defineselfishness as a devotion to one's own advantageor welfare without regard for the welfareofothers, it is incontestable that selfishnessdoes exist in the free economy; many individualsact with only themselves ultimately in mind.And it is true, that according to the clear teachingof Scripture, selfishness is wrong.But we must bear in mind that although selfishnessdoes exist in the free market, it alsoexists under other economic systems. Is the Sovietfactory manager less selfish than the Americancapitalist? Is greed any less prevalent in thepolitically directed system which operates viaperpetual bribes, theft from state enterprises,and political purges? There is no reason to thinkso. The reason for this is clear: selfishness is notan environmentally induced condition, i.e., amoral disease caused by the economic system,but rather a result of man's fallen nature. It isout of the heart, as Christ said, that a man isdefiled. Moral failure is not spawned by theenvironment.It is clear that not all self-directed action isnecessarily selfish action. For example, when Ienter the marketplace in order to earn wealth tofeed, clothe, house, and provide education ormedical care for my children, I am not actingselfishly. Likewise, if you or I want to extendcharity to a needy neighbor or friend, we mustfirst take ' ,self-directed', action to create thewealth necessary to do so. Such action is hardlyselfish.The point is this: the free market allows individualsto peacefully pursue their chosengoals and priorities, but it doesn't dictate ordetermine those priorities. It does not force anindividual to focus on his own needs and desires,but leaves him or her at liberty to be selfcenteredor benevolent. My ultimate goal maybe self-indulgence, or I may make a high priorityof looking after others-the choice ismine. As to which I should do, the market issilent. As an economic system, the market simplydoes not speak in favor of selfish or unselfishpriorities.However, the free market, while not touchingthe heart of a man or eliminating selfishness,does in fact restrain selfishness. It chan-

MORAL CRITICISMS OF THE MARKET 105nels self-centered desires into actions that arebeneficial to others. This is so because in orderto "get ahead" in the free economy, we mustfirst please other people by producing somethingwhich is ofuse and value to them. In otherwords, the market disciplines each of us to lookoutwards and serve others. Only by doing socan we persuade them to give us what we wantin exchange.We will return to this theme later, but fornow the point is that in a very practical sense,the workings of the market persuade even themost self-indulgent among us to serve othersand to be concerned about the needs and wantsof his neighbor. True, the motivation for doingso is not necessarily pure or unselfish, but as theBible so clearly teaches, it is only God who canchange the hearts of men.Furthermore, the free market, because of theincredible wealth it allows to be created, makesliving beyond ourselves practicable. In order toshow tangible love toward our neighbor (ministerto his or her physical needs) we must firsthave the wealth to do so.We sometimes need to be reminded thatwealth is not the natural state of affairs.Throughout most of history the majority ofpeoplelived under some sort of centrally controlledeconomic system and were forced to devotemost of their energies to mere survival. Oftenall but the wealthiest individuals lacked the economicmeans to look much beyond themselvesand to aid others who were in need.But the productivity spawned by economicfreedom has radically changed this. In a freemarket, we are not only able to choose unselfishvalues and priorities, but we are also able tocreate the wealth necessary to fulfill them practically.II. MATERIALISMAnother moral indictment of the market,closely related to the charge of selfishness, isthe belief that the market fosters materialism.The example most often used to demonstratethe market's guilt in this area is the perceivedevil effect of advertising. It is contended thatadvertising creates a sort of "lust" in the heartsofconsumers by persuading them that mere materialpossessions will bring joy and fulfillment.In this sense, the market is condemned for creatinga spirit of materialism and fostering anethic of acquisitiveness. The market in general,and advertising specifically, is a persistenttemptress encouraging each of us to concentrateon the lowest level oflife, mere material goods.This charge can be answered in much thesame manner as the charge of selfishness. Justas allowing free exchange doesn't require selfishness,neither does it require materialism. It istrue that when people are economically free,materialism is possible, and certainly there arematerialistic people in market economies. Butthis hardly warrants a condemnation of the market.Materialism, like selfishness, can and willoccur under any economic system. It is obviousthat a desire for material goods is far from beingunique to capitalism. Witness, for example, theresponse of shoppers as a store puts out a newrack of genuine cotton shirts in Moscow or ashipment of fresh meat arrives in a Krakowshop.Although the role of advertising has beenmuch maligned, it in fact provides a vital serviceto consumers. Advertising conveys information.It tells consumers what products areavailable, how these products can meet theirneeds, and what important differences existamong competing products. The fact that this isa valuable function becomes apparent if youimagine trying to buy a used car in a worldwithout advertising. Either your choice of carswould be severely limited (to those cars youhappen to stumble upon, Le., gain knowledgeof) or you would have to pay more (in the formof time and resources used in seeking out andcomparing cars). In either case, without the"free" knowledge provided by advertising,you would be much worse off.But the economic role of advertising aside,does advertising actually "create" a desire forgoods? If it does, why do businesses in marketorientedeconomics spend billions of dollarseach year on consumer research to find out whatcustomers want? Why do some advertised productsnot sell (for example, the Edsel) or cease tosell well (for example the hula hoop)? In themarket economy consumers are the ultimatesovereigns of production. Their wants and prioritiesdictate what is produced; what is produceddoesn't determine their wants and prior-

106 THE FREEMAN. MARCH 1989ities. Many bankrupt businessmen, left withunsalable (at a profitable price) products wistfullywish that the reverse were true.Moreover, the Bible consistently rejects anyattempt by man to ascribe his sinful tendenciesto his environment. If I am filled with avaricewhen I see an advertisement for a new Mercedes,I cannot place the blame on the advertisement.Rather I must recognize that I am responsiblefor my thoughts and desires, and thatthe problem lies within myself. After all, Icould feel equally acquisitive if I just saw theMercedes on the street rather than in an advertisement.Is it wrong for the owner of the Mercedesto incite my desires by driving his carwhere I might see it? Hardly.Just as God did not allow Adam to blameSatan (the advertiser-and a blatantly false advertiserat that) or the fruit (the appealing materialgood) for his sin in the Garden, we cannotlay the blame for materialism on the free marketor on advertising. The materialist's problem isthe sin within his heart, not his environment.If we follow the environmental explanationof materialism to its logical conclusion, theonly solution would appear to be doing awaywith all wealth (i.e., eliminate all possibletemptation). If this were the appropriate solutionto the moral problem of materialism, perhapsthe moral high ground must be concededto the state-run economies ofthe world after all.They have been overwhelmingly successful atdestroying wealth and wealth-creating capital!III. IMPERSONALISM ANDINDIVIDUALISMAnother common criticism of the marketeconomy is its supposed impersonal nature andwhat some have called "individualisticanarchy. " According to many Christian critics,the market encourages self-centered behaviorand discourages relational ties in society. Thenon-personal market allocation of goods andservices is seen to be antithetical to the seeminglyhigher and more noble goal of a lovingand interdependent community. Because of theeconomic independence that the market affords,the individual is cut off from meaningful relationshipswith his fellow human beings and divorcedfrom any purpose beyond his own interests.In short, the free market is accused ofbreeding a pathetic and inhumane isolation.But does the market encourage impersonalbehavior? Certainly not. It is important to understandthat the presence of economic freedomdoes not require that all transactions and relationshipstake place on an impersonal level. Forexample, many people have good friendshipswith their customers, suppliers, employees, oremployers. While these relationships are economic,they are not merely economic and theyare not impersonal.Furthermore, while the market leaves us freeto deal with other people solely on the basis ofeconomic motives, we are not required nor evennecessarily encouraged to do so. We are completelyfree to deal on a non-economic basis.Suppose that I am in the business of sellingfood, and I find that someone is so poor that hehas nothing to trade for the food that I am offeringfor sale. In the free market I am completelyfree to act apart from economic motivesand make a charitable gift of the food. I have inno way lost my ability to act in a personal andnon-economic way.Community RelationshipsSo the market is not an inherently impersonaleconomic system. Nor is it hostile to the formationof community relationships.An excellent example of a community whichexists within the market system is the family.Obviously I deal with my wife and children in anon-market manner. I give them food, shelter,clothing, and so on, and I certainly don't expectany economic gain in return. I do so joyfully,because I love my family and I value my relationshipwith them far above the economic benefitsI forgo. Another example is the church. Ihave a non-economic and very personal relationshipwith people in my church. And thereare countless teams, clubs, organizations, andassociations which I can join, if I choose. If Iwant, I can even become part of a commune.The market economy doesn't stand in the wayof, or discourage, any of these expressions ofcommunity.But now we come to the heart of this objectionagainst the market: what if people will notvoluntarily choose to relate to each other in per-

MORAL CRITICISMS OF THE MARKET 107sonal or community-type relationships? What ifthey choose not to look beyond their own interestsand work for some purpose larger thanthemselves? The answer to this is the ratherobvious question: Who should decide what isthe appropriate degree of relationship and community?True community, I submit, is somethingwhich must be consensual, meaning it must bevoluntarily established. Think of a marriage ora church. If people do not choose to enter intothese relationships when they are free to do so,we may judge their action to be a mistake, butby what standard can we try to coerce them intosuch relationships? Even if there were some objectivestandard of "optimum community," itis not at all clear that we would create it byrobbing people of their economic freedom.There is no reason to believe that individualsliving under a system of economic "planning"are less isolated or have more community byvirtue of their system. The fact that individualsare forced into a collective group hardly meansthat a loving and caring community will result.Love and care are things which cannot be coercivelyextracted, but must be freely given.Moreover, the free market actually encouragesthe formation and maintenance of the mostbasic human community-the family. As theutopian socialists of past centuries-includingMarx and Engels-recognized, there is a vitalconnection between private property and the integrityof the family. Destroy the one, they reasoned,and the other will soon disintegrate.Their motives were suspect but their analysiswas correct. When the state fails to protect privateproperty and instead takes over the functionstraditionally provided by the family (suchas education, day care, health care, sicknessand old-age support), the family unit is inevitablyweakened. Family bonds are undermined asthe economic resources which formerly allowedthe family to "care for its own" are transferredto the state. There is little doubt that the disintegrationof the family in our country is in largepart due to state intervention. Instead ofturningtoward and receiving personal care from withinthe family, individuals have been encouraged totum toward the impersonal state. The result hasbeen the disintegration of family bonds. It isstate economic intervention-not the free marketsystem-which is inherently impersonal andantithetical to true human community.IV. ECONOMIC POWERThe objection to the market on the grounds ofimpersonalism is based on the same fallacy aswere the previously discussed charges of selfishnessand materialism. Each of these claimsindicts the market for ills which in fact are commonto all mankind-faults that would exist underany economic system. Impersonalism, selfishness,and materialism are the consequence ofthe fall of man, not the fruit of an economicsystem which allows freedom. If these sinfultendencies are an inescapable reality, the questionthat must be asked is: "What economicsystem best restrains sin?"This brings us to a fourth moral objection tothe market which is often espoused by theChristians of the left: that the market, which isoften pictured as a "dog-eat-dog" or "survivalof the fittest" system, leaves men free to oppresseach other. It allows the economicallypowerful to arbitrarily oppress the economicallyweak, the wealthy to tread upon and exploit thepoor. According to this view, wealth is power,and those with wealth will not necessarily usetheir power wisely and justly. Because the natureof man is what it is, this "economicpower" must be checked by the state and restrainedfor the public good.But does the market in fact allow individualsto exploit others? To begin with, there is a greatdeal of misunderstanding about this thing called,'economic power." The term is in fact somewhatof a misnomer. When we speak of power,we normally refer to the ability to force or coercesomething or someone to do what we desire.The motor in your car has the power tomove the car down the road; this is mechanicalpower. The police officer has the power to arrestand jail a lawbreaker; this is civil power.But what of economic power? If I possess agreat deal of wealth, what unique ability doesthis wealth confer?In reality what the critics of the market calleconomic power is only the ability to pleaseothers, and thus "economic power" is notpower in the true sense of the word. Regardlessof a person's wealth, in the free market he can

108 THE FREEMAN. MARCH 1989get what he wants only by pleasing another personthrough offering to exchange somethingwhich the other deems more valuable. Wealth(assuming it is not used to buy political power)doesn't bestow the ability to apply force to ordominate another individual.Take for example the employer of labor, anindividual who is often considered to be theembodiment of economic power and an exploiterof those less powerful than himself. It isoften forgotten that an employer can get what hewants-employees for his business--only byoffering something which pleases them, namelya wage which they consider better than notworking, or better than working for someoneelse. He has no power to force them to comeand work for him, but only the power to offerthem a better alternative.What ensures that he will want to make thema pleasing offer? The fact that doing so is theonly way to get what he is interested in, namelytheir labor, provides a very strong incentive.But suppose the prospective employee is in verydesperate straits and almost any wage, even onewhich seems pitifully low, will please himenough to work for the employer. In this situation,it seems as if the employer can get awaywith paying "slave wages" and exploiting theeconomically weaker employee.This scenario, however, ignores the effectsof the competition among employers for employees.In the market economy, employers arein constant competition with other employersfor the services of employees. They are,'disciplined" by this competition to offer topwages to attract workers. Because of competition,wages are "bid up" to the level at whichthe last employee hired will be paid a wagewhich is very nearly equivalent to the value ofwhat he produces. As long as wages are lessthan this level, it pays an employer to hire anotheremployee, since doing so will add to hisprofits. Economists call this the marginal productivitytheory of wages.But what if there were no competing employers?For example, what about a "one-companytown"? Without competition, wouldn't the employerbe able to exploit the employees and pay"unfair" wages?First ofall, it is important to remember that inthe free market, an economic exchange occursonly because the two trading parties believe thatthey will be better off after the exchange. Inother words, all exchanges are "positive sum"in that both parties benefit. Thus if an employeein this one-company town is willing to work forlow wages, it is only because he or she places ahigher value on remaining in the town andworking for a lower wage than moving to anotherplace and finding a higher paying job. The"power" that the employer wields is still onlythe ability to offer a superior alternative to theemployee. In choosing to remain and work fora lower wage, the employee is likely consideringother costs such as those ofrelocating, findinganother job, and retraining, as well as nonmonetarycosts, such as the sacrifice of localfriendships or the sacrifice of leaving a beautifuland pleasant town.Moreover, this situation cannot last for long.If the employer can pay wages that are significantlylower than elsewhere, he will reapabove-average profits and this in tum will attractother employers to move in and take advantageof the "cheap labor." In so doing,these new employers become competitors foremployees. They must offer higher wages inorder to persuade employees to come and workfor them, and as a result wages eventually willbe bid up to the level prevailing elsewhere.Economic Ability to PleaseWhat is true for the employer in relation tothe employee is true for all economic relationshipsin the free market. Each individual,though he may be a tyrant at heart, can succeedonly by first benefiting others-by providingthem with an economic service. Regardless ofthe amount of wealth he possesses, he is neverfreed from this requirement. Economic"power" is only the economic ability to please,and as such it is not something to be feared. Farfrom allowing men to oppress each other, thefree market takes this sinful drive for power andchannels it into tangible service for others.It is also important to consider that the onlyalternative to the free market is the politicaldirection of economic exchanges. As the PublicChoice theorists have so convincingly pointed

MORAL CRITICISMS OF THE MARKET 109out in recent years, there is no good reason tosuppose that people become less self-interestedwhen they enter the political sphere. In otherwords, to paraphrase Paul Craig Roberts, thereis not necessarily a "Saul to Paul conversion"when an individual enters government. If hewas power-hungry while he was a privatemarketparticipant, he likely will be powerhungryafter he becomes a "public servant."But there is an important difference. In contrastwith economic power, political power istruly something to be feared because of its coerciveaspect. The power-seeking individual ingovernment has power in the true sense of theword. While in the market he has to pleasethose he deals with in order to be economicallysuccessful, the same is not true, or is true to afar lesser degree, in the political sphere. In thepolitical sphere he can actually abuse one groupof people but still succeed by gaining the favorof other groups of people.A classic example is a tariff. This economicintervention benefits a small group ofproducers(and those who work for or sell to the producers)at the expense of consumers who have topay higher prices for the good in question. Thepolitician gains in power (and perhaps wealth)because of the significant support he can receivefrom the small but well-organized groupof producers. Other examples of the use of politicalpower that clearly benefit some individualsat the expense of others are governmentbail-outs, subsidies, price supports, and licensingmonopolies. The fact that these types oflegislation continue despite the fact that theyharm people (usually the least wealthy and mostpoorly organized) demonstrates the tendency ofmankind to abuse political power.In fact, virtually every state intervention intothe economy is for the purpose ofbenefiting oneparty at the expense of another. In each of thecases mentioned above, some are exploited byothers via the medium ofthe state. Therefore, ifwe are concerned about the powerful oppressingthe weak, we should focus our attention onthe abuse of political power. It, and not theso-called "economic power" of individualsacting within the free market, is the true sourceof tyranny and oppression. Our concern for thedowntrodden should not lead us to denigrateeconomic freedom but rather to restrain thesphere of civil authority.V. CONCLUSIONThe free market is innocent of the chargesleveled at it by its Christian critics. Its allegedmoral shortcomings tum out to be things whichare common to mankind under both free andcommand economic systems. While it is truethat the free market restrains human sin, itmakes no pretense of purging people of theirselfishness, materialism, individualism, anddrive for power. And this, perhaps, is the truesin in the eyes of the market's critics.The market is explicitly non-utopian. Itdoesn't promise to recreate man in a new andmore perfect state, but rather it acknowledgesthe moral reality of man and works to restrainthe outward manifestations of sin. In this sensethe free market is in complete accord with Biblicalteachings. According to Scripture, mancannot be morally changed through any humansystem, be it religious, political, or economic,but moral regeneration comes solely throughthe grace of God.Ifthe Christian critics ofthe market expect aneconomic system to change the moral characterof people, they are sadly mistaken. Such a taskis clearly beyond the ability of any human institutionor authority. We must be content torestrain the outward expression of sin, and thisis something which the free market does admirably.DGovernInents and MenGOVERNMENTS, like clocks, go from the motion men give them; and asgovernments are made and moved by men, so by them they are ruined, too.- WILLIAM PENNIDEASONLIBERTY

110Scandal at theWelfare Stateby Tibor R. MachanThere is much talk these days about governmentcorruption. Scandals aboundand usually involve special benefits obtainedby organizations from local, state, orfederal governments. Government officials areaccused of playing favorites as they carry outtheir duties. They are charged with acceptinggifts or campaign contributions in return forgiving supporters special treatment.But there is reason to believe that the moreobvious improprieties are merely routine behaviorcarried out somewhat ineptly. In otherwords, it is very doubtful that politics in oursociety involves anything more noble than playingfavorites, serving special interests-and neglectingwhat could be reasonably construed asthe true public interest.Although the distinction between the publicand the private interest is quite meaningful, thedemocratic welfare state totally obscures it.Such a system favors majority rule regardingany concern that some member of the publicmight have (if it can be brought to public attention).It treats everyone's project as a candidatefor public support. And, of course, most everyperson or group has different objectives. Thus,so long as these objectives can be advanced bypolitical means, they can gain the honorific statusof "the public interest."It is noteworthy that this may be the result ofwhat Professor Benjamin Barber of RutgersTibor Machan teaches philosophy at Auburn University,Alabama. His recently edited volume Commerce and Moralitywas just published by Rowman and Littlefield, and heis now working on a book titled Public Realms and PrivateRightsjor the Independent Institute ofSan Francisco.University has called a strong democracy-apolitical system that subjects all issues ofpublicconcern to a referendum. This approximation ofstrong democracy-where, for example, justwanting to add a porch to one's home must becleared with the representatives of the electorate-hasproduced our enormous "welfare"state. Yet it was just this prospect that the framersof the U. S. Constitution wanted to avoid.That in part accounted for their insistence on aBill of Rights, namely, on denying to government-democratic,monarchical, or whatever-thekind ofpowers that strong democracyentails.To see how confusing things have become inthis kind of strong democracy/welfare state,consider a few current topics of "publicconcern. " Take, for example, wilderness preservation,an issue that appeals to many andcannot be considered a bad exampleenvironmentalistswho favor interventionistpolicies certainly believe that government preservationof wilderness areas is in the public interest.Yet it is not unreasonable to suppose thatmany people do not have the wilderness as theirtop priority. Sure, they might like and even benefitfrom some ofit. But in the main, they mightprefer having at least part of the wildernessgiven up in favor of, say, housing developmentwhich might better suit their needs.Or take all those Ralph Nader-type crusadesfor absolutely safe automobiles, risk-free medicalresearch, and the banning of genetic experiments.Mr. Nader is the paragon of the socalledpublic-minded citizen, presumably

111without a self-interested bone in his body.Whatever his motives, however, his concernsquite legitimately are not shared by many citizens-e.g.,those who would prefer more powerful,maneuverable automobiles that canquickly get out of tight spots. These peoplemight well lead better lives without all thisworry about safety-they might be good driversfor whom Nader's concern about safety is superfluous.Jeremy Rifkin, a Nader type who would banall genetic experimentation, is another of thosewho bill themselves as public interest advocates,presumably without a tinge of self- orvested interest to their names. But such personsin fact serve quite particular interests. Theseand similar-minded individuals clearly do notfavor the general public. They favor, instead,some members ofit. The rest can fend for themselveswhen Mr. Rifkin and others gain the politicalupper hand.The point is that when government does somuch-in behalf of virtually anyone who cangain political power or savvy-it is difficult totell when it is serving the true public interest.Everyone is pushing an agenda on the governmentin support of this or that special interestgroup.There is under such a system hardly any bonafide public service at all. In this case, laws oftenserve a private or special purpose-e.g., smokingbans in restaurants, prohibition of gambling,mandatory school attendance, businessregulations that serve the goals of some but notof others. Such a bloated conception of the,'public" realm even undermines the integrityof our judicial system. Courts adjudicating infractionsof such special interest laws becomearms of a private crusade, not servants of thepublic.An Erosion of ConfidenceOne consequence of this is that confidence inthe integrity of government officials at everylevel, even those engaged in the essential functionsof government, is becoming seriouslyeroded. The police, defense, and judicial functionsall are suffering because government hasbecome over-extended.

112 THE FREEMAN. MARCH 1989As government grows beyond its legitimatefunctions, scandals become the norm. They certainlyshould not be surprising. They merelyrepresent the more obviously inept ways of tryingto get the government to do your own private,special bidding.It is all just a matter ofgetting your part ofthepie out of Washington-whether it be day carefor your children, a monument to your favoritesubjects, help to unwed mothers, support offalteringcorporations, or protection of the textileindustry from foreign competition. Everyonewants to get the government on his side. Somepeople do this in ways that make it all appear onthe up and up. They hire the necessary legalhelp to navigate the complicated catacombs ofthe welfare state. Others aren't so adept.In such a climate it is actually quite surprisingthat not more scandals erupt. Probably that isdue to even more corruption-in this casecover-ups.Were government doing something morenearly within its range of expertise-protectingindividual rights from domestic and foreignthreats-some measure of ethical behaviorcould be expected from it. But when, despite allthe failures and mismanagement of government,people continue to go to it to ask forbailouts, why be surprised when some do itmore directly, without finesse? And why wonderat their claim, when caught seeking favorsopenly and blatantly, that they are innocent?In light of this, an old adage gains renewedsupport: the majority of people get just the kindof government they deserve. It is they whoclamor for state favors by dishonestly callingtheir objectives the "public" interest. Noticehow many look to political candidates for futurefavors, how many support this or that politicianbecause they expect something in return oncethe political office has been gained. Unfortunately,many of us who choose not to play thepolitical game have the results imposed on us inthe form of higher taxes and more burdensomeregulations.It may be surprising, after all this, that thereare certain matters which are of genuine publicinterest-the Founding Fathers had a clear ideaof the public interest, as have most classicalliberals. The public interest amounts to what isin everyone's best interest as a member of thecommunity-the defense of individual rightsfrom domestic and foreign aggression. Here iswhere our individual human rights unite us intoa cohesive public, with a common interest. Weare justified in establishing a government, withits massive powers, only if this is our goal-toprotect and maintain the public interest so understood.Once we expand the scope of the public-ineffect make the concept "public" quite meaningless-thepowers of the state get involved intasks that serve only some of the people, andoften at the expense of other people. And thatsimply breeds bad government-whether hidden,by phony legislation and regulation, or bymeans of out-and-out corruption and subsequentscandal.It is therefore not surprising that the welfarestate is so susceptible to misconduct. The lessonwe ought t9 take away is that the scope of governmentshould be reduced to proper proportions-thedefense of individual rights. 0Why History Repeats ItselfSome modem zealots appear to have no better knowledge of truth, norbetter. manner of judging it, than by counting noses.-JONATHAN SWIFTIDEASONLIBERTY

113Private Citiesby J. Brian PhillipsIn recent years, the benefits of the free markethave been demonstrated as governmentsaround the world have turned to theprivate sector to provide services more efficiently.However, critics of the free market arguethat these benefits are isolated cases-that atruly free society is unworkable and impractical.Government, the argument goes, is far betterequipped to provide the services and publicfacilities individuals need and desire.However, a growing number of Americanhomeowners are unknowingly demonstratingjust how far privatization can go. Planned unitdevelopments (PUD's) are privately developed,and primarily privately operated, communities.PUD's first became popular in the mid-1960safter Congress passed the 1961 Housing Actpermitting the Federal Housing Administrationto insure condominium mortgages. Today,nearly 30 million Americans live in approximately100,000 planned communities, consistingof single-family homes, townhouses, condominiums,shopping centers, office buildings,and facilities to house light industry. Thesecommunities range in size from a single condominiumbuilding to huge complexes of morethan 50,000 acres. PUD's include retirementcommunities in the sunbelt states, all-adultcommunities, and communities catering to familieswith children.Whatever the particulars of a given community,PUD's have three common traits: buildingand land use restrictions, shared amenities, andcommunity associations to which all propertyowners belong.J. Brian Phillips is a free-lance writer based in Houston,Texas.The Economist (April 5, 1986) reports that"within their enclaves these associations performall the functions of a small government. ' ,The associations, according to one developmentcompany, "work to assure that the communities'amenities, public facilities and other areasare supported and maintained." (New HomeJournal, May/June 1987) In essence, they are acombination public works/parks and recreationdepartment. Funding usually comes from maintenancefees assessed on each property owner.Perhaps the most important function of thecommunity association is enforcing deed restrictions.Deed restrictions are a form of private"zoning," in which developers establishcertain rules to prevent undesirable buildingsand land use. Like zoning, deed restrictionsprovide continuity within a given area; unlikezoning, deed restrictions are governed by marketconsiderations."When you are developing a master-plannedcommunity you are essentially trying to make itso the [homeowner] doesn't have to leave thearea to get what he wants," explains DennisGuerra, a project manager for the First Colonymaster-planned community near Houston. Thisrequires a careful marketing study to determinethe amenities homeowners want. Retail shops,grocery and convenience stores, doctors, dentists,animal clinics, and other frequently visitedbusinesses are often located within thecommunity.Most PUD's consist of a number of villages-subdivisionswithin the PUDseparatedby the community's major roads.Business areas are located along these thoroughfares,which helps "keep cars essentially

114 THE FREEMAN. MARCH 1989One of the homes in Houston's First Colony.out of the residential areas," says Guerra. Inplanning a community, the developer mustwork closely with the business community toconstruct a plan which benefits businesses andfuture homeowners.This does not mean that businesses dictate acommunity's plan. For many years, Guerrasays, First Colony resisted attempts by variousfast-food chains to build restaurants in the community.The locations sought by the chainswould have drawn excessive traffic and disruptedthe developer's master plan. Because developersmust be concerned with the long-termeconomic success of their projects, such considerationsare essential. Conversely, zoningboards are generally motivated by short-termpolitical expediency. More significantly, deedrestrictions eliminate zoning bureaucracies andthe accompanying taxes.While separating commercial and residentialareas is a common justification for zoning, developershave found that many homeownersprefer to be close to shopping centers and theirjobs. Indeed, many communities seek businessesfor this very reason. For example, Windward,a community north of Atlanta which catersto relocated executives, encouragescorporations to locate facilities within the community.Dearborn Park, just south of Chicago'sLoop, is within walking distance of work formany of its young, professional residents.Many communities locate light industries alongtheir perimeters. These mixed-use communitiesare becoming increasingly popular, as the freemarket seeks to meet the demands ofhomeowners.This type of flexible land use is nearly alwaysprohibited by government zoning boards.The extensive planning required by PUD'soffers a private alternative to another activitytraditionally undertaken by government: protectionof the environment. Parks, greenbelts, joggingtrails, and wooded areas can be found innearly every planned community. According toone development company, this is how it "enhancesthe values of a master-planned communityby working with, not against, nature."(New Home Journal, May/June 1987) Some developersgo so far as to operate tree farmswithin their communities.In Washington State, timber industry giantWeyerhaeuser Company is planning a $1 billionresidential community abutting Puget Sound.Up to 30 percent ofthe community will be openspace-golf course, parks, trails, and forests.At Boca Pointe, a I,OI9-acre community inBoca Raton, Florida, nearly 40 percent of thedevelopment consists of parks, greenbelts,lakes, and fairways. Kingwood, a communitynear Houston also called The Livable Forest,has more than 30 miles of wooded trails forwalking, jogging, and bike riding.Golf courses are popular amenities in masterplannedcommunities, as builders seek to createa resort-like atmosphere for homeowners."Equestrian communities" -developmentswith horseback-riding facilities-have beenbuilt or are planned in Arizona, Illinois, Utah,and California. The Palm Beach Polo andCountry Club in Florida offers ten polo fields,45 holes of golf, and two croquet lawns forresidents. Swimming pools, health clubs, tenniscourts, saunas, and other recreational facilitiesare also common in PUD's.While these facilities are generally built bythe developer, the homeowners associationeventually assumes control and maintenance responsibilities.Some facilities, such as golfcourses and health clubs, are operated by privatebusinesses, and require membership fees.But all of these recreational facilities are providedby the private sector, replacing the parksand recreation departments found in most cities.Just as city governments organize sportsleagues to use municipal parks, homeownersassociations sponsor activities to utilize thecommunity'S facilities. Basketball, softball,and volleyball leagues are popular amongadults. ' 'Dads' clubs', organize and operate

PRIVATE CITIES 115baseball, swimming, and other sports teams forcommunity children.Community activism is hardly limited to athletics.The homeowners associations encourage"grass-roots" democracy, and give propertyowners an opportunity to influence decisionsregarding their community. Civic associationsalso provide support groups, and sponsor artshows, theater groups, and scouting programsfor children. A civic group in Kingwood, nearHouston, opened a 60,OOO-volume library in1983. Fun runs, parades, and holiday celebrationsare also common activities within PUD's.A High Level of ServicesTo homeowners, one of the most attractivefeatures of master-planned communities is theirsecurity. At Las Colinas, near Dallas, a computer-controlledsecurity system provides immediateaid from police, firemen, or medicalprofessionals. The Towers of Quayside in Miamiis a virtual fortress, with closed-circuit televisionsurveillance, an electronic anti-intrusionbeam, and strolling security guards keeping outunwanted visitors.While such sophistication is rare, even lessaffluent neighborhoods often have some formof private security protection. Shared costsmake this affordable. Most developers constructgates at the entrances to their communities.When residents are willing to pay for it,these gates are manned by security personnel.Other communities establish volunteer securitypatrols, consisting of community residents.Fire protection-particularly in unincorporatedareas-is usually provided by either privatecompanies or volunteer fire departments.Independent water districts provide water andsewage treatment. Private companies collectgarbage, and are contracted by the homeownersassociation. Catering to families, Centura Parcin Florida and Lake Valley Ranch in Texas offerday care for children. Other developers arealso planning to include child care facilities.Because of the high density of homes in mostPUD's, they make attractive targets for citiesseeking to expand their tax bases through annexation.Generally, when a PUD is annexed,most services-water, fire protection, garbagepick-up, etc.-are then provided by the municipality.In the process, homeowners lose autonomyand the accompanying benefits.Some services, such as schools, are providedby the public sector in nearly all PUD's. Manycommunities in unincorporated areas rely on thecounty sheriff's department for security. Androad maintenance, after certain requirementsare met, generally becomes the responsibility ofcounty road crews. But this does not detractfrom the broader lesson to be learned from master-plannedcommunities; the private sector canand does provide nearly all services traditionallyassigned to city governments. While opponentsof privatization are arguing that only governmentcan provide certain services-parksand recreation facilities, land use controls, trashpiCk-Up, fire protection-private developers arebusily proving otherwise.Like every human enterprise, PUD'shavetheir critics. Deed restrictions, critics argue, areoften excessive. Planned communities aren'tplanned well enough. Streets are often haphazard.Retail shops are too inconvenient to reach.Such criticisms are generally intended to justifysome form of government planning, either director indirect.However, no community, regardless of whoplans it, will appeal to everyone. Our tastes inneighborhoods, like our tastes in movies,clothes, and food, vary as widely as individualsthemselves. And this is precisely why the freemarket is vastly superior to government planning-freedomallows individuals to chooseand pursue their own values without interferencefrom others. The free market operates onvoluntary, contractual agreements; governmentpolicies and programs operate by means of coercion.In a free, competitive market, developersmust compete to attract customers. Excessiveregulations or inefficient land use will discouragepotential buyers, and detract from the developer'slong-term economic self-interest.Protecting property values through deed restrictionsand providing high-quality, low-cost servicesmake master-planned communities an attractivehousing alternative. Thirty millionAmericans call them home; advocates of freedomcall them a step in the right direction. D

1161992:Which Visionfor Europe?by Nick ElliottShould we look forward to 1992 or view itwith trepidation? This is the question inthe minds of the many onlookers, insideand outside of Europe, who are waiting nervouslyto see what form the new Europe willtake.Nineteen ninety-two is the year that the SingleEuropean Act comes into force. This Actwas agreed to by the member countries of theEuropean Community. The aim of it is to dissolvethe barriers which divide countries withinEurope, to allow more communication and integration.Everybody is talking about 1992 because it isthe opportunity for a change of direction. It is achance to tum the Community into somethingmore useful than it has been. At the moment theproblem is that the European leaders have differingvisions. Some would like to use the Communityas a framework for freer trade and lessregulation. On the other side are those who havealways hankered after a federal European government.The European Economic Community (EEC)was formed by the Treaties of Rome, signed in1957 by representatives from Belgium, France,West Germany, Italy, Luxembourg, and theNetherlands. The intention was to do away withtariffs between members, set uniform externalMr. Elliott works for the Adam Smith Institute, a freemarketthink tank in London. He is a regular contributor tothe journal Economic Affairs, published by the Institute ofEconomic Affairs.tariffs, and permit free movement of labor andcapital.European "government" became a reality in1967 with the establishment of a European Parliament,Council of Ministers, European Commission,and European Court of Justice withheadquarters in Brussels. The collective namegiven to these bodies and the EEC was the "EuropeanCommunity." Britain joined the Communityin 1973, and there are now twelve members:Belgium, Denmark, France, WestGermany, Greece, Ireland, Italy, Luxembourg,the Netherlands, Portugal, Spain, and Britain.Many of the politicians who originallyplanned the European Community envisagedgenuine European government, with legislativepowers gradually relinquished by member governmentsand vested in the European state machinery.Little has been achieved in this direction.European government has failed toestablish authority. It has intervened quiterarely in the affairs of sovereign parliaments,and Commission rulings have often been disregarded.Italy, for example, has been summonedto the European Court ofJustice over 100 timesfor failure to comply with Commission directives,and in 36 of these cases it has continuedto break the rules after being found guilty.More important than the attempts made atsovereign European government have beenCommunity economic policies. The largest partof Community activity has been agriculturalsubsidization. Around two-thirds of the Communitybudget every year is spent on the CommonAgricultural Policy (CAP) which is largelya system ofproduction subsidies for the farmersof member countries. CAP has added almost$20 a week to the food bill of the average family,and has sponsored massive overproduction.For the layman, this is what the European Communityamounts t()--butter mountains and winelakes, and overpaid bureaucrats in Brussels toadminister them.When the Community was originally formed,the consensus ofprinciples was very different towhat it is today. The Rome Treaties were writtenin the spirit of the age. They embodied thecorporatist economic and political ethos thatprevailed at the time. Output of coal and steeland supplies of wheat and milk were to be determinedby a single "supranational authority. ' ,

117The assumptions were that production decisionsshouldn't be left to uncoordinated individualmarkets, but instead should be managed bygovernment overseers who could better identifythe best interests of the entire Community.The whole design of the Community wasframed by the same interventionist preconceptions.It is unfortunate that the Community governmentsuperstructure has remained largelyuntouched by the changes in the foundations ofpolitical thinking since. Although the ideas ofthe 1950s have almost been relegated from discourse,the dead shell remains. The Community,in its old form, has not been popular inBritain and the same is true, I suspect, amongthe silent majorities of the other Europeanmember countries. Contrary to the aim of fosteringunity, the Community has been thesource ofendless nationalistic antagonisms overagricultural quotas and price supports.Community membership has been a burdento endure. Free marketeers identify 1992 as achance to redefine the Community, to make Europea free trade zone under its auspices. MargaretThatcher sees 1992 as the opening forgreater economic integration; she views it as thechance to remove regulations and trade barrierswhich hinder trade links between Europeancountries.A different vision is held by Jacques Delors,who is President of the European Commission,the executive body of the Community. He is atleast equally concerned to use 1992 to elevatecontinental government. He said recently thathe expects 80 percent of future legislation tocome from Brussels.What Will 1992 Bring?Nineteen ninety-two remains a year in searchof an identity. No one can be quite sure of whatit will bring. Recent debates, however adversarial,are essential as part of the political processof pinning down some points of compromiseand agreement. Over the next few yearsthe consequences of this debate will clarify, andwhat exactly is going to happen in 1992 willbecome much clearer too.What is needed is to update the Communityin keeping with the complexion of the 1980sand 1990s. A good start toward this is the pro-posal of a Single European Market, a schemefor removing trade barriers which interrupt theflow of goods and services between membercountries. The Single European Market is exactlythe kind ofinnovation that the Communityneeds. It can bring the Community up to datewith the new consensus for freer markets. Itmight also improve the disposition of the Englishto be "European" by delivering some tangiblebenefits.The Single European Market is potentially aherald of momentous changes. It will lead tomany new specializations as free competitiontraces out the patterns of comparative advantage.Over the last decade British people haveadjusted themselves to living in a more dynamicand mobile society. Thatcherism has encouragedpeople to assume the outlook of entrepreneurship;people are much more ready to lookfor their own niche in th~ inarket.This will accelerate with the European market.There are likely to be many challenges totraditional patterns of life; a coal pit in Walesmight find it impossible to compete with Europeanrivals. But just as there will be many moreshocks to the ossified Britain of old, so peoplewillleam to accept it and to thrive.With the new choices provided by a Europeanmarket for consumers to shop around in,government-run enterprises will lose their monopolypower. One example is the BritishBroadcasting Corporation (BBC). With deregulationof broadcasting on the agenda, and withthe rapid spread of satellite TV, it will soon bepossible in Britain to tune into a multitude ofstations. The BBC will be forced to reform itssnooty attitude toward providing television thatpeople want to watch. Otherwise it will lose outto foreign stations which give a better service.The same stiff wind of competition will bebrought to bear on the archaic practices ofbanks, probably to the cosseted profession oflawyers, and, with the completion of the Channeltunnel, to ferry services. The NationalUnion of Seamen will lose its stranglehold oncross-channel services. Deregulation will snowballas releasing one set of controls renders othersless easy to enforce.Most of the moves toward the Single EuropeanMarket have been very positive. At theEuropean summit meeting last June, it was

118 THE FREEMAN. MARCH 1989agreed that all controls on capital movementswill go, this being preparation for Europeancompetition in financial services. It was decidedthat all quota and licensing controls onroad haulage will be scrapped. The EuropeanCommission announced in August that therewill be free competition in European air travelafter 1992.One other trend which is being encouraged isfor Europeans to be much more mobile in work.There is to be a mutual recognition of universitydegrees and diplomas, to allow firms easier accessto skilled people. This is another whollygood idea-to encourage firms and individualsto look beyond their own frontiers. In Britain, itwill help to relieve the labor shortages that arebeing encountered by some companies now thatunemployment is falling.Will It Be a Fortress?Countries outside of Europe, especially Japanand the United States, are watching Europe,suspicious that the free trade ideas of 1992will be kept within boundaries, behind a wall ofprotectionism to exclude everybody else. TheEEC does have a poor record of protectionism,one that is hard to escape. Onlookers are alsodisturbed by talk of a "reciprocity clause,"proposed by the European Commission as acontrol on competition for 1992. This clausewould make admittance of a foreign competitordepend upon mutual openness: before an Americanbank would be allowed to open a branch inEurope, the Community members would haveto be satisfied that a European bank would havethe same access to the U.S. banking market.Some recent precedents have been worrying.The European Court ofJustice recently upheld afine on American, Canadian, and Finnish woodproducers who had been convicted of attemptingto fix prices. This sounds like protection indisguise. Early last summer there were severalcases brought against Japanese firms accused of"dumping." Duties were imposed on computerprinters which had Japanese components butwere assembled inside the EEC.Photocopiers made by Matsushita, Konica,and Toshiba were charged a duty of $280 becausethey failed to meet Community requirementsthat at least 40 percent of components beof EEC ongIn. The French government attemptedto block imports of the BritishassembledNissan Bluebird on the grounds thatless than 80 percent of the materials are European.The European Commission is expected totell the French to admit the Bluebird, and to fixthe local content level at 60 percent.It is unfortunate that at the very time Washingtonis in a protectionist stance, the Communityis making hostile noises toward the UnitedStates. What threatens is tit-for-tat trade barriers,the first choice for no one. The truth is thatfree trade is best and that trade protectionismharms both the barred and the barrier-builder.Trade barriers have added $280 to the pricesEuropeans must pay for Japanese photocopiers.The French ban on the Nissan Bluebird has deniedthe French the opportunity to buy an inexpensivecar, and is a threat to jobs. The Nissanplant in England is in Sunderland, a high unemploymentarea. Ironically, the ban is also athreat to French jobs because the cassette players,high tension leads, sun visors, and doorcasings used in the Bluebird are made inFrance. Here is clear evidence that trade barriersalways backfire.The case against free trade has been debunkedtime and again, and there are few whowill defend subsidies in theory. The problem isthat trade policies aren't being decided with regardto the general well-being, but are backedby vociferous producer interest groups. Farmsubsidies don't persist because legislators aretoo stupid to see the grain mountains, but becausefarmers are organized well enough toblock any change. The French did not ban theBluebird out of malign intentions, but becauseof pressure from domestic car producers.Looking at the optimistic side, Europeantrade barriers could be loosened when article115 in the Community statutes is abolished aspart of the preparation for freer markets in1992. This is the clause which permits barriersagainst foreign goods entering through anothermember country, like Nissan cars assembled inBritain. It is certain, however, that some protectionwill continue. There will still be opensubsidies, as well as more covert forms such asthe cheap loans given out by the German government.In the past there have been plenty of rebel-

1992: WHICH VISION FOR EUROPE? 119lions by members against Community policies.It seems likely that, in the case of trade after1992, members will put individual interpretationson Community policy. As is now the case,some will be more open than others. The Eurocratsprobably realize that it is best to avoidmaking enemies of America and Japan by erectinga fortress. We must try to keep the Europeanmarket from becoming autarkic, and ensure thatit remains the worthy enterprise that it can be.Britain As theAwkward MemberIt is apt that Margaret Thatcher, as the symbolicleader of the world movement away fromthe pretenses of the omnipotent state, has injectedsome realism into debate over the futurecourse ofEurope. The two issues on which Britainwas recalcitrant last year were tax harmonizationand passport controls. The stand on taxeswas admirably sensible, but the caution overfreeing border controls was pointlessly timid.As part of the preparations for the Single EuropeanMarket, the Commission ordered thatmember states harmonize their rates of indirecttaxation. The idea was that, if there is to be freecompetition across frontiers, then all competitorsshould begin from the same point. If taxrates vary, the theory goes, then some producerswill be penalized by the handicap of hightaxes, while those in low tax countries will startfrom an unfair advantage.For Britain this would mean the imposition ofthe VAT (value-added tax-a sales tax) for thefirst time on food, fuel, and children's clothing.For some other members the adjustments requiredwould be far more drastic. Denmarkwould have to slash its punitive taxes on alcohol,while Greece would have to endure a largetax hike in order to find parity with other members.The extension of VAT in Britain wouldmeet with great resistance, and none of thechanges appeal to the politicians who wouldhave to foist them on the electorate. EuropeaI!politicians are often critical of Thatcher's intransigence,but in this they probably welcomethe lead she has set.The British Chancellor of the Exchequer, NigelLawson, has put the case for an alternative"market-based" strategy. This would involvederegulating first and then letting countriesworry about their own tax rates. High tax countries,he says, would be encouraged to bringtaxes down to compete better in the Europeanmarket. Low tax countries would attract theproductive capital and the entrepreneurs. Thisscheme has the great merit that it would tend tomake tax rates gravitate downwards. The levelingapproach of the Commission, in contrast,entails leveling some rates down and some up.Another attribute ofLawson's proposal is that itdoesn't require any large, drastic, and pOliticallyunpalatable changes. It is the most realisticproposal, and the most likely to succeed.According to the Single European Act,agreed to by all member countries in 1986, Europewill become ' 'an area without internalfrontiers" in 1992. On this issue the Britishgovernment has become cautiously jealous ofisland status, and has decided that to allow foreignersto visit with the utmost ease is no longera good idea. The reason given is that it wouldalso ease access for terrorists, illicit drugs, andfor animals with rabies.Before 1914 only Russia and Turkey requiredpassports for entry, with movement free betweenall the other European countries. Duringthe First World War, passport controls were introducedas a wartime expedient, one of themany that have fettered us ever since.The terrorist excuse is weak. The terroristorganization which afflicts Britain the most isthe IRA, based in the Republic of Ireland,which is the only European country whose nationalsrequire no passport for entry to Britain.Identifying terrorists has never been the problem.We know who they are, but we need tocatch them at it. Nor is it beyond the means ofprofessional terrorist organizations to buy falseidentities or to use unknown new recruits.Without passport controls the import of narcoticswould still be an offense, and animalswould still be subject to quarantine restrictions.Stopping people from buying and selling drugshas become something of a blind crusade, pursuedwithout regard for civil liberties. Wheninnocent people can be forcibly strip-searchedon their way home from holiday, then the law issurely amiss. Our priority should be the wellbeingof the many people who would visit Brit-

120 THE FREEMAN. MARCH 1989ain to do business or just to take photographs ofthe Tower of London. If we make it more inconvenientfor them to come, then they will goand spend their money in Paris or Rome instead.On the issue of passport controls, the Commissionis right and the British government isbeing reactionary. But what is more importantthan winning this argument is resisting theclamor for compulsory identity cards. In Septembera Home Office civil servant argued that1992 may necessitate identity cards to keeptrack of foreigners who will come and go fromBritain. Identity cards have also been called forrecently as a method of controlling crime inBritain. The idea is a thoroughly perniciousone, open to many abuses. If we must choosebetween the two, then passports are the lesser oftwo evils.What is likely to happen is that the influx ofvisitors will be far more than anyone anticipated.The French already are claiming thatBritish Rail has underestimated the volume oftraffic it will have to carry to and from theChannel ports and tunnel in the 1990s. WheneverI have traveled in and out through Dover,it has seemed that the passport controls are littlemore than a token pretense, with no seriousattempt at the impossible task of monitoringmasses oftravelers. It is likely that, come 1992,the frontier controls simply will be swampedand that in virtually everything but name, wewill have free movement. The biggest cost willbe the $18 million customs and immigrationfacility being built at Waterloo station in London,designed to control the flow of incomingEuropeans.The Ideological QuarrelIt is not a good thing for European unity thatJacques Delors is President of the EuropeanCommission, the organizing body for 1992. Heis both an abrasive personality and a tout forold-style socialism. Delors' vision for Europe isa political one. He wants to construct a centralEuropean government that will rule all of Europeas a federation.Put bluntly, Delors has horrified Thatcherand shocked her into rejection. Nothing couldbe more depressing for her than the thought ofabsolute rule by the Eurocrats of Brussels. Thisis what she said in her speech in Bruges inSeptember: "We have not successfully rolledback the frontiers of the state in Britain, only tosee them reimposed at a European level, with aEuropean superstate exercising a new dominancefrom Brussels. ' ,The quarrel is not only about the form ofEuropean government, because Delors is alsoclearly unhappy about some of the implicationsof tQe Single European Market. He warned that"too much freedom can be repressive," meaningthat he wants a European government whichinterferes and regulates. In the same speech hecalled for a new Keynes or Beveridge to remedyunemployment. Both of these intellectuals wereBritish, and it is in Britain that their ideas wereapplied in their purest forms. Both of them,unlike Delors, were liberals who did not desirethe monster state that they helped create. It hasbeen part ofthe battle of the last ten years to ridBritain of their legacy. If the European Communityis to prosper, it must discard the nostrumsof that era. When Delors looks back withmisty eyes to that mythical golden age, heshows once again that he is not suitable to leadEurope to 1992.Imposition Is Not the WayThe countries of the European Communityhave developed over history as separate nations.They have each evolved their own individualcustoms and practices to suit their nationalneeds and predispositions. As anyAmerican who has traveled on a Eurail ticketwill testify, English behavior is distinct fromFrench, as is German from Italian.These nations also have developed along separatepolitical traditions. English politics developedconsistently with a social tradition of individualism,Italian politics must incorporatethe diverse historical developments of differentregions, and so on. Europe has never been astate. The political system of each Europeancountry is uniquely suited to the evolved necessitiesof that country.Given this, a sovereign European governmentwould be alien, it would create conflicts,and it would be unstable. It would be a governmentthat has never been endowed with any

1992: WHICH VISION FOR EUROPE? 121authority by subject Europeans. And there is norecord to recommend it. The danger is that itwould assume all the worst faults of the oldBrussels European Community administration.It would be distant, bureaucratic, interfering,and wasteful. But in the new version, it wouldbe a superstate with much greater funds andpowers.Imposed uniformity will never succeed inEurope. Nations will cooperate and find pointsof common reference spontaneously, wherethey need to. One of the early costs of Britishmembership in the Community was the impositionof currency decimalization--counting intens. The aim of this was to achieve harmony inaccounting units across the continent, not at alla bad idea. However, "imperial" money(pounds, shillings, and pence, with 240 penceto the pound) had endured in Britain for manycenturies, people knew how to use it without asecond thought, and it had a comfortable fit inthe economy. When decimalization came, ithad its costs. For a few weeks it threw Britaininto turmoil. While the end result of comparabilitywas useful, it would have been less disruptiveto have let the British people adopt thenew money where they needed it.As part of 1992, Britain is going to be forcedinto using kilos and grams rather than poundsand ounces. Once again, this will throw thecountry into confusion for weeks; it is a needlessand pedantic change because both imperialand metric weights have been displayed ongoods since 1974. Of course, over the past 15years very few people have taken any notice ofmetric weights, preferring to stick with whatthey have tried and tested.The weights and measures that we use inBritain have lasted, refined by the testing oftime. By contrast, metric weights originate inthe rationalist tradition of France; they are thecreation of designing minds. An interesting testof their alternative merits came when theFrench attempted a cardboard egg box thatwould hold ten eggs. This was all very rationaland consistent no doubt, but the eggs fell out.The apparently irrational British box of six maybe an unwieldy number for balance sheets, butat least it holds eggs. This may seem a trivialexample, but it shows the clash of principlesvery clearly.To take a more serious example, suppose theEuropean Commission decreed that, for thesake of completing the pattern, everyone in theCommunity should drive on the right. In Britainthis would create enormous costs. Steeringwheels would have to be converted; British carmanufacturers would have to alter their machinery;and drivers would have to relearn the habitsof a lifetime. There undoubtedly would be asurge in the number of accidents.For the most part, even after 1992, Englishpeople still will live in England, the French willlive in France, Danes will live in Denmark. It isobviously sensible that the rules and customs ofeach country should be suited to the convenienceof the people who live there.Pursuing UniformityMore serious still is the needless pursuit ofuniformity in politics and economics. Howeverimperfect, the democracies of Europe do reflectat least some of the requirements of the peoplewho live under them. European governmentthreatens to replace that with something moredistant and less responsive. In the economies ofEurope we have the chance to free ourselvesfrom the stifling controls of the old Community.Each country and region should be left todevelop naturally, to find specialties.In another way, we should be grateful toJacques Delors for waking up the rest ofEuropeto the wayward ideas which some of the architectsof 1992 are entertaining. He is unlikely tosucceed because he is a man after his time.Those leaders of Europe, like Prime MinisterThatcher, Premier Schluter in Denmark, andPrime Minister Silva in Portugal, who haveused the market to solve local and nationalproblems, will not want it suffocated fromabroad.The political constitution of the EuropeanCommunity is controversial among member nations.There is unlikely to be a workable consensusthat involves anything but nominal rulefrom Brussels. For this we should be glad, andit gives grounds for being quite optimistic aboutthe results of 1992. If it has the right ideasbehind it, the European Community could bethe best opportunity for free trade and economicliberalism in this century.D

122My Son and theGuatemalan Indiansby C. F. Fischer, IIISeveral years ago my youngest son, Ted,visited Honduras with a small group ofEpiscopalians from south Alabama andnorthwest Florida, to repair and paint missionand clinic buildings in the rural areas. He paidhis own way, and with exception of his first andlast nights there, all of his nights were spent ina sleeping bag.It was quite an adventure and experience fora teenager-a blond, blue-eyed "gringo" ifever there was one-whom most would haveconsidered quite privileged at home. It was alsoa time ofconsiderable concern and suspense forhis parents.. (Is he sick? Is he safe? Can he geta doctor? Can he get to a phone?)In 1987 he visited Guatemala with a similargroup of six, including the bishop and his wife.The bishop soon became sick and returnedhome. This only added to our worries. (Was itthe food or water? What if Ted became sick ina remote village? Who was the new leader?)The group completed its mission and returnedsafely to the United States. All, that is,except my son. It seems that he had to do a littlemore exploring on his own, and: "Pray tell me,just when would it ever be cheaper and moreconvenient to do what one must do?" For thefirst time-the very moment I learned that hedid not return with the group-I knew that hewas much safer there than here.Since then he has returned to Guatemala,'solo" several times to explore volcanos andIndian ruins, visit the most remote villages,take Spanish courses, and just learn more aboutthe country and its people in general.Mr. Fischer is president ofHartford & Slocomb RailroadCompany in Dothan, Alabama.Soon he came to realize that he could visitCentral American countries the rest of his life,giving of his time, energy, and what littlemoney he could come up with. But, the resultswould be extremely temporary and barely noticeableat very best.Recently, he concluded that a venture in freeenterprise would likely produce the best, quickest,and most lasting benefit for the people ofCentral America-and most especially for thepoor Indians in Guatemala.Accordingly, he went to the most remote Indianvillages and purchased samples of colorfulwoven cloth handcrafts, mainly bracelets andbelts. These he brought back to Birmingham,Alabama, where he attends school. Every boutique,shop, and store in the major malls inBirmingham that saw the samples immediatelyplaced orders. Soon other merchandisers inNew York, Baltimore, Chicago, Los Angeles,and elsewhere saw or heard about these items,became interested, and began placing orders.This was all the excuse my son needed toreturn to Guatemala personally to get more suppliesand set up a dependable network for futureorders. Although he had been assured by twou.S. Customs offices and the Caribbean BasinInitiative office that these products were exemptfrom customs under the Caribbean Basin Initiative,Houston Customs seemed unaware of this.The customs people in Houston could not figureout how to classify a few dozen woven clothbracelets, so the goods were held.After missing a couple of flights, and facingan early Monday class, my son had no choicebut to leave his precious little cargo and get onthe next flight out of Houston.

123"Welcome to the real world, son. Did younot know that you should engage the services ofa customs broker? Oh, I know that a broker isn'trequired by law. But, I also know that a brokeris required by the facts, conditions, and circumstances.Don't get one and you can wait forclearance until your merchandise rots."But, not to worry. On a few hundred dollarsworth of bracelets (at origin) your brokerage feeprobably won't exceed $200."Among other things, you see, your customsbroker must prepare and file the 'ConsumptionEntry' form (probably $60 minimum), then postthe 'Bond Fee' (probably $20 minimum), thenthe 'Immediate Delivery Permit' ($10 or more),'Appraisement & Liquidation Service' ($5 ormore), 'Estimated V.S. Customs Duty' (whoknows?), 'Messenger Service' ($10 minimum),and so on, possibly including delivery orders,additional entry classifications, and the like.,'Like it or not you will have to engage theservices of a broker. V.S. Customs will see tothat!"My son reacted simply and forthrightly. Heacknowledged that the "system" is extremelyboring, time-consuming, and frustrating. But,he was determined to proceed within it.He has since contacted other V. S. CustomsOffices. Fortunately, the number of differentanswers he received did not exceed the numberof government offices contacted. With a littleexperience under his belt, he moved forward.Meanwhile, we-this is my first official involvement-havecontacted our Senator andRepresentative to see if they can determine ifthese imports are exempt or not. If not, what'sthe deal? If we're lucky we at least will have aclue soon.Meanwhile, back at the Indian villages inGuatemala, the natives are weaving colorfulbracelets of the most intricate designs whichthey are happy to sell to my son's group for fourcents each. It is, to be sure, tedious, backbreakingwork. There are no printed patterns orcomputer printouts. Designs come from thehead, and execution comes from the fingers andtoes. Typically an Indian sits on a rock, ties thestructural yam around his or her toe, and beginsweaving the bracelet.Four cents per bracelet seems like a pitifullylow price. And in some respects that may betrue. On the other hand, however, less than twomonths ago the same bracelets were beingbought by a "city native" for only two centseach. And the "city native" also sold staples tothe Indians at 20 times the going prices in Antiguaor Guatemala City.The Indians are very happy to get four centsper bracelet. That's twice as much as they receivedless than two months ago. More important,the men who pick up the bracelets deliverstaples at cost. These workers likewise earnfour cents per bracelet. They too are pleased toearn so much.Thus the first large order-8,000 cloth bracelets-arrivedby air. V.S. Customs in Birminghamyielded to V.S. Customs in Mobile, whichin tum insisted upon a customs broker.The customs broker's fee and chargesequalled the cost of 3,375 bracelets, and theduty was equivalent to the price of 1,120 braceletsat the point of purchase. Broken down andstated somewhat differently, "Preparation andFiling of the Consumption Entry Form" cost1,500 bracelets. "Postage"-buying, licking,and affixing one 25-cent stamp-cost 250bracelets; "Messenger Service" cost 250bracelets; "Bond Fee" cost 500 bracelets; andso on.In the final analysis" 50 Indians work morethan a week producing something you can see,touch, wear, and enjoy-and earn less than thebroker's charges for shuffling government papersfor an hour. Something is terribly wrong,and I don't feel that it is with the poor, hardworkingIndians.Fortunately-or unfortunately-my son hasyet to learn about state and Federal unemploymenttaxes, Workers' Compensation, F.I.C.A.,city license fees, state franchise taxes, state andFederal personal and corporate income taxes,sales and use taxes, wage and hour laws, and soon. He doesn't even yet realize that he mustnow retain a lawyer and an accountant to advisehim about insurance, product liability, statelaws and taxes, and fair employment practices.But, he is working through the market to improvethe lot of the Indians, while trying tobetter himself in the process. I admire and lovehim even more for his effort.D

124A REVIEWER'SNOTEBOOKThe Velvet Prisonby John ChamberlainFrom Hungary, in a sometimes difficultprose text, there comes an enigmaticbook about the fate of literature undertotalitarian governments. It is called The VelvetPrison: Artists Under State Socialism, and is byMiklos Haraszti, a dissident who is introducedto us by a fellow dissident, George Konrad, andtranslated from the Hungarian by Katalin andStephen Landesmann with the help of SteveWasserman (New York: Basic Books, 165 pp.,$14.95).One calls the book enigmatic because Harasztiskips from sections in which he mockshimself to ~ore serious passages in which heseems to be saying it is quite normal for an artistto work within the confines of any culture thatis his national inheritance. The excuse has asometimes unnecessarily forgiving tone.Haraszti's thesis is that socialist writingcomes in two forms, depending on the state ofaffairs pertaining to any given moment in a totalitariansociety. If one is under a Stalin, Communistpictorial art will be poster work, andliterature will follow a propagandist line. Therewill be strict censorship exercised from a centralpoint. Under a Khrushchev or a Gorbachev,however, things might differ. In periods of relaxation,artists under socialism may be permitteda wide degree of self-censorship. The onesthat seem to be good socialist citizens will berewarded by ample funds and good workingconditions-hence the term "velvet prison. "What Haraszti says may very well be true forHungary. He doesn't talk much about specificHungarian authors, so it is difficult to see where,'soft aesthetics" may take over. In medievaltimes the architects of Chartres Cathedral wouldhave endorsed everything Haraszti might havehad to say about working in a culture. But inSoviet Russia the Haraszti thesis doesn't checkout.True enough, there was plenty ofposter workunder Stalin. But the writers who were permittedlatitudes under Khrushchev did not ask forvelvet prison cells. Doctor Zhivago and variousbooks by Solzhenitsyn were uncompromising.Indeed, Solzhenitsyn's Gulag Archipelago stillawaits a Soviet publication under the so-calledrelaxed Gorbachev.The Haraszti book does not check with MaxEastman's excellent Artists in Uniform, writtenmany years ago and unfortunately now out ofprint. Max dealt with Soviet writers both in thepre-Stalin period, when Lenin and Trotsky werepermissive about art, and in the gloomy nightwhen the totalitarian "inquisition" took over.In Leningrad, in the first days of Bolshevism,poets were permitted their lyricism. They couldsing to the moon if they pleased. But the storyof Yesenin, who married the American dancer,Isadora Duncan, is symptomatic. Yesenin hadhoped to travel about Russia with Isadora, singingwhile she danced. But when Lenin andTrotsky ceased to have a direct influence onYesenin, he took to reading texts he couldn'tunderstand. Says Eastman, "It was the twofoldmisfortune of Yesenin's lyric nature to beborn into an age of gigantic concentration upona practical undertaking, and into a company ofengineers whose blueprints took the form ofmetaphysical demonstrations that the universeitself, or man and all society and all history, isthat undertaking. ' ,In short, Yesenin was convinced there was

125no room for poets under either militant or amore relaxed socialism. "My poems," hewrote, ' 'are no longer needed here." So hissuicide followed.In Eastman's story of what happened afterStalin grabbed the power and the printingpresses, there were more suicides. Maiakovsky,after announcing his ~urrender to the politicians,offered a "thunderous manifesto ofdefeat" and shot himself. There was an epidemicof suicides ofpoets of lesser importance.An exception, Eugene Zamyatin, author of thebeautiful novel We, did not make any great effortto keep himself from being framed. PanteleimonRomanov recanted his "mistake" ofwriting Three Pairs of Silk Stockings, whichcalled attention to evils that had already beenattacked by government. Isaac Babyel, authorof Horse Army and Odessa Stories, refused tobehave "like a recruiting sergeant" (hewouldn't write "ballyhoo" for the Red Army),and he shut up voluntarily. Boris Pilnyak, agreat talent, rewrote a novel in order to get avisa to America. Says Eastman, "Probably nowork ofart in the world's history was ever completedin more direct violation of the artist'sconscience, or with a more unadulterated motiveof self-preservation than Pilnyak's TheVolga Falls to the Caspian Sea.In Hungary, apparently, there were fewersuicides in Stalinist times. Says Haraszti, "althoughthe tradition of 'productive, revolutionary,and national themes' survived into thepost-Stalin era, it was discovered that aestheticregulation alone would do the trick. " No suchdiscovery was made in Russia when Khrushchevdenounced Stalin. Solzhenitsyn welcomedthe denunciation for what it did to get a few ofhis books into print, but he now lives in Vermontand refuses to change his style to conformto any "aesthetic regulation" that Gorbachevmight want.Where are the fairly decent works of art orliterature that have emerged from Hungary underself-censorship? No doubt there are some.But Ben Shabn, the perceptive painter whowrote The Shape of Content (New York: VintageBooks) is dubious of the value of any systemof conforming. ' 'Nonconformity," hesays, "is not only a desirable thing, it is a factualthing. One need only remark that all art isbased upon nonconformity, has been bought eitherwith the blood or with the reputation ofnonconformists. Without nonconformity wewould have had no Bill of Rights or MagnaCarta, no public education system, no nationupon this continent, no science at all, no philosophy,and considerable fewer religions. Allthat is pretty obvious. "The good artist, says Shabn, has no reallyvested interest in the status quo. Hitler, a badarchitect who wanted to kill expressionism,tried to establish a Nordic status quo, "a cloyingart of kirche, kiiche, and kinder . .. [it was]stillborn and unremembered. " German expressionismhasn't come back, but there will beother rebels.In Hungary, according to The Christian ScienceMonitar, they are "taking a giant, if littlenoticedleap toward letting capitalism out ofthecloset. " If a nonconforming art. is to go withthis leap, Haraszti is the man to discover it. Buthe has been too concerned with maintaining hissardonic pose. 0WHEN GOVERNMENT GOES PRIVATE:SUCCESSFUL ALTERNATIVESTO PUBLIC SERVICESby Randall FitzgeraldUniverse Books, 381 Park Avenue South, New York, NY 100161988 • 330 pages • $24.95 clothReviewed by Robert W. McGeeBy the time I got halfway through the. introduction to this book, I wanted tosend a copy to the mayor of the townwhere I live. Randall Fitzgerald documents literallyhundreds of ways that local and nationalgovernments can cut costs without cutting servicesby turning over government functions tothe private sector. Nearly every line containsuseful information for anyone interested inlearning ways to shrink the size of government.Fitzgerald shows that there is a third alternativeto either cutting back on services or raisingtaxes-privatize.The "bottom line" of this book is that theprivate sector can do just about anything betterand cheaper than government. The reason? In-

126 THE FREEMAN. MARCH 1989centives, which are unleashed by breaking thegovernment monopoly and opening up the servicein question to the competitive forces of themarketplace. A secondary theme of the book isthat privatization is an idea whose time hascome. Numerous municipalities are turning toprivatization to reduce costs and provide betterservice. Some cities have been able to completelyeliminate property taxes by privatizingeverything. More than 50 countries have alsobeen bitten by the privatization bug and havestarted turning over functions previously providedby government to the private sector.Privatization has many faces-at least 22have been documented so far. Government cansell or give away state-owned enterprises, asBritain has been doing. Services can be contractedout to one or more private companies.Enterprises can be turned over to employeesand allowed to sink or swim. State monopoliescan be repealed, thus opening up the way tocompetition. User fees can replace taxes. Numerousmethods have been tried and they allresult in reduced cost and/or better service.Here are some examples:When Central Park's Wollman Skating Rinkwas closed in 1980, New York City officialsestimated it would take two years and cost $4.9million to repair. Six years and nearly $13 millionlater they estimated it would take another$3 million and two years to complete the renovation.Businessman Donald Trump made adeal with City Hall and did the job in 3V2months for slightly over $2 million. Trump wasable to circumvent New York State's WicksLaw, which requires the use of separate contractorsfor construction, plumbing, electrical,and ventilation work. Mayor Koch was soshocked at the result that he ordered a study todetermine how Trump could beat City Hall sobadly.North of Boston, a privately owned and operatedincinerator turns garbage into energy for20 towns having a combined population of overa half million. The towns now pay only $22 perton to have their garbage taken away, comparedto $100 a ton that is charged by the governmentoperatedlandfill.A study prepared for the U.S. Department ofHousing and Urban Development examinedeight municipal services, comparing the cost ofhaving government provide the service to thecost of having the service contracted out. Itfound that asphalt paving cost 95 percent morewhen done by municipal workers, janitorial servicescost 73 percent more, and 5 of the otherservices cost at least 37 percent more when performedby government workers. Payroll preparationcosts were about the same regardless ofwho performed the service. The study alsoshowed that the savings were not due to lowerwage rates in the private sector-the privatesector employees earned an average of $106 amonth more than the government workers. Savingswere made possible because of the inherentlymore efficient structure of private, competitiveenterprise.Prisons are also being privatized. A prison inFlorida was turned over to a private companywhen the company offered to provide the servicefor $24 a day per prisoner, compared to the$37 a day offered by the sheriff. Shortly aftertaking over, the private company raised guards'salaries from $8,100 to $13,500. Californiacontracts out to the private sector for more thana dozen detention facilities. Prisoners who weretemporarily housed in a private Pennsylvaniajail did not want to return to the state-ownedfacility they came from because the conditionsat the privately run prison were much more humane.Even streets are being privatized. At least1,000 streets in St. Louis and adjoining areashave been privatized. The result has been skyrocketingproperty values, as deterioratingneighborhoods reversed the trend toward decay.Neighborhoods became stabilized and safer,and community pride increased. Houston soldsome of its streets to homeowners to raisemoney and experienced similar results.There seems to be almost no limit to what canbe privatized. The U.S. military could save billionsby contracting out numerous functionsnow performed by military personnel such aslawn-mowing, cooking, and selling groceries.Selling the post office and privatizing social securitycould save taxpayers and consumers billionsmore. Selling off surplus government assetswould enable the federal government tomake the social security system solvent andcould provide enough funds to wipe out the deficit,were it not for the fact that Congress sets up

OTHER BOOKS 127road blocks to prevent such sales from happening.If you have time to read only one book onprivatization, this book would be a goodchoice. It summarizes what has been happeningin the privatization revolution and cites numerousbooks and articles that can be referred to forfurther investigation. The index is also quitethorough. 0(Professor McGee holds a law degree andteaches accounting at Seton Hall University.)SEARCHING FOR SAFETYby Aaron WildavskyTransaction Books, Rutgers University, New Brunswick, NewJersey 08903 • 1988 • 253 pages • $32.95 cloth; $16.95 paperbackReviewed by John SemmensẆhat is safe? While the purveyors ofgovernment safety regulationsthink they know, the odds are theyare wrong. Since all action is designed to dealwith the future, and the future is unknown, allaction is inherently speculative. Though the advocatesof statutory and regulatory approachesto coping with the hazards ofan uncertain futurebelieve they are ensuring safety, the reality isthat the only thing likely to be ensured is stagnation.This book is premised on the idea that safetyis not a known, utopian condition, but rather achanging relative improvement over a previousmore precarious condition. The question ofhowbetter to achieve safety is aptly posed by theso-called "jogger's dilemma." The dilemmaconsists of confronting two interrelated factsabout the effects of jogging on a person'shealth. In general, over the long run, exercisetends to improve physical health and increaselongevity. However, the process of strenuousexercise places the body under stress. One'schances of dying due to stress are, thus, greaterduring an hour of exercise than an hour of repose.Should one incur the short-run risk ofjoggingwith its attendant stress in order to obtain thelong-run benefit of better health? The most in-telligent response to such a question is that itdepends. Not every individual faces the samerisk-reward ratio. Not every circumstance iswell suited to the contemplated exercise (as Iwrite this, it is 110 degrees outside). The varietyof contingencies that can affect the decisionto take or avoid the short-run risk argue in favorofa flexible, decentralized process for decisionmaking.Safety regulation and legislation, though, arethe opposite of flexible and decentralized. Government-imposedrules must be stable and standardized."Flexibility" in the hands of governmentcan too easily degenerate into arbitraryabuse of authority. No matter how hard governmenttries to decentralize, it will always fallshort ofmatching its rules to the unique circumstancesof each individual. Only freedom andthe marketplace hold forth the prospect for adequatelycoping with the changing needs ofunique individuals.The current politicization of safety, by inflictingthe force of government on more andmore areas of our lives, threatens the safety itpurports to be protecting. Banning or severelyrestricting "dangerous" research. and experimentsmay prevent the improbable disasters theregulators fear. Unfortunately, progress mayalso be obstructed. Insisting that expensivesafety equipment be mandated to guard againstthe tiniest hazards has a retarding effect on economicgrowth. Safety demagogues are quick toassert their superior virtue for placing the savingof even one life ahead of economics.Professor Wildavsky effectively refutes thisfallacy by pointing out that economic growthalso saves lives. The improved living conditionsmade possible by economic growth actuallycontribute to longer, healthier lives. Byway of illustration, he offers an interesting statistic:for a 45-year-old working man, a 15 percentincrease in take-home pay has the samestatistical impact on his longevity as would theelimination of all workplace hazards. Thus,even if government programs to remove workhazards actually eliminated all risk, it is likelythat the net result in most instances still wouldbe negative. Sacrificing economic growth inpursuit of expensive safety rules, therefore,may well cost more lives than are saved.The progress that has yielded our current,

128 THE FREEMAN. MARCH 1989relatively safe mode of living involved the intentionaltaking of risks. Daring to venture intothe unknown is an unavoidable step in developingnew and better ways of living. Purposefullyaccepting risk isa necessary part of attaininggreater safety in the long run.The interconnectedness of risk and safety invalidatesthe simplistic strategy of outlawinghazards. If we are to improve rather than atrophywe must move ahead by taking chances.The discovery of safer ways ofdoing things canbe conducted most expeditiously by individualsfree to act and to bear responsibility for theconsequences. The social mechanism mostadept at facilitating the process of rational risktakingis freedom.Professor Wildavsky's book is not alwayseasy reading, but it is full of sound logic anduseful illustrations. It will be especially helpfulfor those free market partisans who, for want ofa firm scientific foundation, have concededsafety regulation to government. Not only canwe rely upon the market to take care of safety,but if we value life and limb we will insist upona market approach. 0(John Semmens is an economist with the LaissezFaire Institute, a free-market research organizationheadquartered in Tempe, Arizona.)THE ART OF REASONINGby David Kelleyw. W. Norton & Company, 500 Fifth Avenue, New York, NY10110 • 1988 • 412 pages • $19.95 clothReviewed by David M. BrownDavid Kelley's new logic text, The Art ofReasoning, is "must" reading for thosededicated to advancing liberty.Of course, logic supports freedom over statismno matter what text one relies on. ButKelley seems to understand the relationship betweenfirst principles and final policy conclusionssomewhat better than many other philosophyprofessors. His exposition thus tends to bemore informative than the usual textbook treatment,even while avoiding technical issues notreally relevant to the needs of the typical student.(There's nothing in here about truth tables,for instance, or about exactly how statisticianscalculate probability variances.)This is not to imply that the book, with one ofits more gratifying exercises pitting F. A.Hayek against J. K. Galbraith, was written witha primarily political purpose in mind. As theauthor comments, "The value of these logicalskills is not limited to political arguments.. . . In a philosophy class, the issue might befree will versus determinism; in literature, itmight be different interpretations of Hamlet.Discussing these ideas means presenting reasonsfor or against them.... In our own personallives, finally, we all have choices tomake, major ones or minor, and here too weneed to weigh the reasons on each side and toconsider all the relevant issues."The reader who studies this text and absorbsits lessons will be admirably equipped. Kelleybegins by sketching the nature of concepts, thebuilding blocks of premises. Then he takes onmany ofthe usual topics, including the nature ofpropositions and syllogisms, inductive reasoning,etc. His chapter on dissecting and diagrammingarguments is particularly interesting andhelpful. Here the reader leams to detect implicit,unspoken premises, and to analyze thecriss-crossing arguments and counter-argumentsof debates.Chapters are interspersed with practice quizzesfor which answers reside in the back of thebook. For more detailed exercises there are noanswers to tum to; the student gets practice inthinking entirely on his own. That's fine, especiallysince the meaty sample· arguments aredrawn from a wide variety of intriguing contemporaryand classical sources. Logic, it turnsout, can be fun as well as relevant. 0(Mr. Brown is a free-lance writer in Trenton,New Jersey.)

THEFREEIDEAS ON LIBERTY132 The Real Meaning of Tax LoopholesJames L. PayneUnraveling one of the great mysteries of modem politics.134 The Invisible Hand at WorkJane s. ShawThe only way we can earn income is by providing what other people want.135 The Tide in the Affairs of MenMilton Friedman and Rose D. FriedmanCharting the shifts of opinion and practice, as we move from collectivism towardfreedom.144 Everyone Can Win in a Truly Competitive MarketAlan W. BockToward an understanding of economic competition.146 Coping with SmokingTibor R. MachanConflicts are inevitable when government becomes the caretaker of our health andarbiter of our social relations.148 Economics Has the Answer: What's the Question?Edmund A. OpitzBolstering the economic case for freedom through moral reasoning.151 Dumping: An Evil or an Opportunity?Alex HuemerTaking advantage of modem-day "rate wars."153 Protecting Whom from What?Bjorn AhlstromWhen trade is restricted, everyone loses.155 The International Monetary FundKen S. EwertHow the IMF has been a major influence in promoting statist economic policiesthroughout the world.161 State Funding Threatens Community GroupsRobert J. SchimenzWhat happens when the political process pinch-hits for individual choice?162 The Dam BuildersCecil KuhneWhen should a dam stay on the drawing board?164 Tom Paine's RevolutionJ. Brian PhillipsThe pamphleteer who brought American colonists to their senses.166 Book ReviewsJohn Chamberlain examines Benjamin Hart's Faith and Freedom: The ChristianRoots ofAmerican Liberty. Privatization and Development by Steve H. Hanke.CONTENTSAPRIL1989VOL. 39NO.4

THEFREEMANIDEAS ON LIBERTYPublished byThe Foundation for Economic EducationIrvington-on-Hudson, NY 10533President ofthe Board: Bruce M. EvansVice-President:Senior Editors:Contributing Editors:Robert G. AndersonBeth A. HoffmanBrian SummersBettina Bien GreavesCarla. Helstrom, IIIJacob G. HornbergerEdmund A. OpitzPaul L. PoirotThe Freeman is the monthly publication of TheFoundation for Economic Education, Inc.,Irvington-on-Hudson, NY 10533 (914) 591­7230. FEE, founded in 1946 by Leonard E.Read, is a nonpolitical educational champion ofprivate property, the free market, and limitedgovernment. FEE is classified as a 26 USC 501(c) (3) tax-exempt organization. Other officersof FEE's Board of Trustees are: Thomas C.Stevens, chairman; Ridgway K. Foley, Jr., vicechairman;Paul L. Poirot, secretary; H.F.Langenberg, treasurer.The costs of Foundation projects and servicesare met through donations. Donations are invitedin any amount. Subscriptions to The Freemanare available to any interested person in theUnited States for the asking. Additional singlecopies $1.00; 10 or more, 50 cents each. Forforeign delivery, a donation of $15.00 a year isrequired to cover direct mailing costs.Copyright © 1989 by the Foundation forEconomic Education, Inc. Printed in U.S.A.Permission is granted to reprint any article inthis issue, except "The Tide in the Affairs ofMen," "Everyone Can Win in a TrulyCompetitive Market," "Coping with Smoking,""Dumping: An Evil or an Opportunity?"and"Protecting Whom from What?" providedappropriate credit is given and two copies of thereprinted material are sent to The Foundation.Bound volumes of The Freeman are availablefrom The Foundation for calendar years 1969 todate. Earlier volumes as well as current issuesare available on microfilm from UniversityMicrofilms, 300 North Zeeb Road, Ann Arbor,MI48106.The Freeman considers unsolicited editorialsubmissions, but they must be accompanied by astamped, self-addressed envelope. Our author'sguide is available on request.Cover illustration: © Geoffrey Moss,Washington Post Syndicate.PERSPECTIVELook AroundLook around the world today and ask: whereare the victories against poverty most dramatic?Where is the race to the future being won?Where is peace most secure?Again and again, the answer can be found inthat small group of nations where men andwomen have freedom: freedom to pray and tospeak, freedom to vote, assemble and dissent,and freedom to seek their fortune without fearor without favor, and where freedom is coupledwith moral responsibility: responsibility toone's community, responsibility to one's countrymen,and ultimately and inescapably responsibilityto the God who rules us all. For theabiding hope and the unlimited possibilities offreedom rest in the strength of freedom's moralfoundations as well as in that crucial link betweenour economic and our personal and politicalfreedom.-WILLIAM E. SIMONSpeaking at Templeton College, OxfordProtecting the IrresponsibleMost people agree that government shouldpunish irresponsible conduct which infringes,in a direct way, on the rights of others. Thus,there is common agreement on the legitimacy oflaws against such conduct as murder, assault,rape, and theft.However, there is also a wide range of conductwhich many people consider irresponsiblebut which does not directly impact against others.Examples include the denying of God, refusingto care for others, viewing pornography,listening to rock and roll, believing in communism,ingesting drugs, and attempting suicide.Should government punish individuals forpursuing actions which are harmful only tothemselves? The answer is unequivocally no!Individuals have the absolute right to engage inthis type of conduct and it is the sovereign dutyof government to protect the exercise of thisright.The essence of freedom is the right to choose

etween alternative courses of action. If an individualis not permitted to choose an irresponsiblecourse of action that harms only himself,then he cannot truly be considered free. Doesthis mean that advocates of liberty necessarilyapprove of the choices which others make withrespect to their own lives? Of course not. Butwe view liberty as so crucially important to humanlife that we are willing not only to toleratethese choices but also to affirm the right of othersto make them.Why is freedom of choice so vitally important?There are three reasons. First, freedom ofchoice is a God-given right and, therefore, cannotlegitimately be taken away by man. Godwants us to choose good over bad, and virtueover vice, but under no circumstances does Heforce us to do so. He leaves us free to chooseour own way, recognizing that each individualmust ultimately bear the consequences of hisown choices. Since God permits man to sinagainst himself, government has no legitimateauthority to prevent him from doing so.Second, freedom of choice is necessary forindividual growth. In order to improve and perfecthimself, an individual must be provided thewidest possible latitude to choose between goodand evil. The ultimate conquest over self cantake place only through a continuous process ofchoosing between good and bad, moral and immoral.It is this process of choosing that enablesan individual to move forward in his aim ofconstantly refining himself.Third, freedom of choice makes the pursuitof correct conduct meaningful. If a person iscoerced into doing good, or prevented from doingbad, then his actions mean nothing. It isonly when the individual voluntarily and deliberatelypursues good for its own sake, ratherthan as a result ofcoercion or manipulation, thathis conduct has positive meaning for both himselfand his God.The true test of a free society, then, is theextent to which laws protect, rather than punish,the pursuit of irresponsible conduct whichdoes not directly harm others. Not only is freedomof choice a divine right, it is the onlymethod for individuals to reform themselves inmeaningful ways.-JACOB G. HORNBERGERPERSPECTIVEWhere Your Mail WentThe Postal Service may soon have to file environmentalimpact statements for all the mail itis dumping in America's trash boxes and dumpsters.For example, a Rhode Island carrier wasarrested after 94,000 letters were found buriedin his backyard. A 1987 survey by Doubledayand Company found that up to 14 percent ofbulk business mail was either thrown away orlost. One Arlington, Virginia, postal clerk tolda customer, "We don't have room for the junkmail-so we've been throwing it out. " In 1987,1,315 postal workers were fired for theft and/ormistreatment of mail. A Postal Inspection Serviceaudit found properly addressed maildumped in the trash at 76 percent of the postoffices it visited. A survey by Doubleday foundthat up to 14 percent of properly addressedthird-class mail vanished in the postal labyrinth.The throwing away of mail has become so pervasivethat postal inspectors have notified employeesthat it is bad for the Postal Service'sbusiness.-JAMES BOVARD"The Slow Death of the U.S. PostalService," published by the Cato InstituteRegulatory ChaosAt first blush, the regulatory system seemsreasonably orderly. Administrative agenciesprovide oversight before products go on themarket, while the courts supervise matters fartherdown the line. But the structure beneath ismuch more chaotic. The hierarchy of regulatorypowers is so fragmented that the system cannever say "yes," only "maybe." One agency'sapproval may be trumped by a second'sdisapproval. Approvals by two agencies may berefuted shortly afterward by a federal court.And approvals of all three may be rejected by aliability court following an accident decadeslater....Any endeavor can tolerate only so much uncertainty.Compounding scientific doubt withunnecessary layers of regulatory unknowns willsink many undertakings regardless of their scientificand economic merits.-PETER HUBER, writing inTechnology Review

132THEFREEMANIDEAS ON LIBERTYThe Real Meaning ofTax Loopholesby James L. PayneTax loopholes are one of the great mysteriesof modern politics. They arewrong, everyone seems to say, and crusadesare mounted against them time and again.Yet the evil never gets stamped out, for loopholeskeep creeping back into the tax code.What causes this curious inconsistency?The root of the problem is a misunderstandingabout taxpayers. At first glance, taxpayersseem to be selfish individuals who spend theirincome on their own pleasures. Being preoccupiedwith their private needs, they ignore theneeds of the community. Therefore, governmentis brought in to reflect those needs. Ittakes away some of the citizen's money in taxesand spends it on worthy public purposes.This all seems logical until you notice onething: it is based on a distinction between personaland public spending that is largely fictitious,especially today. In the past, when mostpublic spending funded truly public goods likepolice protection and the judicial system, therewas some validity in saying that taxes supportedcommunity functions not funded privately. Buttoday, most government spending goes for privategoods-things citizens can and do buy forthemselves. In other words, government wantsfor us what we already want for ourselves.James L. Payne is a political scientist specializing in Congressand economic policy. His latest book, The Culture ofSpending, sponsored by the Cato Institute, examines congressionalconfusions about the budget.Take housing. The need for a nice home is apersonal desire. Yet nice homes for people arealso a social good. Hence politicians have set upnumerous subsidy programs to help people getdecent housing, from government-backed loansto public housing projects.It's the same with most other spending programs.Citizen desires for education, operatickets, quality medical care, or comfortable retirementare private needs. But from the public(governmental) point of view, it is also good forcitizens to have these things. Hence the governmenthas programs to purchase them: loan programsto pay for college, subsidies for the arts,payments for medical care, and government retirementprograms.In the business world, we see the same overlapbetween public and private spending. Takeresearch and development. Companies want todiscover new products for a self-oriented reason-toimprove sales and profits. But the developmentof new products is also a publicgood, since these mean more jobs, more exports,and benefits to consumers. Hence, governmenthas programs to subsidize private corporateresearch.Normally, legislators miss the connection betweenprivate and public spending. They takemoney from people who would have purchasedhousing, and (after losses in the taxing andspending process) give it back to people whowant housing. They take funds from college-

133Every so often, politicians notice that people areprivately spending money on exactly the samething that the politicians want them to have.Then they create a tax loophole.~l:'~(~-..,:"~. "~"':'"'1b'~~ [-4- .. I~~'~-bound students and their parents, and (again,with waste) funnel it back to them in loan programsand other subsidies. They take moneyfrom firms that would have used it for research,and (again, minus overhead costs) channel itback to research through government grants andsubsidies.Every so often, however, politicians noticethat people are privately spending money onexactly the same thing that the politicians wantthem to have. Then they create a tax loophole,now called by its prettier name, a "taxdeduction. " They declare that the income spenton the worthy purpose is exempt from taxation.The money you put aside for your retirementaworthy purpose-is exempt from taxation.The money you donate to charity-a worthypurpose-is exempt from taxation. The moneyyou spend on home ownership (interest) is exemptfrom taxation. The money a businessspends on research is exempt from taxation.This is not to say that the deductions are alwaystaken in the spirit intended. This is wherethe negative connotation of "loophole" comesin. As happens with any government regulation,some people extend the interpretat~on ofthe law. They get the lower taxes without reallydoing the socially desired thing. For example, acompany might send its scientists for a vacationin Hawaii, calling it a "research conference" inorder to take the research tax deduction. AsCongress finds out about such abuses, it movesto abolish the deduction. But then it hears aboutthe useful, non-abusive spending of the samekind, and moves to re-establish the deduction.And so we go round and round.How can we promote socially useful privatespending without adding a lot of red tape? Thesolution is so simple most politicians rush rightpast it: cut government spending. Stop trying togive people things through government programsthat they can buy for themselves. Withless spending you can have lower taxes, andpeople will have the money to buy them! D

134The InvisibleHandat Workby Jane S. ShawAfriend of mine recently received an inheritancethat appeared large enough tolet her quit work. She was then employedas a part-time English teacher andwanted to spend more time with her ll-year-olddaughter and pursue intellectual interests suchas history and German literature.My friend, whom I'll call Ellen, is a gentleperson who lives simply, loves humanity, andhas a great interest in culture. The last thing shewould ever think of is hurting people or deprivingthem of something valued. Yet she wasabout to deprive students of an excellentteacher.In considering whether to continue teachingor not, Ellen looked at her job--as most of usdo-in terms of what it did for her. Did it paywell? Did it provide meaning in her life? Was itemotionally rewarding or mostly tedious? Muchlower on the list, or completely forgotten in thecalculation, was whether or not her studentsmight lose a good teacher.Most jobs exist because they provide a productor service that someone wants. Yet, likeEllen, we rarely think about them this way.We read "how to" books that tell us how toimprove job satisfaction through higher pay andbetter relationships with the boss. We neverread about how our job benefits our customers.In the press, it's the jobholder, not the customer,who gets our attention. High unemploymentdismays us because it means people areleft without jobs and income-rather than becausepeople lose the opportunity to buy goodsJane S. Shaw is a Senior Associate ofthe Political EconomyResearch Center in Bozeman, Montana.or services, even though their losses, too, maybe substantial.Our focus on the jobholder is so intense thatwe tend to suppose that those who work withlittle or no pay, such as Peace Corps volunteers,are doing more for society than, say, Sears Roebuck& Co. employees in the same country. Yethowever admirable it may be, personal sacrificedoesn't make a person more effective.Our emphasis on job satisfaction is really anexample of Adam Smith's "invisible hand" atwork. By pursuing our own desires we inadvertentlysatisfy those ofothers. That is becausethe only way we can earn income is by providingwhat other people want. Their wishes createour jobs.So, paradoxically, a hardhearted and selfishentrepreneur who builds a great business sellingclothes or canning soup may improve the livesof millions of people while a Peace Corps volunteermay help only a few. This entrepreneurmay care nothing personally about his customers,and his character may not deserve ourpraise, but in order to succeed he has to considerwhat other people want--convenience,economy, good taste, for example,-and provideit at a reasonable cost.It is sad but indisputable that without thisdesire for material gain, most people would beunlikely to give as careful consideration to thedesires of others. Even tender-hearted Ellenweighed income and job satisfaction against thetrial and tribulation of teaching high school students.What made her different was that herdesire for material gain was so very modest. Yetby wanting little, she gave little as well.If income meant more to Ellen-if she weremore greedy-she would have tailored her talentsto provide services that people want. Ironically,without such greed and with a little income,she could pretty much do what shepleased.In the end, it didn't tum out that way. Ellensoon found that the property she had inheriteddoesn't provide enough income for her to livecomfortably. So, she is back at work again, thistime teaching German to college students, andshe is earning extra income working at a retailstore. I don't think she realizes it, but her needfor income has had a positive result-it has ledher to help others.D

135The Tide in the Affairsof Menby Milton Friedman and Rose D. FriedmanThere is a tide in the affairs of men,Which, taken at the flood, leads on to fortune;Omitted, all the voyage oftheir lifeIs bound in shallows and in miseries.SHAKESPEARE, Julius CaesarShakespeare's image is an apt text for ouressay. There are powerful tides in the af­. fairs of men, interpreted as the collectiveentity we call society, just as in the affairs ofindividuals. The tides in the affairs of societyare slow to become apparent, as one tide beginsto· overrun its predecessor. Each tide lasts a longtime----decades, not hours-{)nce it begins toflood and leaves its mark on its successor evenafter it recedes.How tides begin in the minds of men, spreadto the conduct of public policy, often generatetheir own reversal, and are succeeded by anothertide-all this is a vast topic insufficientlyexplored by historians, economists, and othersocial scientists. 1The aim of this brief essay is modest: toMilton Friedman and Rose D. Friedman, both economists,are the authors of Capitalism and Freedom and Free toChoose. Milton Friedman, recipient of the Nobel prize foreconomics in 1976, is senior researchfellow at the HooverInstitution and Paul Snowden Russell Distinguished ServiceProfessor ofEconomics, Emeritus, at the University ofChicago.This essay originally appeared as a chapter in ThinkingAbout America: The United States in the 1990s, edited byAnnelise Anderson and Dennis L. Bark. It is reprinted herewith permission ofthe publishers, Hoover Institution Press,Stanford, California.present a hypothesis that has become increasinglyplausible to us over the years, to illustrateit with experience over the past three centuries,and to discuss some of its implications. Thehypothesis is that a major change in social andeconomic policy is preceded by a shift in theclimate of intellectual opinion, itself generated,at least in part, by contemporaneous social, political,and economic circumstances. This shiftmay begin in one country but, if it proves lasting,ultimately spreads worldwide. At first itwill have little effect on social and economicpolicy. After a lag, sometimes of decades, anintellectual tide "taken at its flood" will spreadat first gradually, then more rapidly, to the publicat large and through the public's pressure ongovernment will affect the course of economic,social, and political policy. As the tide in eventsreaches its flood, the intellectual tide starts toebb, offset by what A. V. Dicey calls countercurrentsof opinion. The counter-currents typicallyrepresent a reaction to the practical consequencesattributed to the earlier intellectualtide. Promise tends to be utopian. Performancenever is and therefore disappoints. The initialprotagonists of the intellectual tide die out andthe intellectual quality of their followers and

136 THE FREEMAN. APRIL 1989supporters inevitably declines. It takes intellectualindependence and courage to start acounter-current to dominant opinion. It takesfar less of either to climb on a bandwagon. Theventuresome, independent, and courageousyoung seek new fields to conquer and that callsfor exploring the new and untried. The countercurrentsthat gather force set in motion the nexttidal wave, and the process is repeated.Needless to say, this sketch is oversimplifiedand excessively formalized. In particular itomits any discussion of the subtle mutual interactionbetween intellectual opinion, publicopinion, and the course of events. Gradualchanges in policy and institutional arrangementsare always going on. Major changes seldomoccur, however, except at times of crisis,when, to use Richard Weaver's evocativephrase, "ideas have consequences." The intellectualtide is spread to the public by all mannerof intellectual retailers-teachers and preachers,journalists in print and on television, punditsand politicians. The public begins to reactto the crisis according to the options that intellectualshave explored, options that effectivelylimit the alternatives open to the powers that be.In almost every tide a crisis can be identified asthe catalyst for a major change in the directionof policy.We shall illustrate the relevance of our hypothesiswith the two latest completed tides aswell as the tide that, as we put it in the title ofthe final chapter ofFree to Choose, is turning. 2The Rise of Laissez-Faire:The Adam Smith TideThe first tide we discuss begins in the eighteenthcentury in Scotland with a reactionagainst mercantilism expressed in the writingsof David Hume, Adam Smith's Theory ofMoral Sentiments (1759), and above all Smith'sThe Wealth ofNations (1776).The Wealth ofNations is widely and correctlyregarded as the foundation stone of modem scientificeconomics. Its normative thrust and itsinfluence on the wider intellectual world are ofgreater interest for our present· purpose. Itsrapid success in influencing the intellectualcommunity doubtless reflected the seedsplanted by Hume and others-the intellectualcounter-currents to the mercantilist tide-aswell as the early stages of the Industrial Revolution.On the other side of the Atlantic 1776 alsosaw the proclamation of the Declaration of Independence-inmany ways the political twinof Smith's economics. Smith's work quicklybecame common currency to the Founding Fathers.Alexander Hamilton documented thatphenomenon in a backhanded way in his 1791Report on Manufactures. He quoted Smith extensivelyand praised him profusely while at thesame time devoting the substance of his reportto arguing that Smith's doctrines did not applyto the United States, which needed not free internationaltrade but the protection of infant industriesby tariffs-an example of the homagethat vice, even intellectual vice, pays to virtue.Smith had no illusions about the impact ofhisintellectual ideas on public policy: "To expectthat the freedom of trade should ever be entirelyrestored in Great Britain, is as absurd as to expectthat an Oceana or Utopia should ever beestablished in it. Not only the prejudices of thepublic, but what is much more unconquerable,the private interests of many individuals, irresistiblyoppose it.' ,3His prediction proved false. By the earlynineteenth century the ideas of laissez-faire, ofthe operation of the invisible hand, of the undesirabilityof government intervention intoeconomic matters, had swept first the intellectualworld and then public policy. Bentham,Ricardo, James Mill, and John Stuart Mill wereactively engaged in spreading these ideas andpromoting them politically. Maria Edgeworthwas writing novels based on Ricardian economics.Cobden and Bright were campaigning forthe repeal of the com laws. Reinforced by pressuresarising out of the Industrial Revolution,these ideas were beginning to affect public policy,though the process was delayed by the NapoleonicWars with the accompanying highgovernment spending and restrictions on internationaltrade. Yet the wars also furnished theneeded catalytic crisis.The repeal of the com laws in 1846 is generallyregarded as the final triumph of Smithafter a 70-year delay. In fact some reductions intrade barriers had started much earlier, andmany nonagricultural items continued to be pro-

THE TIDE IN THE AFFAIRS OF MEN 137Rose and Milton Friedmantected by tariffs until 1874. Thereafter only revenuetariffs remained on such items as spirits,wine, beer, and tobacco, countervailed by exciseduties on competing domestic products. Soit took nearly a century for the completing ofone response to Adam Smith.u.s. ExperienceThe other countries of Europe and the UnitedStates did not follow the British lead by establishingcomplete free trade in goods. Duringmost of the nineteenth century, however, U. S.duties on imports were primarily for revenue,though protection did play a significant role, asrancorous political debates, particularly betweenthe North and the South, testify. Exceptfor a few years after the War of 1812, customsprovided between 90 and 100 percent of totalFederal revenues up to the Civil War. And exceptfor a few years during and after that war,customs provided half or more of Federal revenuesuntil the Spanish-American War at theend of the century.Nontariff barriers such as quotas were nonexistent.Movement of people and capital washardly impeded at all. The United States in particularhad completely free immigration. In Europebefore World War I "the inhabitant ofLondon," in John Maynard Keynes's eloquentwords, "could secure . . . cheap and comfortablemeans of transit to any country or climatewithout passport or other formality . . . andcould . . . proceed abroad to foreign quarters,without knowledge of the religion, language, orcustoms . . . and would consider himselfgreatly aggrieved and much surprised at theleast interference.,,4Hamilton's success in achieving protectionistlegislation in the United States reflects the absenceof effective ideological commitment bypolicy makers to avoiding intervention by governmentinto economic activity, despite the intellectualtide set in motion by Adam Smith, theFrench physiocrats, and their later followers.However, strong belief in states' rights meantthat states, not the federal government, playedthe major role. Many states established statebanks, built canals, and engaged in other commercialenterprises. The catalytic crisis thatproduced a drastic change was the panic of1837, in the course of which many, perhapsmost, government enterprises went bankrupt.That panic served the same role in discreditinggovernment enterprise as the Great Depressiondid nearly a century later in discrediting privateenterprise.In the aftermath the ideas of Adam Smithoffered both an explanation and an obvious alternativeoption; tariffs aside, near completelaissez-faire and nonintervention reigned intothe next century.Measuring the role of government in theeconomy is not easy. One readily available,though admittedly imperfect, measure is the ratioof government spending to national income.At the height of laissez-faire, peacetime governmentspending was less than 10 percent ofnational income in both the United States andGreat Britain. Two-thirds of U.S. spending wasby state and local governments, with about halffor education; Federal spending was generallyless than 3 percent ofnational income, with halfof that for the military.A striking example of the worldwide impactof the Adam Smith tide-this time in practice,not in ideas-is provided by post-Meiji Japan.For centuries prior to the Meiji Restoration in1867, Japan had been almost completely isolatedfrom the Western world. The new rulershad no ideological understanding, let alonecommitment, to laissez-faire. On the contrary,they attached little value to individual freedom,

138 THE FREEMAN. APRIL 1989either political or economic. Their overridingobjective was simply to strengthen the powerand glory of their country. Nevertheless, whenthe Meiji rulers burst into a Western world inwhich laissez-faire Britain was the dominanteconomy, they simply took for granted thatBritain's policy was the one to emulate. Theydid not by any means extend complete economicand political freedom to their citizens,but they did go a long way, with dramatic andhighly favorable results. 5The absence of a widespread ideological underpinningfor these policies helps explain theirlack of robustness. After World War I Japansuccumbed to centralized control by a militarydictatorship-a policy that led to economicstagnation, military adventurism, and finallyJapan's entry into World War II on the side ofthe Nazis.On the broader scale the tide that swept thenineteenth century brought greater political aswell as economic freedom: widening rights anda higher standard of living for individuals accompaniedincreased international trade and humancontact. It was heralded as a century ofpeace-but that is somewhat overstated. Thetide did not prevent the u.s. Civil War, theCrimean War, the Franco-Prussian War, orother local conflicts. But there was no majorwidespread conflict between 1815 and 1914comparable either to the Napoleonic Wars ofthe preceding years or to the world wars of thelater years.Despite occasional financial panics and crises,Britain and the United States experiencedremarkable economic growth during the nineteenthcentury. The United States in particularbecame a mecca for the poor of all lands. Allthis was associated with-and many, includingus, would say it was a result of-the increasingadoption oflaissez-faire as the guiding principleof government policy.The Rise of the Welfare State:The Fabian TideThis remarkable progress did not prevent theintellectual tide from turning away from individualismand toward collectivism. Indeed, itdoubtless contributed to that result. Accordingto Dicey, "from 1848 onwards an alterationbecomes perceptible in the intellectual andmoral atmosphere of England. ,,6 The floodstage, when collectivism began to dominate intellectualopinion, came some decades later.The founding of the Fabian Society, dedicatedto the gradual establishment of socialism, byGeorge Bernard Shaw, Sidney Webb, and othersin 1883 is perhaps as good a dividing date asany for Britain. A comparable date for theUnited States is 1885, when the American EconomicAssociation was founded by a group ofyoung economists who had returned from studyin Germany imbued with socialist ideas, whichthey hoped to spread through the association-ahope that was largely frustrated when the associationshortly adopted a policy of "nonpartisanshipand avoidance of official commitmentson practical economic questions andpolitical issues.,,7 Confirming evidence is providedby the publication in 1888 ofEdward Bellamy'ssocialist utopian romance, LookingBackwards, which sold over a million copies.How can we explain this shift in the intellectualtide when the growing pains of laissez-fairepolicies had long been overcome and impressivepositive gains had been achieved? Diceygives one indirect answer:The beneficial effect of State intervention,especially in the form oflegislation, is direct,immediate, and so to speak,. visible, whilstits evil effects are gradual and indirect, andlie out of sight.. . few are those who realizethe undeniable truth that State help kills selfhelp.Hence the majority of mankind mustalmost of necessity look with undue favorupon governmental intervention. This naturalbias can be counteracted only by the existence... , as in England between 1830 and1860, of a presumption or prejudice in favorofindividual liberty-that is, of laissezlaire.The mere decline, therefore, of faith in selfhelp. . . is of itself sufficient to account forthe growth of legislation tending towardsocialism. 8A more direct answer is that two effects ofthe success of laissez-faire fostered a reaction.First, success made residual evils stand out allthe more sharply, both encouraging reformersto press for governmental solutions and makingthe public more sympathetic to their appeals.

THE TIDE IN THE AFFAIRS OF MEN 139Second, it became more reasonable to anticipatethat government would be effective in attackingthe residual evils. A severely limitedgovernment has few favors to give; hence thereis little incentive to corrupt government officials,and government service has few attractionsfor persons concerned primarily with personalenrichment. Government was engagedprimarily in enforcing laws against murder,theft, and the like and in providing municipalservices such as local police and fire protection-activitiesthat engendered almost unanimouscitizen support. For these and other reasons,Britain, which went furthest towardcomplete laissez-faire, became legendary in thelate nineteenth and early twentieth centuries forits incorruptible civil service and law-abidingcitizenry-precisely the reverse ofits reputationa century earlier. In the United States neitherthe quality ofthe civil service nor respect for thelaw ever reached the heights they did in Britain,but both improved over the course of the century.Fabian Socialism TriumphsWhatever the reasons, Fabian socialism becamethe dominant intellectual current in Britian,driving out, at the one extreme, radicalMarxism, and at the other, laissez-faire. Graduallythat intellectual current came to dominatefirst public opinion and then government policy.World War I hastened the process, but itwas already well under way before the war, asis demonstrated by Dicey's prescient remarks inhis 1914 preface to the second edition of Lawand Public Opinion:By 1900, the doctrine of laissez-faire, inspite of the large element of truth which itcontains, had more or less lost its hold uponthe English people . . . It also was in 1900apparent to any impartial observer that thefeelings or the opinions which had givenstrength to collectivism would continue totell as strongly upon the legislation of thetwentieth century as they already told uponthe later legislation of the nineteenth century. . . and this conclusion would naturally havebeen confirmed by the fact that in the sphereof finance there had occurred a revival ofbelief in protective tariffs, then known by thename of a demand for' 'fair trade" [echoes of1987!].Dicey lists "the laws which most directly illustratethe progress of collectivism," from thebeginning of the twentieth century, startingwith the Old Age Pension Act of 1908. In respectof a later act (the Mental Deficiency Act,1913), he remarks that it "is the first step alonga path on which no sane man can decline toenter, but which, if too far pursued, will bringstatesmen across difficulties hard to meet withoutconsiderable interference with individualliberty. ,,9Clearly the seeds had been sown from whichBritain's full-fledged welfare state grew, at firstslowly in the interwar period and then with afinal burst after World War II, marked perhapsby the adoption of the National Health Serviceand the panoply of measures recommended inthe Beveridge report.In the United States the development wassimilar, though somewhat delayed. After thepopular success of Bellamy's utopian fantasycame the era of the muckrakers, led by LincolnSteffens, Ray Stannard Baker, and Ida M. Tarbell,with their exposures of alleged corruptionand malfeasance in municipal government, labor,and trusts. Upton Sinclair used the novel topromote socialist ideas, his most successful beingThe Jungle (1906), which resulted from anassignment by a socialist newspaper to investigateconditions in the Chicago stockyards. Sinclairwrote the novel to create sympathy for theworkers, but it did far more to arouse indignationat the unsanitary conditions under whichmeat was processed. On a different level LouisDembitz Brandeis criticized the financial community.His volume of essays, Other People'sMoney and How the Bankers Use It (1914), hasbeen described as "a frontal assault on monopolyand interlocking directorates. ,,10"The Populist party, through which WilliamJennings Bryan rose to" the nomination for thepresidency on the Democratic ticket in 1896,"called not merely for regulation of.the railroadsbut for outright government ownershipand operation." 11 The Interstate CommerceCommission, created in 1887, was shortly followedby the 1890 Sherman Antitrust Act and

140 THE FREEMAN. APRIL 1989later by the 1906 Food and Drug Act, for whichSinclair's novel served as the catalyst. Themodern welfare state was well on its way.World War I greatly expanded the role of government,notably by the takeover of the railroads.The postwar period brought somethingof a reaction, with the major exception of Prohibition.As late as 1929 Federal spending amountedto only 3.2 percent of the national income; onethirdofthis was spent on the military, includingveterans' benefits, and one-half on the militaryplus interest on the public debt. State and localspending was nearly three times as large-9percent of national income-with more thanhalf on education and highways. Spending byfederal, state, and local governments on whattoday is described as income support, SocialSecurity, and welfare totaled less than 1 percentof national income.The world of ideas was different. By 1929socialism was the dominant ideology on the nation'scampuses. The New Republic and TheNation were the intellectuals' favorite journalsof opinion and Norman Thomas their politicalhero. The impact of opinion on the world ofpractice, however, had so far been modest. Thecritical catalyst for a major change was, ofcourse, the Great Depression, which rightly orwrongly shattered the public's confidence inprivate enterprise, leading it to regard governmentinvolvement as the only effective recoursein time of trouble and to treat government as apotential benefactor rather than simply a policemanand umpire.The effect was dramatic. Federal governmentspending grew to roughly 30 percent ofnationalincome by the 1980s, or to nearly tenfold its1929 level. State and local spending also grew,though far less dramatically, so that by the1980s total government spending was over 40percent of national income. And spending understatesthe role government came to play.Many intrusions into people's lives involve littleor no spending: tariffs and quotas, price andwage controls, ceilings on interest rates, localceilings on rents, zoning requirements, buildingcodes, and so on.The delayed impact ofthe intellectual climateof the 1920s illustrates one aspect of the influenceof intellectual opinion-producing optionsfor adoption when the time is ripe. Despite NormanThomas's popularity on the campus, hereceived less than 1 percent of the popular votefor president in 1928 and only 2 percent in1932. Nonetheless, we concluded that "the Socialistparty was the most influential politicalparty in the United States in the first decades ofthe twentieth century ... [A]lmost every economicplank in its 1928 presidential platformhas by now [1980] been enacted into law,,12Like the earlier tide, the Fabian tide wasworldwide. It contributed no less to the successof the Russian and Chinese communist revolutionsthan to the welfare state in Britain and theNew Deal in the United States. And it largelyexplains the adoption of centralized planning inIndia and other British and European formercolonies when they achieved independence. Amajor exception was Hong Kong, one of thefew British colonial possessions that remainedunder the control of the Colonial Office. Itnever departed from the Adam Smith tide and asa result was a precursor to the next tide.The Resurgence of FreeMarkets: The Hayek TideAs in the preceding wave, the world of ideasstarted to change direction just as the tide in theworld of practice was cresting. 13 Throughoutthe ascendancy of socialist ideas there had, ofcourse, been counter-currents-kept alive inBritain by G. K. Chesterton, Lionel Robbins,Friedrich Hayek, and some of their colleaguesat the London School of Economics; in Austriaby Ludwig von Mises and his disciples; and inthe United States by Albert Jay Nock, H. L.Mencken, and other popular writers; Henry Simons,Frank Knight, and Jacob Viner at theUniversity of Chicago; and Gottfried Haberlerand Joseph Schumpeter at Harvard-to mentiononly a few.Hayek's Road to Serfdom, a surprise bestsellerin Britain and in the United States in1944, was probably the first real inroad in thedominant intellectual view. Yet the impact ofthe free-market counter-current on the dominanttide of intellectual opinion, though perceptibleto'those directly involved, was at first minute.Even for those of us who were actively promotingfree markets in the 1950s and 1960s it is

THE TIDE IN THE AFFAIRS OF MEN 141difficult to recall how strong and pervasive wasthe intellectual climate of the times.The tale of two books by the present authors,both directed at the general public and both promotingthe same policies, provides striking evidenceof the change in the climate of opinion.The first, Capitalism and Freedom, publishedin 1962 and destined to sell more than 400,000copies in the next eighteen years, was not reviewedat the time in a single popular Americanperiodical-not in the New York Times, theChicago Tribune, Newsweek, Time, you nameit. The second, Free to Choose, published in1980, was reviewed by every major publication(by some more than once), became the year'sbest-selling nonfiction book in the UnitedStates, and received worldwide attention.Further evidence of the change in the intellectualclimate is the proliferation of think tankspromoting the ideas of limited government andreliance on free markets. In a recent talk EdFeulner, president of the Heritage Foundation,could mention only four that existed three decadesago: the Hoover Institution, still here today;the Intercollegiate Society of Individualists,which has changed its name but kept theinitials; an embryonic American Enterprise Institute;and the Center for Strategic and InternationalStudies. He should also have includedLeonard Read's Foundation for Economic Education(FEE).Translating Ideas into ActionBy contrast, Feulner noted a long list of additionalinstitutions currently devoted to developingand spreading the idea of limited governmentand free markets, plus a host of otherstrying to translate ideas into action. The samecontrast is true of publications. FEE's Freemanwas the only one he or we can think of that waspromoting the ideas of freedom 30 to 40 yearsago. Today numerous publications promotethese ideas, though with great differences in specificareas: The Freeman, National Review, HumanEvents, The American Spectator, PolicyReview, and Reason. Even the New Republicand The Nation are no longer the undeviatingproponents of socialist orthodoxy that they werethree decades ago.Why this great shift in public attitudes? Thepersuasive power of such books as FriedrichHayek's Road to Serfdom, Ayn Rand's Fountainheadand Atlas Shrugged, our own Capitalismand Freedom, and numerous others ledpeople to think about the problem in a differentway and to become aware that government failurewas as real as market failure. Nevertheless,we conjecture that the extraordinary force ofexperience was the major reason for the change.Experience turned the great hopes that thecollectivists and socialists had placed in Russiaand China to ashes. Indeed, the only hope inthose countries comes from recent moves towardthe free market. Similarly experiencedampened, to put it mildly, the extravaganthopes placed in Fabian socialism and the welfarestate in Britain and in the New Deal in theUnited States. One major government programafter another, each started with the best of intentions,resulted in more problems than solutions.Few today still regard nationalization of enterprisesas a way to promote more efficientproduction. Few still believe that every socialproblem can be solved by throwing government(that is, taxpayer) money at it. In these areasliberal ideas-in the original nineteenth-centurymeaning of liberal-have won the battle. Theneoconservatives are correct in defining themselvesas (modem) liberals mugged by reality.They still retain many of their earlier values buthave been driven to recognize that they cannotachieve them through government.In this country the Vietnam War helped toundermine belief in the beneficence of government.And most of all, as Dicey predictednearly 75 years ago, the rising burden of taxationcaused the general public to react againstthe growth of government and its spreadinginfluence. 14In both the United States and Britain respectfor the law declined in the twentieth centuryunder the impact of the widening scope of government,strongly reinforced in the UnitedStates by Prohibition. The growing range of favorsgovernments could give led to a steadyincrease in what economists have come to callrent-seeking and what the public refers to asspecial-interest lobbying.Worldwide the contrast between the stagnationof those poorer countries that engaged in

142 THE FREEMAN. APRIL 1989central planning (India, the former African colonies,Central American countries) and therapid progress of the few that followed a largelyfree-market policy (notably the Four Tigers ofthe Far East: Hong Kong, Singapore, Taiwan,and South Korea) strongly reinforced the experienceof the advanced countries of the West.Ideas played a significant part, as in earlierepisodes, less by persuading the public than bykeeping options open, providing alternativepolicies to adopt when changes had to be made.As in the two earlier waves, practice haslagged far behind ideas, so that both Britain andthe United States are further from the ideal of afree society than they were 30 to 40 years ago inalmost every dimension. In 1950 spending byU.S. federal, state, and local governments was25 percent of national income; in 1985 it was 44percent. In the past 30 years a host of new governmentagencies has been created: a Departmentof Education, a National Endowment forthe Arts and another for the humanities, EPA,OSHA, and so on. Civil servants in these andmany additional agencies decide for us what isin our best interest.Nonetheless, practice has started to change.The catalytic crisis sparking the change was, webelieve, the worldwide wave of inflation duringthe 1970s, originating in excessively expansivemonetary growth in the United States in the1960s. The episode was catalytic in two respects:first, stagflation destroyed the credibilityof Keynesian monetary and fiscal policy andhence of the government's capacity to fine-tunethe economy; second, it brought into playDicey's "weight of taxation" through bracketcreep and the implicit repudiation of governmentdebt.Already in the 1970s military conscriptionwas terminated, airlines deregulated, and regulationQ, which limited the interest rates thatbanks could pay on deposits, eliminated. In1982 the Civil Aeronautics Board that regulatedthe airlines was eliminated. Though governmentspending as a fraction of national incomehas continued to rise, the rate of increase hasslowed. No major new spending programs havebeen passed since 1981. The increase in nonmilitarygovernment spending has been predominantlythe effect of earlier programs.The Tides Sweep WorldwideAs in earlier waves, the tides of both opinionand practice have swept worldwide. Britainwent further in the direction of collectivismthan the United States and still remains morecollectivist-with both a higher ratio of governmentspending to national income and far moreextensive nationalization of industry. Yet Britainhas made more progress under MargaretThatcher than the United States has under RonaldReagan.Equally impressive are changes in the communistworld. Even there it was impossible torepress all counter-currents, as Solzhenitsyn,Sakharov, and many other brave men andwomen so eloquently testify. But beyond thecounter-currents, the economic reforms in Hungary,Solidarity in Poland, the widened resort tomarkets in China, the current reformist talk inthe Soviet Union-these owe as much to theforce of events and the options kept open byintellectual ideas as do the election of MargaretThatcher and Ronald Reagan in the West. True,it is doubtful that such reforms will be permittedto go far enough to threaten the power of thecurrent political elite. But that does not lessentheir value as testimony to the power of ideas.One interesting and instructive phenomenonis that freeing the market has been equally ormore vigorously pursued under ostensibly leftwinggovernments as under ostensibly rightwinggovernments. Communist countries aside,one striking example is the U-turn in Frenchpolicy effected by Mitterrand, a lifelong socialist.In Australia a Labour government replaceda conservative government and then movedsharply to widen the role of the market. NewZealand, under a Labour government headed byDavid Lange, first elected in 1984 and reelectedin 1987, has gone further than any othercountry in dismantling government controls andeconomic intervention.By contrast, Germany, though it owed itsdramatic post-World War II recovery to thefree-market policies of Ludwig Erhard, hassteadily moved away from those policies firstunder a Social Democratic government and,more recently, under conservative governments.Can the explanation for this aberration

THE TIDE IN THE AFFAIRS OF MEN 143be that the dramatic move to free-market policieswas primarily the result of one man's (Erhard's)actions and not of a change in publicopinion?All in all the force of ideas, propelled by thepressure of events, iS7 clearly no respecter ofgeography or ideology or party label.ConclusionWe have surveyed briefly two completedpairs of tides in the climate of opinion and the,'affairs of men" and one pair still in progress.Each tide lasted between 50 and 100 years. Firstcame the tide in the climate of public opinion:toward free markets and laissez-faire from, say,1776 to 1883 in Britain, 1776 to 1885 in theUnited States; toward collectivism from 1883 to1950 in Britain, from 1885 to 1970 in theUnited States. Some decades later came the tidein the "affairs of men": toward laissez-fairefrom, say, 1820 to 1900 in Britain, 1840 to1930 in the United States; toward collectivismfrom, say, 1900 to 1978 in Britain, 1930 to1980 in the United States. Needless to say,these are only the roughest ofdates. They couldeasily be set a decade or so earlier or later.Two new pairs of tides are now in their risingphases: in public opinion, toward renewed relianceon markets and more limited government,beginning in about 1950 in Britain and 1970 inthe United States; in public policy, beginning in1978 in Britain and 1980 in the United States,and even more recently in other countries.If the completed tides are any guide, the currentwave in opinion is approaching middle ageand in public policy is still in its infancy. Bothare therefore still rising and the flood stage,certainly in affairs, is yet to come.For those who believe in a free society and anarrowly limited role for government, that isreason for optimism, but it is not a reason forcomplacency. Nothing is inevitable about thecourse of history-however it may appear inretrospect. "Because we live in a largely freesociety, we tend to forget how limited is thespan of time and the part of the globe for whichthere has ever been anything like political freedom:the typical state of mankind is tyranny,servitude, and misery." 15The encouraging tide in affairs that is in itsinfancy can still be aborted, can be overwhelmedby a renewed tide ofcollectivism. Theexpanded role of government even in Westernsocieties that pride themselves in being part ofthe free world has created many vested intereststhat will strongly resist the loss of privilegesthat they have come to regard as their right.Everyone is capable of believing that what isgood for oneself is good for the country andtherefore of justifying a special exception to ageneral rule that we all profess to favor.Yet the lesson of the two earlier waves isclear: once a tide in opinion or in affairs isstrongly set, it tends to overwhelm countercurrentsand to keep going for a long time in thesame direction. The tides are capable of ignoringgeography, political labels, and other hindrancesto their continuance. Yet it is also worthrecalling that their very success tends to createconditions that may ultimately reverse them. 01. A British constitutional-law scholar has written the most insightfulbook on the subject: A. V. Dicey, Lectures on the RelationBetween Law and Public Opinion in England During the NineteenthCentury, 2d ed. (London: Macmillan, 1914).2. Milton Friedman and Rose D. Friedman, Free to Choose (NewYork and London: Harcourt Brace Jovanovich, 1980), p. 283.3. Adam Smith, The Wealth ofNations, Cannan 5th ed. (London:Methuen, 1930), bk. 4, chap. 2, p. 435.4. J. M. Keynes, Economic Consequences ofthe Peace (London:Macmillan, 1919), pp. 6, 7, 9.5. See Friedman and Friedman, Free to Choose, pp. 59, 61-62.6. Dicey, Law and Public Opinion, p. 245.7. A. W. Coats, "The American Economics Association and theEconomics Profession," Journal of Economic Literature 23 (December1985): 1702.8. Dicey, Law and Public Opinion, pp. 257-58.9. Ibid., pp. xxxi, xxxii, xxxiii, li.10. Encyclopaedia Britannica, 1970 ed., s.v. "Brandeis, LouisDembitz."11. Friedman and Friedman, Free to Choose, p. 196.12. Ibid., pp. 286,287.13. This section is based partly on Milton Friedman, "Where AreWe on the Road to Liberty?" Reason 19, no. 2 (June 1987): pp.31-33.14. "[I]f the progress of socialistic legislation be arrested, thecheck will be due, not so much to the influence of any thinker as tosome patent fact which shall command public attention; such, forinstance, as that increase in the weight of taxation which is apparentlythe usual, if not the invariable, concomitant of a socialisticpolicy" (Dicey, Law and Public Opinion, p. 302n).15. Milton Friedman, with the assistance of Rose D. Friedman,Capitalism and Freedom (Chicago: University of Chicago Press,1962), p. 9.

144Everyone Can Winin a TrulyCompetitive Marketby Alan W. BockAdvocates of a free and open economyin a free and open society often findthemselves hampered-and sometimeshamper themselves-because of a widespreadmisunderstanding ofthe word "competition." Where friends of freedom simply meanan absence of arbitrary restriction, opponentsand neutral observers often think they are endorsingand promoting a vicious, dogeat-dog-cut-throat-you-have-to-be-No.-lprocessthat many find distasteful and unhealthy.The word "competition" means somethingdrastically different in the context of economicsthan it does in the context of sports, war, ornational hegemony. In economics the meaningis limited. It simply means that access to marketsis open-or at least available to all comerson a nondiscriminatory basis. If anybody whowants to can offer goods or services withoutbeing subject to a veto by government or thosealready in that business (assuming they canraise the capital to do so and attract customers),then the market is said to be competitive. Nobodycan keep competitors out by force of law.This meaning of competition is often subsumedby or identified with another meaningderived roughly from sports and more pervasivein our culture. This meaning was described in arecent article in The New Age Journal by AlfieMr. Bock is Senior Columnist ofThe Orange County Register,where this article first appeared on April 28, 1988.Kohn as "mutually exclusive goal attainmentmysuccess requires your failure; our fates arenegatively linked." Only one person can winthe race, or one team win the game; everybodyelse is defined as a "loser." You have to be No.1 or nothing.There is little question that this understandingof competition can be personally and psychologicallydestructive and socially disruptive. Ifonly one person in a race can be the winner, alot of others may have their self-esteem damaged-ordecide not to participate in advance.If winning is the only thing, then cheating andhumiliation are likely to be common. A societythat assumes that this is what competition is allabout is likely to be characterized by a highlevel of stress, anxiety, or burnout.That said, it should be noted that many criticsof competition erect a straw man to knockdown. Even in sports, which furnishes the paradigm,few believe, or act as if they believe,that winning is really everything. Even coacheswho say things like "winning isn't everything;it's the only thing," providing easy targets forcritics ofdestructive competition, often tum outin practice to be advocates of sportsmanship,cooperation, teamwork, and losing well whenyou lose rather than one-dimensional, winat-alI-costsfanatics.But even if the straw man of the destructivelycompetitive mindset were entirely accurate, it

145would have nothing to do with competition as itis understood by an economist.In a competitive-i.e., open-marketplace,it is decidedly not the case that you're nothing ifyou're not No.1. Although some businessmenget caught up in the rhetoric of being No.1, orof beating the competition as in a footrace orfootball game, in most markets you can make arespectable--even lavish-living as No.2, No.6, or No. 17.In the market that came closest to resemblinga monopolistic model for a while-the computerindustry, dominated for decades byIBM-several other companies survived, prospered,and even became large by most standards.The latest revolution-personal computers-waspioneered and dominated for a whileby upstarts-because access to the market wasopen. For all its market power, IBM couldn'tkeep competitors out by law or force.Values Important toEconomic CompetitionFor all the gamelike rhetoric, economic competitionplaces a premium on the values of cooperation,loyalty, openness to new ideas, andflexibility that critics say are subverted by thedestructive kind of competition. In economiccompetition in an open marketplace, you winby pleasing customers, not by destroying rivals.In economic competition, success comes tothose who are constructive rather than destructivein their approach. An open marketplacebased on truly voluntary exchanges producesuntold opportunities for mutually beneficial"win-win" relationships. It is theoreticallypossible (though perhaps unlikely in practice,given human frailty) for economic competitionto produce a situation where there are no losers,where nobody needs to feel inadequate.Note also that economic competition does notrequire people to enter the rat-race. If marketsare truly open, people are quite free to be laidbackor unconventional, even to drop out of thesystem or twist the system to fit their particularpreferences. Back in the '60s a number of peoplewho claimed to hate capitalism made apretty good living running head shops or makingtie-dyed earth shoes and the like.The rule for the entrepreneur in a competitivemarketplace is: "Find a need and fill it." Sincepeople are so diverse, their perceived needs arediverse. An open market provides more intersticeswhere people can break away from a stiflingcorporate lifestyle and do well than does amore controlled economy.Ironically, an open or competitive economyprovides more scope for expression of the valuesof those who are concerned about the destructiveaspects of gotta-be-No.-l competitivenessthan does a controlled economy. It's ashame that a semantic hangup seems to preventmany from understanding this.D

146Coping withSlDokingby Tibor R. MachanVarious legislative bodies are enactinglaws forbidding business proprietorsfrom permitting smoking on their privateproperty-in offices, cinemas, aircraft,stores, and other places. Such policies aretouted as a means to combat a harmful habit andto foster public health. But there are seriousproblems with this approach to the problems ofsmoking.Owners of private establishments are beingprevented-mostly by city ordinances-fromdeciding who will be permitted to smoke ontheir premises. But such government-mandatedprohibitions ignore the rights of those whodon't mind smoking as well as those who wishto live in a tolerant society. Since smokers noware in the minority, some believe this is the timeto descend on them in full force. Their criticsare willing to ignore individual rights to freedomof association and private property.Of course, the issue often is presented in away that makes it appear that smokers are theones who violate individual rights. They aresaid to be assaulting the rest of us with theirsmoking. But is this really the case? And are thelaws really designed to protect the rights of individualsagainst the intrusions of smokers?No doubt, smokers can be annoying. Theirsmoke even may be harmful to those aroundthem. One need not dispute these contentionsstill to be concerned with their rights.In most cases, anti-smoking ordinancesaren't limited to public places such as municipalTibor Machan teaches philosophy at Auburn University,Alabama. He is a Senior Editor of Reason magazine. Herecently edited Commerce and Morality for Rowman andLittlefield, and is now working on a book titled PublicRealms and Private Rights for the Independent Institute ofSan Francisco.courts. If the government confined itself to protectingthe rights of nonsmokers in bona fidepublic areas, there would be nothing wrongwith the current trend in legislation.Instead of such a limited approach, however,government has embarked upon the full regimentationof people's choices concerningsmoking. The government, under the leadershipof public health officials, has decided to bullysmokers, regardless of whether they violateanyone's rights or merely indulge with the consentof others. This is where governmentmandatedsmoking bans have reached a dangerousphase.There are many risks that people suffer willingly.And in a society that respects individualrights this has to be accepted. Boxers, footballplayers, nurses, doctors, and many other peopleexpose themselves to risks of harm that comefrom others' behavior. What is central, however,is that when this exposure is voluntary, ina free society it may not be interfered with. Thesovereignty of persons may not be sacrificedeven for the sake of their physical health.Respecting Individual RightsIndividuals' property rights are supposed tobe protected by the Fifth Amendment. Not unlessproperty is taken for public use-for thesake of a legitimate state activity-is it properlysubject to government seizure. By treating theoffices, work spaces, and lobbies of privatefirms as if they were public property, a graveinjustice is done to the owners.When private property comes under governmentcontrol, practices may be prohibited simplybecause those who engage in them are in theminority or waver from preferred governmentpolicy. Members of minority groups can easilylose their sphere of autonomy.There is no need, however, to resort to governmentintervention to manage the publicproblems engendered by smoking. There aremany cases of annoying and even harmful practicesthat can be isolated and kept from intrudingon others. And they do not involve violatinganyone's right to freedom of association andprivate property.

147The smoking issue can be handled quite simply.In my house, shop, or factory, I should bethe one who decides whether there will besmoking. This is what it means to respect myindividual rights. Just as I may print anything Iwant on my printing press, or allow anyone tosay whatever he or she wants in my lecture hall,so I should be free to decide whether peoplemay smoke in my facilities.Those displeased by my decision need notcome to my facilities to work, play, or whatever.If the concern is great and the opportunityto work in a given place is highly valued, negotiationsor contract talks can ensue in behalfof separating smokers from nonsmokers. Inmany cases all that's needed is to bring theproblem to light. Maybe the firm's insurancecosts will be high where there is smoking, ormaybe a change in policy will come about becausecustomers and workers are graduallyleaving.In some cases it may go so far as to involvetort litigation. Exposing employees to seriousdangers that are not part of the job descriptionand of which they were not warned may beactionable. But what the company does initiallyat least must be its decision. And the onus ofproof in these cases must be on those who claimto have suffered unjustified harm. Governmentlegislation and regulation often subvert thiscarefully conceived process, just because somepeople are impatient with how others run theirown lives and properties.Consider the somewhat analogous case offreedom of religion. If I own and run a privateschool, I decide whether students may pray. Instate schools, of course, the state decides. Anda sound system of government won't get on theside of either the prayers or the non-prayers.Similarly, the state should say nothing about theultimate benefits or harms of smoking. This isno different from the well-respected view thatthe state shouldn't get on the side of a particularreligion or even a scientific theory.It is important to note that for many people,smoking is not categorically, universally bad.For some people it may be O.K. to smoke, justas it could be O.K. to have a couple of drinks orto run five miles a day. For others, smoking isclearly harmful to their health. In either case,health may not be the highest good for manypeople. All things considered, even thosewhose health suffers may wish to smoke. In afree society, people are free to do what iswrong, so long as they don't violate the rightsof others.But, some will cry out, here's the rub: smokingcan adversely affect others, and there is reasonfor those who could be harmed to stay awayfrom smokers.But this doesn't mean that we should forcesomeone who doesn't mind smoking to stayway from smokers. If I own a restaurant andchoose to permit smoking, you have no right tocome in and force someone not to smoke. Youmust deal with me first and I might accommodateyou or I might not, depending on my valuesand choices. In a free society this should bethe general policy. If you believe that I subjectyou to harm that you were not warned of, youcan sue me. But this is a private dispute, not amatter for public policy.Some want no smoking near them and oughtto be free to associate with others who do notsmoke. They should eat in restaurants, work inbusinesses, and play in clubs where smokingisn't allowed. Others like to smoke and shouldbe free to join the like-minded to carry on theirvarious activities. And some who don't smokemay not mind others smoking nearby. They,too, should be free to seek the appropriate companyin the appropriate settings.A free, pluralistic society can accommodateall these people. It isn't necessary to appoint thegovernment as the caretaker of our health andthe overseer of our interpersonal negotiationsconcerning how we best get along with eachother. Only when there are decisive grounds fordeeming an action as violating someone's rightsshould government enter the picture and prohibitit. 0

148Economics Has theAnswer:What's the Question?by Edmund A. OpitzAdam Smith's monumental achievementwas to enlarge the individualperson's freedom of action in economicaffairs, and thus in other sectors of hislife as well. Smith's argument had several minorloopholes, but these were plugged by theAustrian School-Carl Menger, Eugen vonBohm-Bawerk-about a century after TheWealth ofNations. Today, it is fair to say thatLudwig von Mises and his students have createda genuine science of economics-a systematicexposition of the free market economy-which,as an intellectual structure, isvirtually impregnable. Misesian economic scienceis, so to speak, The Answer. It's the recipefor anyone who wants to know how a societymust organize its workplace activities so as tomaximize economic well-being for all.The Question is: How may we achieve thefree and prosperous commonwealth? To whichThe Answer is': Install the free market economy,as taught by Austrian-and some othereconomists.Trouble is, almost no one is asking TheQuestion!Economic science does not tell John Doehow to make a million dollars on Wall Street, ora killing in real estate, or how to protect hisassets. Entrepreneurship is an art, not a science;The Reverend Mr. Opitz is a member of the staff of TheFoundationfor Economic Education and is the author ofthebook Religion and Capitalism: Allies, Not Enemies.profitable investing likewise. Economic science,like every other science, deals with abstractprinciples and general rules. Economicscience sets forth the general rules which membersof a particular society must apply in practiceif the society is to enjoy maximum productivityand raise the general level of economicwell-being. Economic science is a scholarly endeavorwhich shows what must be done to maximizethe wealth of nations.Economic science has The Answer for anyonewho asks how a society may advance frompoverty toward affluence. But economic sciencehas no answer for those who ask: Howcan I make a fast and easy buck?This is the wrong question, so far as economicscience is concerned. How can people bepersuaded to ask the right question? The questionpeople should ask might be phrased as follows:How can we create the social institutionswhich provide maximum opportunity for all ofus to be more prosperous? Only a sense ofmoral obligation will generate such a question.The ordinary, decent, law-abiding citizen inhis private dealings with his fellows would notuse force or fraud to gain advantage over another.But when force and/or fraud are legalizedmillions do seek some advantage for themselvesat the expense of their fellows. When the Stateallocates resources and redistributes the wealth,it is using its power to deprive producers ofwhat belongs to them, in order to dispense it to

149those who have not earned it. Everyone isforced to pay tribute for the benefit ofthe wieldersof power and their friends. Concerned withtheir own immediate well-being and looking tothe State for handouts, tens of millions ofAmericans have no interest in working towardan economic order which would assure a risinglevel of prosperity for everyone-the free marketeconomy.Austrian economics is The Answer, all right,but it is the answer to a question which only afew are asking. The reason: only a few have anethical incentive to ask it. Millions are searchingfor ways to increase their salaries, doubletheir incomes, and enjoy the good life. Only ahandful, by comparison, are working with anyintensity to advance the free society-marketeconomy way of life.Economic FallaciesWe have it on the authority of Henry Hazlittthat "Economics is haunted by more fallaciesthan any other study known to man. " Who candeny it? Any reasonably bright high school studentcan read Economics in One Lesson. Havingread the book, he can spot the fallacies inmany textbooks of economics, in the speechesof public figures, in the commentaries of televisionand radio pundits, in sermons and academiclectures, in almost any place he cares tolook.The discipline of economics is not mired insimple ignorance; it is stalled by willful ignorance.Economic fallacies abound because everyeconomic fallacy in practice gives someonean economic or other advantage over someoneelse. Pocketbook motivations keep economicfallacies alive; slay them in one generation andthey return from the dead in the next.Virtually every economic fallacy that plaguesus today has been demolished time and againover the past couple of centuries; but has thiswork of demolition diminished the number andpower of economic fallacies? Hardly; they appearabout as numerous and virulent as ever.There are few new economic truths, but newerrors proliferate wildly. Demolishing fallaciesand exposing errors may be exhilarating for atime, but it is negative work; it is to toil on atreadmill. The positive truths of a market econ-omy-together with its supporting institutionsand ideas-are reached only by taking a differentroute.The celebrated classicist, Gilbert Murray, offerssome wise words on truth and error: "Thegreat thing to remember is that the mind of mancannot be enlightened permanently by merelyteaching him to reject some particular set ofsuperstitions. There is an infinite supply ofother superstitions always at hand; and the mindthat desires such things-that is, the mind thathas not trained itself to the hard discipline ofreasonableness and honesty, will, as soon as itsdevils are cast out, proceed to fill itself withtheir relations. ' ,There will always be a need to expose economicerror and demolish fallacies, but somethingmore is needed if we wish to advance inthe direction of a truly free society; and thatsomething more is the sense ofmoral obligationwhich motivates persons to pursue the goalsthey perceive to be ethically right and good.Economics needs ethics.Mises points out that economics "is a scienceof means, not of ends," and that science, furthermore,is value-free. A science describes;but does not prescribe. "Science," Mises goeson to say, "never tells a man how he should act;it merely shows how a man must act if he wantsto attain definite ends. . . . Praxeology andeconomics do not say that men should peacefullycooperate within the frame of societalbonds; they merely say that men must act thisway if they want to make their actions moresuccessful than otherwise. " Moral obligation, asense of "oughtness," is not within the purviewof science; the sciences, basically, operatein a sector of the universe that is ethically neutral.By the same token, there are no grounds ineconomic science per se for telling anyone thathe ought to do this when he prefers to do that.Although every science is value-free, the universeis not value-free! We live in a rationallyand ethically structured universe where somethings are morally right and other things aremorally wrong; there is genuine good, as wellas real evil. Moral obligation, besides being areality that presses on the sensitive conscience,is a potent incentive to strive to translate thereasoned truths of economic science into a goingconcern economy.

150 THE FREEMAN. APRIL 1989Economics is the science of human action,and the actions of human beings are intimatelyimplicated with ethical standards and moral obligation.In other words, economic science doesnot stand alone; it is a "means," and as a meanseconomics needs to be hooked up with disciplinesthat deal with ends.What we have here is an IF-THEN situation.The economist cannot tell us that we ought toprefer a free and prosperous commonwealth;but IF that is what we want, THEN economicscience can demonstrate that the market economyis the only means to achieve that end. Economicscience can only explain; the economicargument must therefore be joined to an ethicalimperative which commands.Strengthening the CaseEconomic reasoning can demonstrate that thefree market system is the most efficient way toproduce goods and services, rewarding everyparticipant according to his contribution to theproductive process-as that contribution isjudged by his peers. But the economic case forfreedom is strengthened immeasurably when itis bolstered by moral reasoning which demonstratesthat the market economy is the only economicorder which embodies the ideas oflibertyand justice for all. Capitalism is the only economicsystem that does not reward some at theexpense of others.The interventionist state provides cushy jobsfor many a predator and parasite, people whoseservices would not be needed in a truly freeeconomy. Many of these people, once they becomedependent on consumer choice, might, tobegin with, be worse off economically than before.The pocketbook argument will not persuadethem, but the moral argument might.The value-free science of economics is incomplete;it is only a means, and it is the natureof a means to complete itself by combining withan appropriate end. Value-free economicsneeds the value-rich discipline of ethics. And itneeds something more as well, the related ideaof "equal rights" which so inspired our Whigand Classical Liberal forebears. This is the convictionthat a portion of the divine is incorporatedinto the makeup of every man andwoman, generating a sacred precinct within,which to invade is to violate. This is the domainof those Creator-endowed rights specified inour Declaration as rights to Life, Liberty, andthe Pursuit of Happiness, which governmentsare instituted to secure. Equal freedom andequal justice under the law follow logically, andprovide the legal, cultural, and moral frameworkwhich demands the free economy as itsnatural corollary. 01988-89 Essay Contest"Why Choose Freedom?"sponsored by The Foundation for Economic EducationFirst Prize ($1500): David Beers, George Mason University, "Social Consciousnessand Individual Freedom"Second Prize ($1000): Matthew B. Kibbe, George Mason University, "TheUnspoken Dialogue of the Market"Third Prize ($500): Roderick T. Long, Cornell University, "The Path of Liberty"Honorable Mention: Matthew E. Schramm, Augustana College (Illinois); Bobby Taylor,University of Tennessee, Knoxville; Ellen Spertus, Massachusetts Institute of Technology;David M. Brown, Mercer County Community College (New Jersey); Darren R.Rice, University of Houston-Clear Lake; Richard Bostan, Simon Fraser University (Burnaby,British Columbia).

151Dumping: An Evil oran Opportunity?by Alex HuemerIn the latter half of the nineteenth century,America's rail barons were engaged in a• titanic struggle for control of the nation'scommercial rail traffic. Notable in this conflictwas the attempt by Cornelius Vanderbilt todrive the Baltimore & Ohio Railroad out ofbusiness. Confident of success, Vanderbiltslashed the rates on his New York Central line'scargo fares, knowing Baltimore & Ohiocouldn't hope to compete. Soon, however, theflush of victory tllrned to crimson rage: the headof the B & 0 railroad, Jim Fisk, had boughtmost of the cattle in Buffalo and shipped themto New York City for resale, on Central trains,at the ridiculously low fare of $1.00 per head.The rate war had failed, and Vanderbilt washumiliated.Over 100 years later, titanic struggles areagain taking place. This time, the principal actorsare huge multinational corporations, andinstead of "rate wars" we observe the heraldedconsequences of their competition: internationaldumping.The act of dumping is defined as "foreignsales below the home price. " The term has beenused in recent years to describe myriad competitiveactivities undertaken by internationalfirms, until it has become difficult to identifydumping as an activity apart from fair competition.The European Community CommissionMr. Huemer is a Ph.D. student in economics at ColumbiaUniversity. This essay won first place in the 1988 MiltonFriedman Essay Contest conducted by the Americanism EducationalLeague, Buena Park, California. The contestdrew over 4,000 entries, with Milton and Rose Friedmanjudging the finalists.recently accused five Japanese companies ofdumping because they were importing lowpricedparts from Japan for their typewriter assemblyplants in Europe. Meanwhile, ChryslerCorporation has been accusing the Japanese ofdumping automobiles in the U.S. market, whiledeflecting accusations of import dumping themselvesby arguing "the core of the [dumping]issue goes to the manufacturer of the cars, notdistributors, such as ourselves."In the press, in political speeches, and in thestatements of interested parties, the term,'dumping" has become a vague catchwordwith which to abuse every kind of foreigncompetition.This statement was made by Gottfried Haberlerin 1933. Abuse of the term "dumping" isnot a modem phenomenon, but has resurfacedrecently because of the awful images the termevokes: images of protected international monopoliesoverwhelming domestic markets, forcingAmericans out of work and destroying strategicindustries. But the images are exaggerated,the truth far less daunting.Firms finding themselves exceeding theirpredicted inventories are often obliged to get ridof their excess stock of goods by temporarilyselling below the usual retail price. When soldabroad in this fashion, we refer to it as intermittentor sporadic dumping, since sustaineddumping of excess inventories cannot be maintained.This type of dumping is usually harmless;most firms can survive a temporary drop inthe market price of their good. Moreover, for-

152 THE FREEMAN. APRIL 1989eign firms faced with excess inventory problemswill not simply cut prices abroad, but domesticallyas well.Another type of dumping is that performedby foreign monopolies. When faced with increasingreturns to scale of production, and unableto increase its profits by raising domesticsales, a firm may still reap greater profits byexpanding production for foreign markets. Solong as the costs of producing the good are metby foreign demand, the fall in per unit productioncost will increase profits in the domesticmarket.Therefore, a firm may competitively chargeless for its product abroad than at home. However,any fall in cost of production will lead aprofit-seeking firm to expand domestic sales aswell. To spur demand for its good, the firm willcut the domestic price, and the best dumpingprice will fall again, but somewhat less. Ultimately,the prices in the two countries mustconverge, following a process of successive domesticand foreign price cuts. Such dumpingcannot be sustained indefinitely.It is not necessary, therefore, to introducetariffs or duties to equalize the price of dumpedgoods at home and abroad-remedies likely tobe suggested by those firms operating too inefficientlyto compete fairly with the foreignfirms. Rather than enjoy the inexpensive productof efficient foreign industry, while we concentrateon developing our own, we are beingasked to accept higher prices from aging, uncompetitiveindustries.Arguing against dumping as a product of unfairforeign trade practices, many people havepointed out that domestic industries might effectivelycompete with dumping firms if theycould sell goods in unprotected foreign markets,expanding domestic output and reducingcosts of production. Unfortunately, in the midstof making this perfectly reasonable argument,many people are inexplicably stricken with anattack of hypocrisy. They reason that if foreignnations are successfully dumping because theyare protectionist, our best response is to be protectionistin turn. In a sense, they attack thesymptom by aggravating the disease. The resultsare higher prices, crippled trade, and thepersistence of industrial inefficiency.There is one other type of dumping: that arisingfrom predatory pricing. It has been suggestedthat foreign firms dump their goods in aneffort to drive their competition out of business,with the object ofcartelizing the market in thosegoods. This is potentially the most damaging,yet least likely form of dumping to occur. Inaddition to being very costly to maintain, theresultant domination of the market would beexceedingly difficult to exploit. Any attempts toraise the price of the good above the competitiveprice would encourage other firms to comeinto the market and force the price down again.How Should We Respond?In the meantime, how should we respond tothe dumping? For an answer, we need look nofurther than the example set by Jim Fisk: Ifforeign firms are prepared to sell us their goodsbelow costs, we should let them. We can improveour standard of living and economicpower by consuming their finished goods, anduse their intermediate goods to cut our own productioncosts. Acts of predation can becomeopportunities for subsidy, ifwe are wise enoughto take advantage of them.Many people feel that we risk losing a greatdeal more than markets to foreign competition.It has been argued that we may lose our culture,our national security or even our power over ourown government! Any careful consideration ofthese issues will lead us to reject these fears asgroundless. As for companies influencing governmentpolicy, The Economist remarked recently,"This should more reasonably concerna tiny Pacific island . . . than a nation as largeand diverse as the United States." On nationalsecurity grounds, we must have access to strategicresources; but we needn't own them, andanti-dumping legislation has done much moreto deny than to improve that access. Lest wefear for our culture, we should remind ourselvesthat as a free people, we needn't patronize thoseindustries which do not cater to our tastes, orwhich offend our ideals. In the end, we need torealize that "ownership is no longer the mainsource of economic well-being."What have we gained by criticizing internationaldumping? The only recent prosecution ofa dumping case in our country has resulted in atrade agreement with Japan on the quantity and

153price of semiconductors the Japanese may sellus. While U.S. semiconductor producers continueto rail against the Japanese for questionableviolations of the agreement, U. S. computermanufacturers are complaining of severeshortages of memory chips and semiconductors,resulting in serious production delays andmark-ups of as much as 400 percent. In Europe,the Japanese are finding it difficult to continueestablishing factories, while the Europeans are,as The Wall Street Journal observed recently,,'on the one hand inviting companies to createemployment and improve the trade balance withJapan, and on the other hand restricting use ofvital components that are often difficult toprocure...."What Would Happen Today?If we were to rewrite our story of the railbarons in modem terms, it might go somethinglike this: Cornelius Vanderbilt slashes the rateson his New York Central cargo fares. This time,Jim Fisk complains to Senator "Boss" Tweedin Albany. Securing an injunction againstVanderbilt, Fisk appeals to the people against"the shameful predatory pricing" of the NewYork Central Railroad, and justifies the suddenlegal barrier to lower rates as "'necessary" forthe preservation of jobs, national security, andthe sanctity of government institutions. JimFisk, no longer the wily entrepreneur, has becomea coward and a scoundrel.We, too, have an image to maintain. Whereonce Americans might have taken advantage ofdumping to reap a tidy profit on finished goodsand inexpensive consumption from cheap foreignexports, we now seek protection fromthem with barriers to fair trade and shrill condemnationof our allies and trading partners. Inthe name of dumping, we have humiliated ourselvesinternationally. Worse, in facing ourproblems we have denied our heritage of freedomand equality for the "opiate" of protectionism.It is time for us to reclaim that heritage,and with it the opportunity of a betterfuture for America. It is time to overcome the,'evil" of dumping, that evil which is in ourselves,and reclaim those opportunities whichmade America great.DProtecting WhomfrOID What?by Bjorn AhlstromIhave a problem with the word''foreign. "Every few years, someone urges us toprotect American commerce by erectingtrade barriers against "foreign" products. Butwhat does foreign really mean?Sony televisions are made in San Diego.Harley-Davidson motorcycles are 50 percentmade in Japan. Which one is foreign?Bjorn Ahlstrom is president and chief executive officer ofVolvo North America Corporation. This article first appearedin the July 14, 1988, issue ofThe Detroit News.For that matter, what is domestic? Some335,000 ofthe "American" cars sold here eachyear are made in Japan or Korea-more than thenumber ofcars imported by Mazda, Mitsubishi,and Isuzu combined. Chrysler Corp. annuallysells in the United States more than 120,000Chryslers imported from the Far East, representingmore than 11 percent of its total sales,while Honda builds more than 320,000 carshere. Which of these are domestic and whichforeign?

154 THE FREEMAN. APRIL 1989The Volvo 780 that we sell in the UnitedStates has a French engine, a Japanese transmission,an American air conditioner, a Germanelectronic system, Singaporean controlvalves, a Canadian exhaust system, a Taiwanesepower antenna, South Korean electricalcomponents, Swedish axles, and Irish tires. It isdesigned and assembled in Italy. Is this a Swedishcar?Volvo North America sells the 780. We directlyor indirectly (through our dealers) employ25,000 American citizens-including me.The other cars and trucks we sell are made inNova Scotia, Virginia, Ohio, Utah, Belgium,and Sweden. Our parent company, AB Volvo,is owned by 162,000 shareholders in 50 countries,quite a few of them in the United States.Is this a foreign company?I think "international" is a better word. International,just like Ford. Or Coca-Cola. OrIBM.Companies like these-and there are thousandsof us-buy raw materials and componentsall over the world, wherever the price andthe quality are right. W~ make our products allover the world, wherever it makes the mostbusiness sense.But when we operate across a lot of borders,we all adopt what I call a "home-country" approach.We have to. What this means is that weoperate in the United States or France or Australiaas if it were our home country.We cannot just take the Swedish Volvo andsell it, unchanged, in the United States. Americanshave different tastes in handling, styling,and other areas. And transportation and componentavailability change the economics. So theAmerican Volvo is unquestionably a Volvo-­but it's a different car from the Swedish Volvo.The same thing is true with a Coca-Cola: ittastes one way when it's bottled in Atlanta, andanother way bottled in Stockholm. It's adaptedto the characteristics of the markets in which itis sold.That's what international companies do: inthe many places they do business, they act as ifthey were local businesses, not carpetbaggersfrom abroad.Now let's make this more complicated. ABVolvo is a Swedish company. Our Volvo Pentadivision makes marine engines in Virginia.Most are sold here, but some are exported, evento Sweden. What's foreign in this case? Are wedealing with imports or exports?This is not a minor curiosity. Why is Taiwan'strade surplus with the United States solarge? One-third of the surplus results fromAmerican corporations making or buying thingsin Taiwan and shipping them back to the UnitedStates-at a profit. The same thing is true ofSingapore, South Korea, and Mexico: theirtrade surpluses are heavily dependent onAmerican/international corporations that havebased themselves there.What's the point? After the Great Crash of1929, our country erected huge trade barriersandhelped to launch the Great Depression.Back then, it was easy to tell the differencebetween "us" and "them" and to pass a lawthat penalized "them" (even if the law turnedout to be a disaster).Today, "us" is "them." Except for quitesmall businesses, there's no such thing as a domesticor foreign company. We're all international.And that means we're all American.So, when you talk about trade barriers, rememberthis: You cannot write a traderestrictionlaw that will not cost American jobs.Or one that will not raise what we pay forAmerican-made products. Or one that will notreduce the value of American savings investedin American and international securities.The way the world works now, if anyoneimposes trade barriers, everyone loses. 0The Key to ProgressInthe highly complex, interwoven world marketplace of today, it ispointless to think of national economies as independent entities. Likeit or not, modem industrial nations have become intertwined andinterdependent economically, and the result is rising prosperity. Vigorousinternational commerce is the key to progress.-RICHARD LESHER

155The InternationalMonetary Fundby Ken S. EwertIt was on July 1, 1944, just three weeksafter the Allies had landed in Normandy,that the most significant intergovernmentalconference of the century began. The conferencetook place at Bretton Woods, New Hampshire,and it represented, in the main, the thinkingof two individuals, Harry Dexter White andJohn Maynard Keynes. Both of these men hadgrave doubts about the beneficence of marketprocesses and preferred to put their faith in theability of national and international "managers"to coordinate the world's economic affairs.And in 1944 White and Keynes were notalone in their views. As some 45 countries metto plan out the "new economic order," therewas consensus on the necessity for increasedeconomic coordination and a general view thatthe international gold standard was undesirablebecause of the restraints it placed on a nation'sability to pursue the "full employment" policiesprescribed by the nouveau Keynesianwisdom.!Two of the organizations formed at BrettonWoods have become increasingly more importantin the world's economic affairs. These arethe International Monetary Fund (IMF) and theInternational Bank for Reconstruction and Development(World Bank). Of these two institutions,the World Bank has evoked considerablecriticism over the years for its policy of lendingprimarily to governments instead of to private,profit-seeking organizations. A strong case canMr. Ewert, a graduate ofGrove City College, is working ona master's degree in public policy at CRN University.be made that the policies of the World Bankhave supported world-wide statist economicpolicies, and discouraged the expansion of thefree market. The IMF, however, has generallybeen more acceptable to defenders of the market,since its operations do not so clearly subsidizeanti-free market policies. However, as acloser look shows, the IMF has also been amajor influence for statist economic policies.The IMF was established "to promote internationalmonetary cooperation" by maintainingfixed exchange rates among the currencies ofdifferent nations. 2 To accomplish this, the Fundwas to make short-term loans to nations whichhad temporary balance of payments deficits(i.e., the net imports ofthe country exceeded itsnet exports). The short-term loans (usuallythree to five years) would presumably allow anation to recover from its imbalance withouthaving to resort to devaluing its currency.IMF loans were, and are today, made accordingto the "quota" of each member nation. Thequotas consist of the capital each country haspaid in, usually 25 percent in gold and the restin the member nation's currency. A membernation can exchange a portion of its quota tobuy another nation's currency (usually dollars,German marks, or Japanese yen). These fundsin tum can be used to support the borrowingcountry's currency on exchange markets or topayoff creditors while it (supposedly) gets itseconomic house in order.While the capital for these loans is officiallyprovided by all member nations, in reality it is

156 THE FREEMAN. APRIL 1989the industrialized "hard currency" countrieswho provide the lion's share. At BrettonWoods, nearly every weak currency nationsought to increase its "quota" so that it could"buy" more currencies ofreal value. The sameis true today as many debtor governments favorlarge increases in quotas while industrializednations seek more moderate increases. Thequota system amounts to an agreement of hardcurrencycountries to lend funds to the softcurrencycountries, and it ultimately representsa net transfer of funds from citizens of industrializedcountries to the debtor-nation governments(since the loaned funds are continuouslyrolled over or re-Ioaned, and not repaid to thedonor country). 3Subject to special Fund approval, a membernation can also borrow amounts well beyond itsquota. The size and number of these loans(called "standby agreements") have increasedover the years, and they usually include specificeconomic conditions which the debtor nationmust observe. The standby agreements usuallyare repaid over a period ofthree to five years. Inaddition to this regular financing, the IMF hasgreatly expanded its role by establishing several"special facilities" which give the Fund morediscretion in lending and allow longer-termloans and larger subsidies for less developedcountries (LDCs) which are the principal usersof Fund resources. 4The Fund's credit-dispensing ability was furtherexpanded in 1970 with the creation of"Special Drawing Rights" (SDRs). Whiledubbed "paper gold," the SDRs are actuallyfiat money, i.e., only bookkeeping entries inthe Fund's books. They are allocated to countriesaccording to their quotas, and they are usedby member nations in their transactions witheach other and as reserve assets. The SDR is thefulfillment of what John Maynard Keynes hadenvisioned in the early 1940s. Keynes proposeda world reserve currency called the "bancor"which supposedly would free all governmentsfrom the disciplines of gold. Like the proposedbancor, the SDRs are designed to replace goldin world monetary transactions and to furtherfree member governments to inflate their currencies.Initially the IMF's primary role was to fosterthe fixed exchange system. 5 But the Fund hadlittle success at this, since the inflation* inmany countries made devaluation of their currenciesinevitable. 6 Even the widespread use ofIMF credits couldn't sustain the value of debasedcurrencies for long. By the time the fixedexchange system collapsed on August 15,1971, the IMF had sanctioned more than 200devaluations. 7Not only was the IMF powerless to stop thedevaluations, its funding may well have been anet negative force since it restrained and slowedwhat would have been the normal market correctionsof international exchange rates. 8When the fixed rate system finally collapsed(as the U.S. abandoned the gold-exchange standard)there were many people who speculatedthat the IMF would slowly fade into oblivion,since its primary role-maintenance of fixedrates-was eliminated. Such was not to be thecase however, and the IMF has survived andeven substantially expanded its role in the subsequentyears.When the IMF no longer had fixed exchangerates to justify its existence, it turned to lendingfor "temporary" balance of payments deficitsas its primary function in the 1970s. 9 Between1970 and 1975 the volume of the Fund's lendingmore than doubled in real terms, and from1975 to 1982 it increased by a further 58percent. 10Balance of Payments DeficitsFor the most part, the balance-of-paymentlending by the IMF seems to assume that acountry's imbalance of payments is caused byfactors other than its own economic policies.Examples of externally caused temporary tradeimbalances (supposedly proving the necessityof the Fund's role) might be a poor year for acountry's major export crop, or a sharp rise inthe price of a principal import (such as oil).While national trade imbalances are sometimescaused by such factors, most often the culprit isnot some twist of fate but rather the economicpolicies of the debtor nation's government.Governments the world over find it expedientto spend more than their citizens are willing to* The word "inflation" is used here to denote the expansionof the money and credit supply of a nation, not themost noticeable result of that monetary expansion, which isrising prices.

THE INTERNATIONAL MONETARY FUND 157provide in tax revenues. The additional spendingis often financed by increasing the quantityof money and credit, which results in risingdomestic prices. Faced with rising prices athome, the country's citizens will tend to buymore goods and services from abroad, sincethey have become relatively cheaper. At thesame time, exports from the inflating countrywill tend to become less attractive to foreignbuyers because of their increased cost. The endresult is a balance of payments deficit.This deficit would tend to correct itself ifexchange rates were left unmanipulated by theinflating country's central bank. The value ofthe inflated currency would tend to drop in relationto foreign currencies, and this in tumwould discourage imports and encourage exports.But what often happens is that the inflatingcountry's central bank intervenes in foreignexchange markets to prevent the value of itscurrency from falling to (or closer to) its marketlevel. It can do so, however, only as long as ithas access to foreign currency reserves withwhich it can intervene to purchase its own currency.The Results of IMF RescuesOften when a country has depleted its reserves,the IMF enters and offers loans whichenable the inflating government to continue itsfolly by providing it with the funds to negate(temporarily) some of the consequences of theinflation. According to Henry Hazlitt: "If nationswith 'balance-of-payments' problems didnot have a quasi-charitable world governmentinstitution to fall back on and were obliged toresort to prudently managed private banks, domesticor foreign, to bail them out, they wouldbe forced to make drastic reforms in their policiesto obtain such loans. As it is, the IMF, ineffect, encourages them to continue their socialistand inflationist course. ,,11 The IMF thus facilitatesinflationary policies (euphemisticallycalled"full-employment policies") in membernations by being a "safety net"-it is alwaysthere to bail out its profligate members withfresh funds.There is no doubt that by rescuing LDC governments,the IMF has helped make possiblethe massive monetary inflation which has occurredand is still occurring in many of thesecountries. Even more important, it has allowedgovernments the world over to expropriate thewealth of their citizens more efficiently(through the hidden tax of inflation) while at thesame time aggrandizing their own power. Thereis little doubt that the IMF is an influence forworld-wide socialism.Although IMF loans have been primarilyshort term and for the stated purpose of rectifyingtemporary balance of payments deficits,the Fund has been a de facto supplier of longtermfinancing to many LDCs. 12 A long-termloan is no different from a number of short-termloans strung together, and many of the IMF'smember nations have a long record of backto-backloans. 13 Between 1954 and 1984, 24member nations used Fund credit for 11 continuousyears or longer; it seemS that the majorityof countries which begin using IMF funds continueto do SO.14Without question, IMF lending has had a sizableimpact on the long-term economic policiesof some LDC governments, and it thus deservessome of the blame for the triple-digit inflation,price controls, oppressive taxation, stifling regulations,and general disregard for private propertyrights which are common to many of thesecountries. There is, of course, no way to knowwhat political and economic changes for thebetter would have occurred in the absence ofIMF bailouts, but as The Economist notes, theFund often "stands as the last defense betweena mismanaged economy and outright financialcollapse. ,,15 Such a collapse, if it brings an endto statist policies, might well usher in increasedeconomic freedom for millions of people.Subsidizing LDC GovernmentsIt might be objected that Fund lending merelytakes the place of what otherwise would be privatelending to LDC governments. And if thiswere the case, the IMF could not be held responsiblefor the policies that these loans madepossible. However, the IMF often lends to financial"basket-case" countries which have littlehope of obtaining private loans without IMFhelp. More important, almost all IMF loansare not market-rate loans, but are subsidized,

158 THE FREEMAN. APRIL 1989sometimes heavily. 16 Given the basic economicaxiom that more of an economic good will beconsumed if its cost is lowered, the subsidizedloans made by the IMF have encouraged LDCindebtedness and, since such loans are made togovernments and not private individuals, increasedthe politicization of these societies.Member nations can borrow from ordinary(non-facility) Fund resources at well belowmarket rates. For example, from May 1982through April 1984, the annual charge for useof these Fund resources was 6.6 percent. Duringthis same period, interest rates paid byLDCs to commercial lenders were between 11and 13 percent (often plus additionalcharges). 17The bulk of member borrowing, however, isdone through Fund "facilities." As of 1984,more than one-third of these loans were financedby Fund borrowings from industrializedgovernments (rather than from quota contributions).Since the Fund can borrow at substantiallylower interest rates than those available tothe poor-risk LDC, it implicitly subsidized theborrowing country by passing on this lowerrate. Moreover, some of the facilities are evenmore explicitly subsidized. The oil facility, forexample, includes a "grant" factor of somethirty percent. 18With the increasing debt burden of manyLDCs and the ensuing "international debtcrisis, " the IMF has garnered even more powerand resources. In 1983 the Fund's resourceswere increased from 61 billion SDRs to 90 billionSDRs, and a number of new lending programssubsequently have been initiated. 19In addition to expanding its role as a lender,since the early 1980s the Fund has become thecentral player in "managing" the debt restructuringpackages among debtor nations and theircreditors. The IMF coordinates reschedulingpackages in which commercial banks, governmentsof industrialized nations, and internationalagencies agree to supply new loans andreschedule old loans on the basis that the debtornation promises to abide by IMF conditions.The fact that the IMF loans are "conditionalityagreements," which require the debtor nationsto adhere to (or at least work toward) specificIMF-mandated policies, is pointed to bysome Fund supporters as a crucial functionserved by the Fund, and one which justifies itsexistence. The Fund is supposedly needed toimpose some sort of economic discipline on nationswhich seem unable to impose it on themselves.However, the conditions imposed by theFund are seldom free-market oriented. TheFund concentrates on "macro-policies," suchas fiscal and monetary policies or exchangerates, and pays little attention to fundamentalissues like private property rights and freedomof enterprise. 20 Implicit in the Fund's statedpolicy of "neutrality" with regard to nationalpolitical decisions is a belief that with proper"macro-management" any economic system isviable, whether it be socialist or capitalist. Becausethe Fund does not advocate the true prerequisitefor economic prosperity-a lawfullyconstrained government which respects privateproperty-its record as an economic manager israther poor. There is every reason to believethat in the absence of the IMF, private lenderswould require conditions (in return for furtherloans) which would be at least as effective inpromoting economic health for the LDC. 21Until recently the IMF conditions routinelyrequired "austerity measures" in the debtor nation.These measures often included reducedbudget deficits, slower money creation, andmore realistic exchange rates. These conditionshave invoked widespread protests both fromwithin the "Third World" and from the universities,think tanks, and charities of the industrializedcountries. Austerity measures are attackedby liberal critics as being overly harsh,politically unfeasible, and particularly harmfulfor the poor who depend upon government programsin the affected LDCs.In response to this criticism, the IMF'snewest director, Michael Camdessus, has indicatedthat the IMF in the future will be lessstringent with the debtor nations and place moreemphasis on "growth." According to Camdessus,the IMF must take care to "respect a membergovernment's judgment of priorities and ofdomestic political constraints." Reflecting thesame tone, at the annual meeting in September1987, the IMF interim committee proposed thatthe "conditionality" of Fund loans should bereviewed in light of the "increased emphasisbeing placed on growth-oriented adjustment."

THE INTERNATIONAL MONETARY FUND 159In addition to more lenient conditions, Camdessus,with the support of U.S. Treasury SecretaryJames Baker, advocated more funding(from industrialized countries) for the IMF overthe next few years to enable the debtors to,'grow" their way out of debt. 22The IMF role in the current crisis has notnecessarily been beneficial and might wellprove, in hindsight, to have worsened the debtsituation. As IMF historian Margaret Garritsende Vries notes, IMP involvement has prompted"net new lending from commercial banks on amuch larger scale than had been thought possiblein mid-1982. ,,23 Presumably the commerciallenders have been willing to extend newfunds for one oftwo reasons: either they believethe IMP will "straighten out" the debtor nation'seconomy, or they believe that the IMP'sinvolvement in the rescheduling process is animplicit guarantee of these loans. CongressmanHenry B. Gonzalez, among others, believes thelatter is true, and has called the IMF an "internationalFDIC for banks. ,,24Whatever reason for increased lending, if,as seems likely, the LDC debtor nations failto "grow" out of their present predicament, theIMF deserves much of the blame for the futurelosses and financial havoc which will result.There are indications that the Fund may becurrently evolving beyond its debt managementrole. It is clear from recent statements by FundDirector Camdessus that the IMF desires a morecentral role in international economic policy coordinationand management of exchange rates.In fact, in recent years the IMF's annual meetinghas increasingly come to serve as a focalpoint for the major industrialized countries' financeministers and heads of central banks tomeet and discuss economic coordination.However, until now the U. S. has sat "in thedriver's seat" so to speak, because of the premierposition enjoyed by the dollar amongworld currencies. The IMF, supported by severalindustrialized countries, advocates replacingthe current American pre-eminence in theglobal economic management process with theinternational oversight provided by the Fund. Inorder to achieve this, Director Camdessus advocatesthat the dollar be replaced as theworld's reserve currency by the IMF-issuedSDRs.ConclusionThe IMF is seen by many within government(as well as banking and academic) circles as"the world's master economic trouble-shooter,"and there is a growing call for an increased rolefor the Fund in world monetary and economicaffairs. 25 More than 40 years after the BrettonWoods Conference, the same call continues tobe echoed: "We need more international economiccoordination."Yet the faith that governments around theworld are ever willing to place in a supranationalorganization like the IMF seems illfounded.After all, the IMP has failed toachieve its original goal of maintaining fixedexchange rates, it has failed to attain its subsequentgoal of improving the balance of paymentsproblems of LDCs, and it is currentlyfailing to solve the world debt crisis. Moreover,its "successes" also are open to serious question.It has financed statist policies in LDCs, ithas transferred billions of dollars from citizensof industrialized nations to Third World regimes-someof them despotic-and it has facilitatedworldwide inflation.Why, then, the widespread support for theIMF?26 The reason is more straightforward thanmany of us would like to believe. When governmentsspeak of the need for "increased economiccoordination," what they mean is thatgovernments around the world want to bettersynchronize their inflationary monetary policies.Inflation is politically expedient for everygovernment in our age. It temporarily stimulateseconomic activity and in so doing buysconsiderable political favor. Only later whenthe unpleasant effects appear-rising prices,economic dis-coordination, consumed capital,and unemployment-does the inflation becomea political liability. The illusive goal pursued bygovernments around the world is to reap thepolitical benefits of inflation without paying itssubsequent costs.The IMF is seen as a means to achieve thisgoal of simultaneous world monetary expansion.As Hans F. Sennholz observes, the IMFrepresents the "spurious notion that the policyof inflation can be made to last indefinitelythrough cooperation of all member governments.It acts like a governmental cooperative

160 THE FREEMAN. APRIL 1989with 146 members that tries to coordinate theinflationary policies of its members.' ,27 It isthis vain pursuit that has sustained and nurturedthe IMF throughout its history.D1. The Treasury Secretary at the time, Henry Morgenthau, declared:"It has been proved ... that people in the internationalbanking business cannot run successfully foreign exchange markets.It is up to the Governments to do it. We propose to do this if andwhen the legislative bodies approve Bretton Woods." Cited inHenry Hazlitt, From Bretton Woods to World Inflation: A Study ofCauses and Consequences (Chicago: Regnery Gateway, 1984), p.88.2. Article I of the original "Articles of Agreement," cited inMargaret Garritsen de Vries, The IMF in a Changing World: 1945­1985 (Washington: The International Monetary Fund, 1986), p. 14.3. According to Henry Hazlitt: "The guiding idea of the conference,even at its opening, was that the value of the weak currencies~hould be maintained by the countries with strong currencies agreemgto buy them at a fixed rate, regardless of their market value."See Hazlitt, p. 46.4. These "special facilities" include: 1) The General Arrangementsto Borrow which coordinates the lending of ten major industrialcountries to wayward debtor countries in order''to forestall orcope with an impairment of the international monetary system."2) The Compensatory Financing Facility which allows short-termnon-.con?itio~alloans to countries suffering from a temporary majo;declme m pnmary exports. 3) The Oil Facility and Subsidy whichwas established in response to the sharp increase in oil prices andallows minimal-condition loans beyond normal drawing rights.4) The Extended Fund Facility which was established in 1974 to~low longer-term financing (over 8 to 10 years instead of the pre­VIOUS 3 to 5 year terms for repayment). With this special facility, theFun~ .has officially moved into the medium to long-term financingtradItionally done by the World Bank. 5) The Supplementary FinancingFacility, which was financed by Fund borrowing from industrializedcountry governments, further aided countries which hadlarge payments deficits and did not qualify for regular IMF financing.See Richard Goode, Economic Assistance to Developing CountriesThrough the IMF (Washington: The Brookings Institution,1985), pp. 5-10.5. More accurately, a system of "adjustable peg" rates. It wasrecognized that occasionally "fundamental disequilibriums" wouldoccur in a nation's balance of payments which would necessitateadjustments in the value of the currency.6. "Currency depreciation can always be avoided through a sufficientlyrestrictive, usually disinflationary, monetary policy. Exchangecrises are-from a technical point of view-always the faultof the country's own monetary authorities." Roland Vaubel, "TheMoral Hazard of IMF Lending," in Allan H. Meltzer, ed., InternationalLending and the IMF: A Conference in Memory ofWilsonE. Schmidt (Washington: The Heritage Foundation, 1983) pp. 69­70.7. Hans F. Sennholz, Age ofInflation (Belmont, Mass.: WesternIslands, 1979), p. 138.8. Without IMF assistance, "the countries with the most inflation~ould have suffered the consequences oftheir currency debasementsmuch earlier and would have had to retrench much sooner."Sennholz, p. 138.9. As The Economist wrote on January 17, 1976, "the IMF didits best to resist the change to floating. Now that it has had to beaccepted, why is the IMF still bent on credit creation?" (cited inVaubel, p. 70).10. Vaubel, p. 66.11. Hazlitt, p. 14. Even if the balance of payments problem weredue to a "temporary" shock such as a sharp increase in the cost ofoil imports, there is no reason to believe that postponing the necessaryadjustment by borrowing will be beneficial to the country. Evenif such "adjustment smoothing" was advantageous, the country hitby the disturbance could borrow in the international capital markets.This would lead to a better utilization of resources because theborrower would pay the full cost, instead of using subsidized IMFfunds. The borrower "would have to borrow at the opportunity costof lending in the rest of the world." (Vaubel, p. 71).12. In recent years, the IMF has been increasingly lending forlonger periods, often ten years.13. "The IMF appears to have created a class of permanent badcreditnations that have grown accustomed to its emergencyassistance." Fred L. Smith, Jr., "The Politics of IMF Lending,"Cato Journal, Vol. 4, No.1 (Spring/Summer 1984), p. 222.14. Goode, pp. 19-20.15. "Poor Man's Fund," The Economist, February 13, 1988, p.14.16. Vaubel, p. 66.17. Goode, pp. 15-16.18. Goode, p. 18.19. The Structural Adjustment Facility (SAF) was established in1986 in order to aid the poorest African, Asian, and Pacific countries.It allows the borrower a five-year grace period after whichrepayments begin and continue for another five-year period. IMFDirector Camdessus is seeking an expansion of SAF from its currentthree billion SDR to 11 billion SDR. In the fall of 1987, TreasurySecretary James Baker proposed yet another IMF facility called theExternal Contingency Facility which would provide further aid to~,elp so~ereign d~btor and creditor countri.es. (Anthony Rowley,All Fnends Agam: IMF-World Bank Meetmg Produces Harmony,If No Answers," Far Eastern Economic Review, October 15,1987,pp. 67-70).20. "Does it make any difference whether budgets are balancedby cutting spending or raising taxes?" I [Tom Bethell] asked theIMF information officer."That's a national political decision," he said. "How the governmentdoes it is its own affair."I raised the problem of very high tax rates in many Third Worldcountries."What is too high?" he asked."What about property rights?" I further inquired. "Do you insistthat they be respected?""No," he said. (Tom Bethell, "Loony Lending," National Review,October 14, 1983, p. 1260).21. The lenders could, in the absence of the IMF, form a type ofconsortium arrangement for dealing with their problem debtors.Moreover, IMF programs have not been very successful in curingthese sick debtors. A former executive director ofthe Fund, JahangirAmuzegar, admits ". . . it is disturbing that, despite its valiantrescue efforts across the Third World, the IMF is hard pressed toshow more than a few clearly viable programs out of the roughlythree dozen under its wing." (Jahangir Amuzegar, "The IMF UnderFire," Foreign Policy, Fall 1986, p. 114) Another author notes that"According to an analysis performed by T. R. Reichman, an economistin the Fund's powerful Trade and Exchange Relations Department,21 stabilization programs initiated after Oil Shock I had onlyabout a 33 percent success rate." Michael Moffit, The World'sMoney: International Banking from Bretton Woods to the Brink ofInsolvency (New York: Simon and Schuster, 1983), p. 130.22. Rowley, p. 70. IMF Director Camdessus is presently callingfor a further doubling of the Fund's capital.23. de Vries, p. 189.24. Smith, p. 218.25. Amuzegar, p. 98.26. There is also, happily, growing opposition to the IMF. Thedebate over increased funding in 1983 prompted a powerful coalitionof Left/Right IMF opponents including Ralph Nader and HowardPhillips. It was only the about-face switch of the Reagan administration,which had been very critical of the IMF until the fall of1982, that assured passage of the funding increase. Treasury SecretaryDonald Regan was quoted in the Financial Times as saying,"I lobbied 400 out of 435 congressmen before that vote." (Smith,p.238).27. Hans F. Sennholz, "The World Debt Crisis," The Freeman,February 1983, p. 79.

161State Funding ThreatensCommunity Groupsby Robert J. SchimenzYour local Little League may be on thedole. And it is not alone. Other youthbaseball, football, and soccer leagues,police athletic clubs, senior citizen groups, andsimilar community-based volunteer organizationsare on the receiving end of "memberitems''-state budget items in which elected officialsare allotted funds to dole out to communityorganizations in their districts.Community groups tend to have tight budgets,and their leaders are usually very frugalwith their organizations' funds. The appeal ofthe state offering thousands of dollars, for thecompletion of a few simple forms, has been toomuch for most groups to resist.If you question the legitimacy of state funding,you will likely hear one of two answers.The first response, typically from an organizationmember who senses something is askew, isthat the money has already been allotted, andsome group is going to get it anyway.This response ignores the long-term consequencesof state funding. The ease of collectingfunds by using the state as a governmentalUnited Way will lead to an increased demandfor state support. This increased demand willput upward pressure on state budgets, translatinginto higher taxes. In the long run, we all pay.Mr. Schimenz, a graduate student at Long Island University,is vice president ofIsland Trees Little League in NewYork.The second response, generally heard fromlegislators, is that the state is always spendingtax dollars on "bad" or "poor" people and it isonly fair that we give some money to "good"middle class people and their activities. But becausethe bulk of the tax burden rests on theshoulders ofthe middle class, where is the gain?And because there is the cost of an added bureaucracyto collect and distribute the funds, thecommunity suffers a net loss.Forcing the general public to collectivelysupport community organizations, no matterhow worthy they may be, does long-term economicharm. Taxpayers are hurt by having lessmoney to spend, and community organizationsare hurt because they ultimately become dependentupon the state, where decisions are basedon politics, not on merit.The worth of community organizations is notat issue here. Worth is based on value and need.If people believe an organization is worthwhile,they will voluntarily donate their time ormoney. Businessmen will donate voluntarily,with an eye on their company's reputation. Thisis especially true for youth sports groups, wherelocal businessmen often act as sponsors.But with state funding, the worth of an organizationis decided by political processes, notby individual choices. More than our money,state funding takes away our freedom ofchoice.D

162The Dam Buildersby Cecil KuhneThe federal government has built, and operates,hundreds of dams across theUnited States. Entire river systems havebeen dammed. The Tennessee River has moremiles of reservoir shore line than surrounds allfive Great Lakes. Of the 2,446 miles of theMissouri River, only 149 miles still flow freely,while the remainder of the river has been tamedby dams. The Colorado River basin has beenimpounded' to such an extent that, with vastportions ofits flow diverted, little 'water reachesits outlet in the Gulf of California. The Columbiahas been reduced to a succession of reservoirs,with little or no moving water in between.Dams are constructed by several Federalagencies. The U. S. Army Corps of Engineers iscurrently working on over 300 dam projects. Inthe West, most dam construction is carried outby the Bureau of Reclamation. The Bureau, establishedat the tum of the century, has had itspowers expanded over the years from that ofirrigation to the point where it now operatessome of the largest dam systems in the country.The Tennessee Valley Authority, a major politicalforce in the Southeast, has built some 50dams throughout the river's basin.In his book, A River No More, Philip L.Fradkin explains the vested interests that supportFederal dam building: "The power and theglory, not to mention money, center around waterand the means to convey it. Woe to anypresident who tries to cut back this system. . . .It represents billions of dollars of water projectsMr. Kuhne is an attorney in Amarillo, Texas.and a political system to procure them that hasyet to be successfully thwarted."Federal dam builders often claim that damsare needed for flood control. But this often begsthe question: a dam is built so that industry anddevelopment can move in, making another damnecessary to protect the development encouragedby the first dam, and so forth. In The RiverKillers, Martin Heuvelmans explains how theCorps ofEngineers perpetuates its own needs inflood control: "When an area is drained or adam is built, 'new' land is created, and it issoon crowded with people. These people demandgreater protection from the very thing theCorps sought to alleviate. More pretentious projectsare started which, in tum, attract morepeople. The cycle continues and grows morecalamitous with each move."The Cossatot River in western Arkansas is acase in point. The Gilham Dam was justifiedlargely on the basis of the flood damage itwould prevent. Yet the 49 square miles of floodplain below the dam had almost nothing to protect:a few bams, a summer shack or two, ahandful of gravel roads, and a pasture with severalhundred head of cattle. There had neverbeen a recorded flood death on the Cossatot.But the dam prevailed, even though it wouldhave been much cheaper simply to purchase theentire flood plain.The use of dams for flood control is rarelyjustifiable from an economic standpoint, sincedams are enormously expensive. Under a freemarket system, such dams would rarely be builtbecause the land to be protected against floodingis usually not worth the cost of the dam. A

163Cherokee Dam, Tennessee Valley Authority"In short, private enterprise-that is, voluntarycooperation among free persons-wouldneither build the pyramids in Egypt nor TVAin Tennessee."-Dean Russell, The TVA Ideamore rational approach is for landowners topurchase private insurance to protect themselvesfrom natural hazards such as floods, or torefrain from developing land in an area prone toflooding.The need for hydroelectricity is also used tojustify dams--even though an area may not bewilling to purchase the power. The AlaskaPower Authority, for example, proposed hydroelectricdams on the Susitna and several otherrivers, despite the fact that it didn't have contractswith the local utility companies. The reasonthere were no contracts was simple: it wascheaper to generate electricity by burning oil orgas. However, since the federal governmentprovides private developers of hydroelectricdams not only with cash subsidies but guaranteedmarkets (whether or not the power is actuallyused), hydroelectric dams have a way ofbeing built. And it's no coincidence that in thepast 20 years, the demand for electricity hasbeen nowhere near the levels projected by thedam proponents.Electric power is obviously important to adeveloping region, but the question whichshould be asked is whether the electricity willbe purchased at rates sufficient to pay for thedam. Only a free market can determine thatissue in a fair manner. Hydroelectric damsshould be constructed by utility companies, orby private developers planning to sell the electricityto utilities, who are willing to pay thehuge sums necessary in the hopes of making aprofit-with no assurances from the governmentthat it will provide a market for the powergenerated. As things stand now, the governmenthas no incentive not to build inefficienthydroelectric projects, since the eventual losseswill be borne by the taxpayers as a whole.Federal dam builders also cite the need forirrigation. But Federal irrigation projects oftenamount to enormous agricultural subsidieswaterthat may have cost the government $70 to$100 per acre foot to develop is sometimes soldto the farmer for as little as $3 to $4 per acrefoot. Furthermore, these water projects themselvesoften destroy farmland-it is sometimessuggested that the Bureau of Reclamation hasdug up and drowned more farmland than it hasever irrigated.The decision of whether to build a dam forirrigation purposes is made simple by a freemarket approach. If farmers are willing to paythe price of the water necessary to recoup thecosts of the dam, then the dam should be built;if npt, the dam should stay on the drawingboard. Let private investors decide.In a free market, no dam would be built withoutthe consent of all the property owners involved,and without investors being convincedthat it will show a profit. Isn't that how it should~? 0

164Tom Paine's Revolutionby J. Brian PhillipsAdvocates of freedom often despair atthe political inertia that must be overcometo achieve their goals. At times,it seems as if the freedom movement is progressingtoo slowly to reverse current politicaltrends. In this regard, the American Revolutionprovides an important lesson.Even after the Revolutionary War had begun,most Americans, including many colonial leaders,favored reconciliation with England. MostAmericans still considered themselves to beloyal British subjects, and were willing to continueto do so, if only the King would correcthis most grievous transgressions. In early1776-more than eight months after the BattleofLexington--colonists suddenly began to supportthe idea of American independence. Thisdramatic change can be largely attributed to thework of one man: Thomas Paine.Paine was an undistinguished Englishmanwhen he arrived in Philadelphia in November1774 armed with several letters of introductionfrom Benjamin Franklin. Aided by Franklin'sletters, Paine quickly found work as an editorand chief writer for Pennsylvania Magazine.Sharing Franklin's interest in science, Painewrote about the newest inventions ofthe day, aswell as political issues, but he remained relativelyobscure.However, in January 1776 that began tochange, when Paine anonymously published apamphlet titled Common Sense. While the ideasexpressed in the pamphlet weren't new, the approachand comprehensive treatment were."[G]overnment," Paine wrote, "even in itsbest state is but a necessary evil; in its worstMr. Phillips is a free-lance writer based in Houston, Texas.state an intolerable one. ,,1 The purpose of government,he held, is to insure the security of thecitizenry by protecting their rights. The centralissue of the war, he believed, was over whatform America's government should take. Hewent on to write: "I draw my idea of the formof government from a principle in nature . . .that the more simple a thing is, the less liable itis to be disordered, and the easier repaired whendisordered." (p. 68)To those who urged reconciliation becauseEngland was the "parent country," Paine replied,"Even brutes do not devour their young,nor savages make war upon their families."(p. 84) Then Paine became one of the first topublicly proclaim, "The authority of GreatBritain over this continent, is a form of government,which sooner or later must have an end. "(p. 87)Loyalists reacted quickly to Common Sense,declaring the pamphlet's author to be ignorantof modem history and thought. Some said thatNegro slaves, and Quakers and other pacifistswouldn't support the war effort. Charles Inglisargued that Paine's conception of man's inherentgoodness was as flawed as the Hobbesianview that only force and violence could inducemen to live under a government.Much as the Loyalists despised Paine, manysupporters of the Revolution held him in highercontempt. Indeed, John Adams would later callhim "that insolent blasphemer of things sacredand transcendent libeler of all that isgood....,,2Wealthy colonists feared that Paine's ideaswere too democratic, that he would advocateforcible redistribution of wealth. Paine, how-

Thomas PaineThomas Paine was born in Norfolk, England, in 1737. Duringhis lifetime, he was a sailor, teacher, exciseman, andinventor, as well as the premier propagandist for republicangovernment in England, France, and what would becomeAmerica. His pamphlets Common Sense and the seriesThe Crisis united idealists with those interested in theeconomic advancement ofthe country, and gave great supportto the morale ofthe common soldier in "the times thattry men's souls. " He died in 1809, almost forgotten, buteulogized by Thomas Jefferson as one who did as much as anyman "to advance the original sentiments ofdemocracy."ever, never advocated such a policy, and was anardent supporter of free trade.Despite these criticisms, Common Sense hadan unprecedented influence on the minds of theAmerican people. Paine estimated that 150,000copies were sold in the first year; other estimateswent as high as 500,000 copies. Withfewer than 3 million people in the colonies atthe time, either figure is astounding. Nearlyeveryadult read the pamphlet, and less than sevenmonths after its publication independence wasdeclared. Significantly, Thomas Jefferson consultedPaine while he was drafting the Declarationof Independence.Paine, of course, wasn't the only writer toexert influence on colonial Americans. However,what he accomplished provides an importantlesson for modem advocates of liberty.The parallels between Revolutionary Americaand modern America are striking. MostAmericans today complain about high taxes,government interference in their personal affairs,welfare fraud, inflation, and other mani-165festations of overextended government. Opinionpolls show that most Americans favor lessgovernment, at least in theory. When questionedabout specific programs and policies,however, Americans favor the continuation ofthe status quo.Just as colonial Americans were willing toreconcile with a despotic King, modem Americansare willing to tolerate a despotic Congress.As Jefferson wrote in the Declaration ofIndependence: "all experience has shown thatmankind are more disposed to suffer, whileevils are sufferable, than to right themselves byabolishing the forms to which they areaccustomed." It wasn't greater tyranny on the.. iy ..ii i yi•....i................... part of the King that led colonial Americans toembrace freedom, but an awareness ofjust howterrible conditions actually were. Modem patriotscan achieve similar results, but only if weremain confident that our goals are attainable.I hasten to add that we cannot expect laissezfairecapitalism to emerge shortly after the publicationof a modem version of Common Sense.Statism, and its ethical roots, are too deeplyingrained for that to occur. However, if we aremore cognizant of the history of freedom, thenour struggle is far more tolerable. And moresignificantly, the length of that struggle may beshortened.Philosophically, the American Revolutionwas a product of the Enlightenment. More thanany other writer of his time, Thomas Painemade the ideas of the Enlightenmentindividualrights and economic freedomaccessibleto the public. These ideas remain apart of the American culture, if only implicitly.The emergence of the entrepreneur as a modemhero is evidence of this, as is a greater willingnessto consider private alternatives to functionstraditionally performed by government.More than 200 years ago, one man-ThomasPaine-provided the key that unlocked the doorto freedom. When our cause seems hopeless,we should remember this, for the knowledgethat success is possible is the fuel that will propelus to our ultimate goal: freedom in ourtime. 01. Thomas Paine, Common Sense (New York: Penguin Books,1985), p. 65. Subsequent quotations are from the same edition, withpage references given in parentheses.2. John Adams, The John Adams Papers (New York: Dodd,Mead & Co., 1965), p. 86.

166A REVIEWER'SNOTEBOOKFaith andFreedomby John ChamberlainBen Hart, the son of Dartmouth's ProfessorJeffrey Hart, is one of those editorswho got their training on the off-campusDartmouth Review, a conservative publicationthat has turned out more good newspapermen inrecent years than any of our graduate schools ofjournalism. He is also an indefatigable scholarin the off-hours when he is not working for theHeritage Foundation in Washington. In a writingregime that has begun for him daily at sixevery morning he has produced an excellentbook called Faith a\nd Freedom: The ChristianRoots ofAmerican Liberty (Lewis and StanleyPublishers, 384 pp., $18.95).The book makes a case for the claim that ourconstitutional liberties are historically rooted inthe Christian faith. But Thomas Jefferson, whowavered between Deism and Christian beliefs,preferred to speak of a nondenominational"Creator" who had endowed us with "certainunalienable rights. " The common people in thecolonies who objected to taxation without representationcould have been secular in demandingthat the "rights of Englishmen" going backto Magna Carta must be respected. But in anycase there was a consensus: individual citizenshad the right to representative government."We are fortunate," says Ben Hart, "thatthe American Republic was created at a timewhen there was such unanimity of opinion onwhat constitutes good government. The disagreementswere over specifics, not fundamentals;means, not ends." Whether it was Jefferson'sdeistic "creator" or the God of the Biblewho was the source of our liberties did not reallymatter.What was important, in Hart's view, was thatAmerica, at the end of the eighteenth century,"was overwhelmingly Protestant, and of thedissident variety. " In 1775 there were 668 Congregationalchurches, 588 Presbyterian, 494Baptist, 310 Quaker, 159 German Reformed,150 Lutheran, 65 Methodist. The AnglicanChurch, with 495 congregations, was in decidedminority. Only 1.4 percent of the populationwas Roman Catholic, and threetwentiethsof one percent Jewish.Fully 75 percent of all Americans at the timeof the Revolution belonged to churches of Puritanextraction. These Americans believed theyhad the right to face their God directly, withoutinstitutional barriers intervening. The greaterpart of Hart's book is devoted to exploring thefaiths of churchgoers who looked back to JohnWycliffe's and William Tyndale's tradition oftranslating the Bible into contemporary Englishand reading it for themselves. In America thepivotal document in the development of constitutionalgovernment was the Mayflower Compact,which was signed by almost all of theadult men on the Pilgrims' voyage. This, saysHart, disproves the impression left by historiansthat the "social compact" was an idea inventedby John Locke in 1688, when the Era of theEnlightenment was dawning. Locke's "socialcompact" theory, says Hart, "was not really atheory at all, but was derived mainly fromScripture and his experience with the Congregationalchurch."What really mattered was that Locke and theMayflower Compact people came from thesame source. The Puritans, who sailed to theBoston area ten years after the Pilgrims hadsettled in Plymouth, had a leader in John Winthropwho wanted to build a government onbiblical principles. Winthrop, who envisioned a,'shining city on a hill, " was a republican ratherthan a democrat. He believed there must besafeguards preventing a tyranny ofthe majority.Winthrop's way of avoiding a tyranny was todivide his law-making body into a House ofAssistants and a House of Deputies, which representedthe fIrst bicameral legislature in NorthAmerica.Winthrop's hopes that his ' 'shining city"would hold Puritans close to the Boston area

167were doomed by what Edmund Burke at a muchlater date would refer to as the "dissidence ofdissent. " The Reverend Thomas Hooker,though a good friend of Winthrop, petitionedthe Massachusetts General Court to allow hiscongregation to move to Connecticut. Winthropsaid Hooker was breaking a covenant in leaving,but he couldn't stop him.The Fundamental OrdersThe Puritans in Boston had their own charter,which they had had the foresight to take withthem from England, well out of the reach ofStuart monarchs. In Connecticut, Hooker establishedhis Court without a charter. His GeneralCourt inspired the so-called Fundamental Ordersof Connecticut which was the first writtenconstitution in America. The Fundamental Orderscreated a pattern for the Federal Constitution.The Fundamental Orders set up a workinggovernment by the people themselves, withoutany concession from a previously existing regime.The Orders provided for regular electionsbut set strict limits on the power of thoseelected. Madison, Hamilton, and Jefferson, theFounding Fathers, had a lot of precedent to goon when the final break with England came inthe late eighteenth century.What Hart is intent upon doing is to establishthe idea that the American and French revolutionswere two entirely different things. TheAmerican revolution was really a counterrevolution,aimed at preserving a dispensationthat had been in effect since Winthrop's andHooker's day. It was George III, with his archaicdivine right of kings, who was the revolutionistin 1776. The French revolution, comingout of the Enlightenment, had no ancientroots in Protestant insistence on the right to faceGod directly. It collapsed into Bonapartism afterRobespierre's guillotine had done its nefariouswork.The majority opinion in America was Protestant'but there were so many sects that it wasnecessary to create a government which wouldnot favor one Christian sect over another.Hence the separation of church and state that isfound in the First Amendment. Modem judgesget it all wrong when they say that the FirstAmendment means that government forbidsState encouragement of religion in general. Allthat the Amendment says is that there shall beno specific religion.Some of the states, in 1787, had officialchurches, but this didn't last. In 1786 Jefferson'sand Madison's state bill in Virginia disestablishedthe Anglican Church, which had becomea minority sect in Virginia anyway.Hart wonders how the posting of the TenCommandments on school walls, or how publiclyexpressing thanks to our Creator for all Hehas given us, threatens the liberties of anyone.He hopes that different judges appointed· byPresident Bush will bring an end to petty squabblingabout such things as a moment of silencein schools. As he puts it in a concluding chapteron "the true Thomas Jefferson," ". . . onewould have to have a very warped perspectiveon American history to believe the FoundingFathers intended or foresaw the federal governmentbeing used to bludgeon Christianity."The clear intent of the First Amendment,says Hart, "was to protect a religious peoplefrom government."DPRIVATIZATION AND DEVELOPMENTEdited by Steve H. HankeInternational Center for Economic Growth/ICS Press, 243 KearnyStreet, San Francisco, CA 94108 • 1987 • 237 pages • $29.95cloth, $12.95 paperReviewed by Robert W. McGeeThis book is a "how-to" manual onprivatization, which Hanke defines as"contracting with or selling to privateparties the functions or firms previously controlledor owned by governments." However,whereas most privatization books emphasizehow privatization has worked in developed nations,this book spends a good deal of timeshowing how privatization aids economic developmentin less developed countries.But the book is not exclusively about privatizationin the Third World. There are moregeneral chapters on the role of divestiture ineconomic growth, political obstacles to privatization,property rights, legal and tax considerations,and financing and marketing techniquesthat apply to any privatization program. Eachchapter is written by an expert in the field, and

168 THE FREEMAN. APRIL 1989Professor Hanke has done a good job of editingtheir work to make the chapters flow smoothly.The fust part ofthe book discusses the effectsof privatization in the developing world. Hanke'sintroduction calls privatization a revolutionaryinnovation in economic policy, andmentions that the privatization concept hasspread from Britain to France and to the "peopIe'srepublics" in Africa and just about everywherein between. Privatization will have a lastingimpact in many places because it leads tostructural change rather than cosmetic changesthat can be easily undone by the next politicaladministration.There is something in privatization for everybody.Privatization promotes efficiency becauseprivate parties can do just about anythingmore efficiently than government, as long asthey must compete in the marketplace. (If governmentgrants a monopoly, that's anotherstory.) Others favor privatization because itshrinks the size of government. Individualsfrom all parts of the political spectrum findprivatization appealing once they can be shownwhat it is and what it can do for them.Several chapters address this marketing questionfrom different angles. Robert Poole pointsout the political obstacles to privatization-it iswidely believed that there won't be enough suppliersto permit competition, public services are"natural monopolies," government must providethe service in question to ensure that thepoor have access to it, and so forth. Poole answersthese and other popular objections thathave been raised against privatization.One chapter provides a decision-maker'schecklist of things to consider when preparingfor privatization to avoid the pitfalls and maximizethe chance of success. Another discussessuccessful privatization strategies and cites examplesof how privatization has cut costs in awide variety of areas.For instance, it costs the Army $4.20 to processa check, but a private company can do itfor $1. Private airlines in Australia carry 99percent more tons of freight and 14 percentmore passengers per employee than does Australia'sstate-owned airline. Government officesin Hamburg, Germany, saved 20 to 80 percentin custodial costs by privatizing. Fire protectioncan cost 50 percent less when provided privately.Preparing timber for sale on public landscosts $80 to $100 per 1,000 board feet, comparedto $10 on private lands. Constructioncosts for Veterans Administration nursinghomes are 290 percent higher than for privatenursing homes. Ohio's private property assessorscan do the job for 50 percent less than thenational average, but quality, as measured bythe relationship between appraised values andactual property sales prices, is the highest in thenation. Many more examples are given.From the evidence, it is obvious that privatizationstrategies can be used to reduce the costof just about any government service. But partof the problem with trying to start a privatizationprogram is.to ov~rcome the inertia of thestatus quo. Politicians and affected parties haveto be convinced that they stand to benefit fromprivatization. This book describes techniquesthat have proven successful in winning over keygroups.The book also gives four case studies ofcountries that have privatized. The history ofprivatization in Britain is especially interestingbecause Britain has been at the forefront of theprivatization movement. The British Columbianexperience is interesting to read because ofthe novel approach that was used-transferringgovernment assets to a holding company andgiving its stock to the residents of British Columbia.Privatization in Turkey has led to bothsuccesses and problems. While intervention inthe economy was reduced, it has been difficultto get the citizens to invest in anything otherthan gold and real estate because those were theonly two investments they felt safe with. TheGrenadan example shows what can be donewhen the proper groundwork is laid.Privatization has had many successes sincethe late 1970s. The evidence is clear that governmentgoods and services can be providedbetter and cheaper by the private sector. Themajor problem to be overcome is to convincethose affected that they will be better off iftheirproduct or service is provided privately ratherthan by government. When this is done, privatizationcan succeed.DProfessor McGee holds a law degree andteaches accounting at Seton Hall University.

THEFREEIDEAS ON LIBERTY172 The Cambodian Experiment in RetrospectMorgan O. ReynoldsThe Khmer Rouge's efforts to replace the market economy with socialismyielded predictable results.175 Old Banking MythsHans F. SennholzRefuting the fictions and fallacies that have created widely· accepted mythsabout banking.CONTENTSMAY1989VOL. 39NO.5180 Where Will It All End?Scott C. MatthewThe destructive results of one case of "doing good"process.via the judicial183 Who Are the Problem-Solvers?James L. PayneIndividual action and voluntary organization can make a difference inworking toward a better society.185 The Levelers: Libertarian RevolutionariesNick ElliottSeventeenth-century champions of individual rights.190 At Whose Expense?Philip SmithWho will pay the bill for expensive social programs?192 Of Special InterestLloyd CohenUsing the tools of economics to define and explore "special interest"projects.197 Private Enterprise in PolandBarbara SallDespite the heavy hand of government and an uncertain future, the Polishprivate sector endures.200 Readers' Forum202 Book ReviewsJohn Chamberlain explores Max Singer's Passage to a Human World: TheDynamics ofCreating Global Wealth. Other books reviewed: The ElectricWindmill: An Inadvertent Autobiography by Tom Bethell, Liability: TheLegal Revolution and Its Consequences by Peter W. Huber, and BeyondGood Intentions: A Biblical View ofPolitics by Doug Bandow.

THEFREEMANIDEAS ON LIBERTYPublished byThe Foundation for Economic EducationIrvington-on-Hudson, NY 10533President ofthe Board: Bruce M. EvansVice-President:Senior Editors:Contributing Editors:Robert G. AndersonBeth A. HoffmanBrian SummersBettina Bien GreavesCarlO. Helstrom, IIIJacob G. HornbergerEdmund A. OpitzPaul L. PoirotThe Freeman is the monthly publication of TheFoundation for Economic Education, Inc.,Irvington-on-Hudson, NY 10533 (914) 591­7230. FEE, founded in 1946 by Leonard E.Read, is a nonpolitical educational champion ofprivate property, the free market, and limitedgovernment. FEE is classified as a 26 USC 501(c) (3) tax-exempt organization. Other officersof FEE's Board of Trustees are: Thomas C.Stevens, chainnan; Ridgway K. Foley, Jr., vicechainnan;Paul L. Poirot, secretary; H.F.Langenberg, treasurer.The costs of Foundation projects and servicesare met through donations. Donations are invitedin any amount. Subscriptions to The Freemanare available to any interested person in theUnited States for the asking. Additional singlecopies $1.00; 10 or more, 50 cents each. Forforeign delivery, a donation of $15.00 a year isrequired to cover direct mailing costs.Copyright © 1989 by the Foundation forEconomic Education, Inc. Printed in U.S.A.Pennission is granted to reprint any 3.rticle inthis issue, except "Old Banking Myths,"provided appropriate credit is given and twocopies of the reprinted material are sent to TheFoundation.Bound volumes of The Freeman are availablefrom The Foundation for calendar years 1969 todate. Earlier volumes as well as current issuesare available on microfilm from UniversityMicroftlms, 300 North Zeeb Road, Ann Arbor,MI48106.The Freeman considers unsolicited editorialsubmissions, but they must be accompanied by astamped, self-addressed envelope. Our author'sguide is available on request.PERSPECTIVEProperty and WelfareIf private property rights are sound principlesof a just society, then the welfare state, since itforces people to part with what is theirs evenagainst their own choices, is unjust. To put itsimply, it perpetrates legalized theft by takingfrom some persons what belongs to them andmaking it available, without the consent of theowner, to others. While the objective the governmentmay serve by this could be justifiableand even noble, the means used to promote thatobjective are plainly criminal.Ofcourse, one can ask, how else might thoseobjectives be achieved? The answer is, "In millionsof possible peaceful ways, but not bymeans of the violation of the rights of others 0'"We are not to be made slaves even with theexcuse that the goals of our slavery are laudable.We are not to be deprived of our honestholdings even if we do not use them as generouslyand wisely as others may have discernedwe ought to. Most of all, we are not to be madethe subjects of kings, politburos, or majoritieswho devise the objectives of our lives for uswithout our consent. What we do to solve ourproblems-those dire ones that lead some verydecent people to yield to the idea of the welfarestate-is a matter for us to discover and implementas diligently as possible.-TIBOR R. MACHANAuburn UniversityThe Educational ChallengeEducation has always been a major part oftheAmerican Dream. Originally schools were privateand attendance voluntary. Increasingly,government came to playa larger role, mandatingcompulsory education, funding education,establishing and administering schools.We are proud, and with good reason, of thewidespread availability of education, but, unfortunately,in recent years our educational recordhas tarnished. Parents complain of decliningquality. Educators complain of theatmosphere in which they are required to teach.Students complain of boredom. Taxpayerscomplain of growing costs. Hardly anyone

PERSPECTIVE·maintains that the schools are giving youngpeople the tools they must have for the year2000.Public education is, I fear, suffering from thesame malady that afflicts so many other governmentprograms. As Justice Louis Brandeiswrote in 1928, "The greater dangers to libertylurk in insidious encroachment by men of zeal,well meaning but without understanding."The malady is one of an overgoverned society.In education it has taken the form of denyingparents control over the type of educationtheir children receive. The increasing role ofgovernment has adversely affected education atall levels. It has fostered an atmosphere thatboth dedicated teachers and serious studentsfind inimical to intellectual development.Now, more than ever, we must be able toprovide the educator with the necessary toolsfor presenting in an accurate way the -everimportantconcepts of a free society. And, in sodoing, we must not forget the cultural and historicalsetting for the development of a marketsociety. It is not enough to understand the relationshipof supply and demand. Our teachersmust be able to convey to our youth throughhistorical understanding the necessity of a freesociety in the world in which we live.The challenge we face is clear. Americansmust do what is necessary to re-establish theeconomic base of a free society. The problemshave been identified, solutions proposed . . .success now depends on the will.-SHERIDAN NICHOLSAmerican Enterprise Forummany forms of coverage that a lot of peopledon't want and can't afford. For example:"Thirty-seven states require health insurancecoverage for the services ofchiropractors, threestates mandate coverage for acupuncture, andtwo states require coverage for naturopaths(who specialize in prescribing herbs).,,At least 13 states limit the ability ofinsurersto avoid covering people who have AIDS, orwho have a high risk of getting AIDS."Laws in 40 states mandate coverage for alcoholism,20 states mandate coverage for drugabuse, and 30 states require coverage for mentalillness. "In trying to expand benefits, state legislatorshave hurt the very people who can least affordthem.-BRIAN SUMMERSWhat Protection TeachesProtective tariffs are as much applications offorce as are blockading squadrons, and theirobject is the same-to prevent trade. The differencebetween the two is that blockadingsquadrons are a means whereby nations seek toprevent their enemies from trading; protectivetariffs are a means whereby nations attempt toprevent their own people from trading. Whatprotection teaches us, is to do to ourselves intime of peace what enemies seek to do to us intime of war.-HENRY GEORGE,Protection or Free TradeThe UninsuredAn estimated 37 million Americans lackhealth insurance, up 25 percent since 1980.Why are so many people going without medicalcoverage?According to a study written by John Goodmanand Gerald Musgrave for the NationalCenter for Policy Analysis, state regulationshave priced many Americans out of the insurancemarket. Recently enacted laws requireReader's Digest ReprintsEducation Article"Why College Costs Are Rising," by JohnHood, has been reprinted in the April 1989Reader's Digest. This article originally appearedin the November 1988 issue of TheFreeman.We have extra copies of the Digest version ofMr. Hood's article. Please write to FEE, statingthe quantity you'd like.

172THEFREEMANIDEAS ON LIBERTYThe CambodianExperimentin Retrospectby Morgan O. ReynoldsOn January 7, 1979, the Vietnamesecommunists marched into Phnom Penhand replaced the Khmer Rouge nightmarewith a more familiar brand of tyranny.Western journalists and scholars eventually reportedthe chaos, famine, and genocide thatbrutalized Cambodia from 1975-1979, butsomething is still missing-a coherent explanationfor the tragedy. Like the fiasco in Jonestown,Guyana, a socialist experiment gone sodramatically awry seems ·to be dismissed ascrazy, fanatical, or insane and then quickly forgotten.But was it all so incomprehensible, so hard todecipher? No. A close inspection reveals nothingillogical or irrational about the KhmerRouge and Cambodia, given their goals. Theepisode was a conscious ideological effort tocompletely replace the market economy withsocialism. To be sure, it was much more determinedand extreme than most socialist efforts,but this only makes the Cambodian experimentall the more essential to understand as an exampleof the pre-eminent issue of our agesocialismversus capitalism, collectivism versusindividualism, death versus life. Originally, theword "socialism" was coined to express oppositionto individualism. The brutal attempts ofthe Khmer Rouge and other communists to suppressall traces of individuality are not irrationalbut quite predictable and intelligible.Professor Reynolds teaches in the economics department atTexas A & M University.Socialism in all its variants has been widelyassociated with economic failure, yet two episodesstand out as virtual laboratory experimentsin the perennial war on commercial activity-Lenin'seffort of 1918-1921 and theCambodian disaster of 1975-1979. The parallelsare impressive.Early Western news accounts described theBolsheviks' economic policies· as silly and irrational,although the 1917 revolution had followed70 years of socialist theorizing, agitation,and the famed declaration of Marx andEngels in The Communist Manifesto of 1848that "The theory of the Communists may besummed up in the single sentence: Abolition ofprivate property. " The idea of central planninggrew from the socialists' desire to eliminate decentralizedownership of the means of productionand the "chaotic" market economy in favorof socialization of the means of productionand the application of science to society,thereby allowing man consciously to direct historyin any manner desired.The Destruction of TradeEconomic historians--e.g., Boris Brutzkus(1935), Lancelot Lawton (1932), AlexanderBaykov (1947), T. J. B. Hoff (1949), PaulCraig Roberts (1971)-agree that the Bolshevikprogram from 1918 to March 1921 was a consciouseffort, however muddled, to replace themarket economy with a system ofplanned, non-

173transferable, in-kind assignments of inputs andoutputs. There was a deliberate destruction ofcommercial trade and abolition of money andbanking rather than a war-caused "breakdownof normal trade. " The economy-voluntary socialcooperation-came to a virtual halt understate restrictions and direction. Production becameso disorganized and anarchic that Leninabandoned the planning effort to preserve hispower. Famine took the lives of an estimated5.5 million people before some 10 million weresaved by relief from the capitalist West. Peasantuprisings and the Kronstadt rebellion in February1921 forcibly brought home growing domesticdiscontent to the Bolsheviks. Workerswere particularly outraged by the regime's effortto prevent individuals from supplyingthemselves with necessities.By March 15, 1921, Lenin had seen enough.He decided that communism could only be builtupon the rationality of the bourgeois economy:"Whoever dreams of a mythical communismshould be driven from every business conference,and only those should be allowed to remainwho know how to get things done with theremnants of capitalism." Further, Lenin said,"We are very much to blame for having gonetoo far, we overdid the nationalization of industryand trade. " Abandoning the original visionof socialism posed doctrinal difficulties for Lenin,but new words ushered in a New EconomicPolicy (NEP)-meaning private property andthe market economy were allowed partial operation,especially in agriculture and trade-andrecovery quickly followed.Like the inexperienced intellectual V. I. Lenin,Khmer Rouge leaders fervently embracedMarxist doctrine and tried valiantly to implementit. A docile nation composed 90 percent ofpeasants in an apparently simple economyseemed an ideal place for true socialism to"work." Yet the dream of a blueprinted, harmonioussociety should be traced back to Plato'sRepublic rather than to Marx and Lenin:. . . what has been said about the State andthe government is not a dream, and althoug~difficult not impossible . . . when true phIlosophersare born in the reigning family in astate, one or more of them, despising thehonors of this present world which they deemmean and worthless . . . will begin by send-ing out into the country all the inhabitants ofthe city who are more than ten years old, andwill take possession of their children, whowill be unaffected by the habits of their p~ents;these they will train in their own habItsand laws, which will be such as we havedescribed: and in this way the State and constitutionof which we were speaking willsoonest and most easily attain happiness, andthe nation which has such a constitution willgain most.Each Khmer Rouge leader was from an advantagedfamily, each studied law or economicsin Paris in the 1950s, each embraced Marxismcommunismas a means to save the people fromcapitalist exploitation, and each wrote tractsand dissertations which announced his ideologicaldedication and intentions. Like Lenin andhis fellow armchair intellectuals, none of theCambodian philosopher-kings ever did manuallabor for a living or managed any enterprise.Once in power the Khmer Rouge leaders refused,in contrast to Lenin, to temporize in orderto preserve their political power and revolution.Full speed ahead, the Khmer Rougeleaders were undeterred by early disaster; theyproceeded with their quest, although in 1978Pol Pot admitted, "We are building socialismwithout a model. " Anticipating Pol Pot's problem,economist Ludwig von Mises argued in1920 that socialism could not begin to work ina remotely efficient manner under real worldconditions of continual change, and he added,"Historically, human rationality is a developmentof economic life. Could it then obtainwhen divorced therefrom?"The Khmer Rouge deliberately isolated therenamed "Democratic Kampuchea" from themarkets of the outside world and destroyed allvestiges of the old days in favor of startingafresh: the government acted to abolish money,all private property, exchange, and thereforeprices, and to move labor from the cities to riceproduction as commanded by "Angka" (the organization).By abandoning cities the programeliminated Lenin's problem of supplying foodto the cities, which supposedly had been thesource of "class conflict." Of an estimated 7-8million inhabitants in 1970, an estimated 2-3million were killed or died of starvation, masssuicide, and disease after almost four years of

174 THE FREEMAN. MAY 1989Khmer Rouge rule. Combat troops never exceededan estimated 70,000 or 1 percent of thepopulation, a macabre confirmation of docilityand political susceptibility to collectivism.Even though the Khmer Rouge earlier had followedthe same policies in the areas under theircontrol, and intellectuals since Plato have advocateda utopia designed and ordered by a singlewill, the world expressed amazement atevents in Cambodia.Many Western journalists, in contrast to revolutionaries,do not treat ideas seriously, andtherefore fail to recognize the power of ideas inaction. They don't realize that chaos and brutalitymust accompany a determined effort toimplement what economists Mises and Hayekcalled an impossible or unworkable economicscheme, namely, thorough-going socialism.For example, Sydney Schanberg in The Deathand Life of Dith Pran-the basis for the filmThe Killing Fields-puzzles over the wordsused by the regime: angka = the organization,opakar = people or instruments, Khmer = nationor machine. Uncomprehending, Schanbergcalls the terminology strange for a governmenttrying to erase the colonial past.Another writer, Craig Etcheson (1984),points out that the revolution was so ultraradicalthat even the communists were appalled.Yet Etcheson is inconsistent in terming marketphenomena like rent and credit archaic whilecalling the Khmer Rouge's elimination ofmoney, banking, and other financial institutions"backward." Other academic writers blanklydecry the lack ofbureaucratic information aboutthe Khmer Rouge, vainly hoping that documentsalone might tell them why certain policieswere put into effect and why otherschanged at certain times.Private property, money, prices, unequal rewards,and commerce often offend intellectuals.They yearn for an alternative, an economicsystem where commercial institutions are suppressedor controlled, if not totally eliminated.They sympathize with vague ideals about anearthly paradise built on planning, socialism,and communism. At a minimum, they opposemarkets and capitalism. As a result, they remainblind to the cause of the events they sopoignantly relate about Cambodia.A Descent into BarbarismEconomists still debate whether rational economicmanagement of a complex society basedon monopoly control of the means of productionunder a single mind or committee can workin a tolerably efficient fashion. While a singlecase is not decisive, the Cambodian experiencestrongly suggests that it cannot work. Obliterationof private ownership, market exchange,and prices threatens civilization because withoutthe exchange mechanism, the economy and,therefore, society collapses. Productive coordinationof human effort is impossible withouttrade in productive assets (capital markets).There is no demonstrated, superior alternativeto the price system and Wall Street. Thoughmost intellectuals would recoil from the idea, alogical corollary is that each step away fromcapitalism (individualism, private ownership,and limited government) is a descent into barbarism,degradation, and irrationality.Experiments in unalloyed socialism havequickly ended in failure. This explains whyeverycommunist government, including HengSamrin's Post-Khmer Rouge regime, is "advancingto socialism" but never reaches it. Thebones of millions of Cambodians suggest whyliving human beings will never reach socialism.0REFERENCESAlexander Baykov, The Development ofthe Soviet Economic System(New York: Macmillan, 1947).Boris Brutzkus, Economic Planning in Soviet Russia (London: G.Routledge & Sons, 1935).Craig Etcheson, The Rise and Demise ofDemocratic Kampuchea(Boulder, Colorado: Westview Press, 1984).Trygve J. B. Hoff, Economic Calculation in the Socialist Society(London: W. Hodge, 1949).Lancelot Lawton, An Economic History ofSoviet Russia (London:Macmillan, 1932).Paul Craig Roberts, Alienation and the Soviet Economy (Albuquerque:University of New Mexico Press, 1971).Sydney H. Schanberg, The Death and Life of Dith Pran (NewYork: Viking, 1985).

175Old Banking Mythsby Hans F. SennholzMany banks and thrifts are tottering onthe brink of bankruptcy. The deficitin the fund that insures deposits insavings institutions more than doubled lastyear, and continues to rise. Government actionmay well be needed again to sustain the structure.Even the future of mighty city banks is indoubt: billion-dollar loans have been made tothird-world countries that have neither the abilitynor the intention to repay.To explain such ominous happenings inAmerican finance is to search for the ideas thatare guiding Americans in their financial matters.Ideas and images in men's minds are theinvisible powers that govern them. The financialstructure, in disrepair and disrepute, is thelogical outcome of financial thought that placeslegislators and regulators in the center of things.It rests on their wisdom and discretion, and reliesprimarily on political force rather than individualfreedom. It is a precarious system thatbuilds on government insurance and governmentguarantees and, in final analysis, dependsonmonopoly money and legal tender force. It isa discredited system that is inflicting immeasurableharm on many people.To rebuild the financial structure is to identifyand discard the features that discredit it, andto lay a new foundation. It is to explode theerroneous thought that permeates it, and to dispeloIdmyths that guide it. It is to refute thefictions and fallacies that have created the bankingmyths, especially the following:Dr. Sennholz heads the Department ofEconomics at GroveCity College in Pennsylvania. He is a noted writer andlecturer on monetary affairs.Myth 1: Banking is inherently unstablewhen left free and unhampered.Although economists disagree on manythings, most see eye to eye on their acceptanceof political control over money and banking.Being accustomed to banking legislation andregulation, and addicted to a money monopolyand legal tender force, they rarely spare athought for individual freedom in such matters.Most economists pin their hope on legislatorsand put their trust in regulators who are to safeguardthe system.The deep-seated aversion to individual freedomdoes not spring from any explicit theorythat pinpoints the shortcomings of freedom, nordoes it rest on any consistent school of bankingthought that elaborates specific faults. It springsfrom intellectual lethargy and a long tradition ofpolitical control over money and banking."We've had it so long. It's the Americanway. " This is the most convenient, althoughrarely enunciated, justification for governmentcontrol. These economists invariably point atAmerican money and banking before the CivilWar which, in their judgment, confirms theirbelief. In particular, they cite the "Free BankingEra" of 1838-1860 as a frightening exampleof turbulent banking and, therefore, applaud thelegislation that strengthened the role of government.IIn reality, the instability experienced duringthe Free Banking Era was not caused by anythinginherent in banking, but resulted from extensivepolitical intervention. At no time inAmerican history has banking been free ofonerous legislation and regulation. The "freebanking" law, which New York State adopted

176 THE FREEMAN. MAY 1989in 1838 and many other states emulated thereafter,did not establish free banking; it merelyended the creation of banks by special charter."Free banking" acts were little more than "incorporationacts" that invited applicants to seekcharters from the administration rather than thelegislature. They did not repeal burdensomestatutory provisions and regulatory directives.In fact, they added a few, especially for noteissues by these "free" banks."Free" bank notes were printed by the officesof the state comptrollers. To obtain thesenotes, a New York bank had to deposit with thecomptroller an equivalent value of (1) u.s.Treasury obligations, state bonds, or bonds ofother states approved by the comptroller, or (2)mortgages on improved real estate with a 50percent or better equity. Severe restrictions curtailedthe issue of mortgage notes, which limitedtheir volume rather significantly. Statebonds became the primary collateral for noteissue. Most states and, eventually, the federalgovernment (in the National Banking Act of1863) emulated the system. 2Many banks that failed during the "FreeBanking Era" went to ruin when the states defaultedon their debts. Florida, Mississippi, Arkansas,and Indiana defaulted in 1841, followedby Illinois, Maryland, Michigan, Pennsylvania,and Louisiana in 1842. 3 Mississippi, Arkansas,and Florida even repudiated their debt. Thestate governments continued their operations indebt default; the banks that were built on theobligations of those states lacked such a privilege.State bonds were the major component offree bank portfolios, which exposed the banksto the ever-present risk of rising interest ratesand declining state bond prices. When stategovernments suffered budgetary deficits, interestrates on state obligations tended to rise,which immediately cast doubt on the banks thatcarried the debt. State politics obviously playeda major role in the life and death of a bank.In several states with free-banking laws, thestated value of eligible government bonds exceededtheir market value, which not only invitedmultiple credit expansion but also bredfraud and corruption. With government bondsselling at a discount, bankers could use them atface value, issue notes, then buy more discountbonds, and issue. even more notes. For example,with government bonds selling at 80 percentofpar, an unscrupulous operator could purchasea $1,000 bond for just $800, issue $1 ,000worth of notes, purchase $1,250 in face-valuebonds, issue another $1,250 worth of notes,buy more bonds and issue more notes, and finallyacquire valuable assets, and abscond withthem, in "wildcat banking" fashion. Obviously,law and regulation bred the scheme andled to instability.When compared with many other countries,the total number of local banks in the U.S. becamerather large, which points to yet anotherimportant source of bank disorder: the restrictionof banks to unit size. Many states prohibitedintrastate branch banking as well as bankingacross state lines, which prevented muchdiversification, and limited lending and borrowingto one location. Unit banking tied the solvencyof a bank to the fortunes of the town inwhich it happened to be located, and to thecommerce and industry that sustained the town.As a town prospered or decayed, so did thebank that served it.Further LimitationsLegislators and regulators further circumscribedbanking with onerous charter requirements.To obtain a bank charter, an individualhad to petition the state banking authority and,among other requirements, bring proof of aminimum capital of $10,000 or $20,000, oreven $50,000, as was later required for nationalbanks in communities with populations under6,000, or $100,000 for national banks in largercities. Most Americans with low incomes andlittle material wealth were barred from enteringthe banking business. The restrictions obviouslykept the industry smaller than it otherwisewould have been, and bred countless localbanking monopolies, especially in rural communities.In most of their money and credittransactions the American people became dependentupon a local bank. In many a town interritories just opened up they depended on asingle bank if there was one at all. 4During the "Free Banking Era" the banksobviously were not free; they were curiouscombinations of public enterprise and special

OLD BANKING MYTHS 177interest. No matter how free other industriesmay have been throughout this period, the principlesofthe market order never took hold in thefields of money and banking. Motivated by thepopular hostility against money lenders and theage-old belief in the desirability of ever moremoney, politicians and officials carefully regulatedall important aspects of money and bankingand protected their charges from the fullseverity of commercial and civil law. In periodsof financial crisis many states permitted banksto flout their contractual obligations, to suspendpayment of specie, or resort to makeshift devicesin order to avoid payment on demand.Such practices did not make for a sound andreliable banking system. 5Myth 2: Banks tend to charge usuriousrates of interest, contrary to thecommands of charity, justice, and naturallaw.The myth of banking instability receivesstrong support from the ancient usury doctrine,which led authorities to outlaw interest-takingaltogether or at least to set maximum rates. Intheir zeal for preventing usurious interesttaking,many regulators set their maxima at levelsfar below free market rates, thereby curtailinglending or preventing it altogether. Banks,which seek to bring lenders and borrowers together,cannot serve them properly with governmentstipulating the rates. Usury laws areprice-control laws; they disrupt markets, misleadproduction, cause shortages, and wasteeconomic resources. Yet, they have been popularthroughout the ages because money lendingwas believed to have evil effects on the community.Even Adam Smith endorsed legislationthat put a ceiling on interest rates. 6 His contemporary,Jeremy Bentham, promptly took him totask in a famous essay, Defense ofUsury, 7 thatmade a strong plea for individual freedom indetermining the terms of a loan.Throughout U. S. history the states set usuryceilings to interest-taking. In many cases, especiallyat the frontier, they set maxima far belowthe rates that would have prevailed if there hadbeen freedom. Consequently, capital marketswere crippled and sound banking was hampered.The institutions that emerged kept theirinterest charges at or below the legal limit and,to remain profitable under given conditions, issuedmoney substitutes in the form of unbackednotes. Circumscribed by usury legislation, theyprinted bank notes against which they maintainedfractional reserves in legal moneysilveror gold. Unfortunately, fractional reservesalways are an invitation for disaster assoon as the note holders lose confidence in thesolvency of the issuer.Especially in the West, where the need forcapital was enormous and the credit risk verygreat, the maximum rates of 6 to 10 percent asset by state laws constituted a severe impedimentto the banking business. At the frontier thedebtor's risk component alone often amountedto a multiple of the ceiling rates, which mademost lending clearly illogical. When marketconditions call for rates of 10 to 20 percentwhile the usury rates are set at 6, 7, or 8 percent,most lending comes to a.halt. As thecourts endeavored to enforce the laws with fervorand severity, the banks were forced tochoose between closing their doors or issuingunbacked notes at permissible rates of interest.Many chose to issue notes and face the riskinherent in unbacked issue and fractional reserves.The precarious situation of American bankingtoday springs from similar causes. The1970s were years of accelerating inflation andsoaring interest rates. Commercial banks welcomedthe abundance of credit, which meantmore bank loans and higher profits. Yet, insome states, lending ground to a halt as themarket rates of interest reached usury levels andwere barred from going higher. Under suchconditions financial institutions readily placedtheir funds in other states and other countrieswithout usury restrictions. A bank in Pennsylvaniacould freely place its funds in Mexico atmarket rates, but could not legally do so inPennsylvania. 8Many savings and loan associations are sharingthe fate of the big city banks. Some can becharged with making poor loans; yet, mostlived faithfully by the strictures of legislationand regulation, financing the construction andpurchase of homes through mortgage loans.They, nevertheless, are in dire straits becauseinflation together with regulation is inflicting

178 THE FREEMAN. MAY 1989Federal Reserve Building, Washington, D.C.painful losses. Until 1981, legislation narrowlycircumscribed the rates of interest they werepermitted to pay their passbook depositorswhile inflation raised the market rates far abovethe permissible rates, which lifted them rightout of the competition for funds. They lostmany billions of dollars of deposits, whichsought higher interest rates in money-marketfunds and other instruments. To survive thepainful drain of savings and safeguard their liquidity,the thrifts then had to "purchase"funds through the sale of certificates at interestrates far above those earned on old mortgageloans. Compounding the difficulties, the marketvalue of old loans fell precipitously as interestrates rose to new highs.In turmoil and change the Depository InstitutionsDeregulation and Monetary Control Actof 1980 sought to give relief to the ailing industry.It relaxed some controls over banking andtightened others. It repealed old interest-ratelegislation, which was playing havoc withbanks and thrifts. It made monetary controlmore comprehensive and effective, and soughtto solve the problem of declining membershipin the Federal Reserve System. In particular,the law authorized banks and thrift institutionsto offer interest on checking accounts starting atthe beginning of 1981. It introduced so-calledNOW accounts (negotiable order of withdrawalaccounts), which were to make banks andthrifts more competitive with money marketfunds. Moreover, the law phased out RegulationQ, the ceiling on interest rates payable ontime deposits, and set aside the usury ceilingsthat many states had imposed on mortgageloans as well as business and agricultural loans.The new freedom to pay market rates ofinterestwas to give relief to a suffering industry. Unfortunately,it came too late for many institutionsthat had suffered so long in the vice ofinflation and usury legislation.Myth 3: Effective economic policy requiresgovernment control over banks.In recent years the old doctrines of bankinginstability and usurious interest rates havefound a new ally in the doctrine of governmentresponsibility for full employment and eco-

OLD BANKING MYTHS 179nomic growth. The old and the new have joinedforces to deny freedom to banking and confirmgovernment as a money monopolist and bankingregulator. Government is held responsiblefor economic prosperity and full employment,and, therefore, is expected to direct, control,and manage the national economy through theTreasury, the central bank, and numerous otheragencies. Yet, it is prevented from doing soeffectively, we are told, if it lacks control overall issuers of money, in particular all bankinginstitutions. Money balances must be concentratedin narrowly defined banks so that the totalstock of money can be properly guarded andmanaged.Most economists readily accept this dogma;they are convinced that legislators and officialsmust manage the people's money. In the footstepsof John Maynard Keynes, mainstreameconomists hold government solely responsiblefor prosperity and full employment and, therefore,expect it to manipulate and fine-tunemoney and banking. Monetarists contend thatgovernment must increase the stock of money ata steady rate, in order to achieve economic stabilityand steady growth. And supply-siders callon monetary authorities to manage the people'smoney, keeping an eye on gold. Only economistsin the Austrian tradition reject all suchnotions as myths or fictions that contribute somuch to the sorry state of banking today. Theyreject not only the popular acclaim of governmentcontrol over the stock of money, but alsothe very foundation of the Keynesian structure,the "full-employment policy. ,,9More Regulation Ahead?It is unlikely that the Austrian explanationsand recommendations will prevail in the comingyears of savings and loan disasters andbanking crises. The doctrines of political powerand wisdom in all matters of money and financeare deeply imbedded in the American frame ofreference and discourse. This is why we mustbrace for more efforts at regulation. Surely,some controls may be relaxed as others aretightened, reacting continuously to an unsatisfactorystate of affairs.Politicians and regulators can be expected tolay the blame on the remaining margin of indi-vidual freedom however small it may be. Theywill seek to tighten the controls as the lossesmount and the U. S. Government is called uponto honor its guarantees. Surely, he who pays thebill will want to have a say on how it may beincurred. This is why the federal governmentcan be expected to tighten its grip on Americanbanking and finance. And, once again, it mayconfirm the old observation that one governmentintervention tends to breed another andultimately leads to all-round regimentation.Yet, no matter how dark our financial futuremay look, individual freedom is alive and wellin many other parts of the world. It bestows itslargess to any country with the wisdom andcourage to pursue it. Its light is shining brightlyall over the world, visible to all who can see.Having suffered staggering losses and economicstagnation, and having tried every conceivablehighway and byway of the politicalcommand system, we do not doubt that, in theend, we, too, will see the light again and makeit our guiding beacon. 01. Paul Studenski and Herman E. Kroos, Financial History oftheUnited States (New York: McGraw-Hill Book Co., 1952), p. 114;Bray Hammond, Banks and Politics in America (Princeton, N.J.:Princeton University Press, 1957), pp. 572-604; Major B. Foster,Raymond Rodgers, Jules I. Bogen, Marcus Nadler, Money andBanking, Fourth Edition (New York: Prentice-Hall, 1955), pp. 97­98; Gerald C. Fisher, American Banking Structure (New York: ColumbiaUniversity Press, 1968), p. 181; Charles L. Prather, Moneyand Banking, Sixth Edition (Homewood, Ill.: Richard D. Irwin,1957), p. 163 et seq.2. Hugh Rockoff, The Free Banking Era: A Re-examination(New York: Arno Press, 1975), pp. 125-130; also Robert G. King,"On the Economics of Private Money," Journal ofMonetary Economics,July 1983, pp. 127-158.3. Arthur J. Rolnick and Warren E. Weber, "The Causes of FreeBank Failures: A Detailed Examination," Journal ofMonetary Economics,October 1984, pp. 267-291; also "New Evidence on theFree Banking Era," American Economic Review, December 1983,pp. 1080-91.4. Comptroller of the Currency, Annual Report, 1895, Vol. I,p.20.5. Lawrence White points at the Scottish free banking system(1727-1844) as an example of a sounder system. Individual freedomand unlimited banker liability gave rise to a banking system that didnot suffer from panic-induced runs. Cf. Free Banking in Britain:Theory, Experience, and Debate, 1800-1845 (Cambridge: CambridgeUniversity Press, 1984).6. Adam Smith, The Wealth ofNations (New York: The ModernLibrary, Random House, 1937), p. 339.7. W. Stark, ed., Jeremy Bentham's Economic Writings (NewYork: Burt Franklin, 1952), Vol. I, pp. 121-207.8. It was also more profitable and convenient to place a few bigloans with a few borrowers than to make many small loans to numerousborrowers. The big city banks in the money centers showeredtheir favors on foreign governments all over the world. Eagerto make friends and win allies, the U. S. Government encouragedand guided them every step of the way.9. Hans F. Sennholz, Debts and Deficits (Spring Mills: LibertarianPress, 1987), p. 159 et seq.; also Money and Freedom, (SpringMills: Libertarian Press, 1985).

180Where WillIt All End?by Scott C. MatthewIt seems clear that one reason bad ideascatch on-even become law-is that theshort-term effects appear to be so good.Without a clear, cool look at the long-rangeconsequences of a proposal, we can be made tofall for all sorts of destructive programs. Andso, bit by bit, our freedom and our treasuredway of life are surrendered. With every "gooddeed" proposal we need to ask: "But wherewill it all end?" Let me give you an example ofa court case in which "doing good" in thenear term leads to such destructive results.It's early evening. An elderly man, Mr.Johnston, approaches the front door to hisapartment building. This is a high crime area.The building's front porch is dimly lit and theouter door is never locked. As Mr. Johnston isabout to enter the building, the door is jerkedopen by a youth who has been hiding inside.The youth strikes and robs Mr. Johnston. Mr.Johnston brings a lawsuit against Mr. Harris,the landlord, claiming that the lighting and lackof locks were to blame for the assault. The trialjudge throws the case out, but the SupremeCourt of Michigan allows the case to go on.They find reasonable the idea that the landlordhad created conditions to which criminalswould be attracted-that Mr. Harris had in effectset a trap for Johnston! (Johnston v. Harris,387 Mich. 569)We all feel very sorry for Mr. Johnston. Theassault was a terrible and deplorable act. But weshould ask: How do the blame and responsibilityfor that assault find their way to Mr. Harris,and will placing the blame on him really help allthe other Mr. lohnstons in the world? Let's play"do-gooder" and find out.Mr. Matthew is studying law at the University of ChicagoLaw School.First, let's not give Mr. Harris any benefit ofthe doubt. Let's forget what the words "highcrime area" imply about the ability to maintaina building. Let's not consider the possibilitythat every one of the last ten locks he installedhad been broken within days. Let's not ask ifthe lights were often vandalized by tenants andothers, so that he was hardly able to keep thearea lit at all. Let's figure he simply didn't makethese changes due to their costs. Rotten old Mr.Harris.So due to Johnston v. Harris, Mr. Harris isnow forced to add new, better locks and lights.We have done some good today, and we can gohome, right?But Mr. Harris cannot go home. He has toworry about what the next court will decide.And what will the next court find? We alreadyhave set the standard that tenants are entitledto security for which they have not paid orbeen promised. (I say "not paid" becauseJohnston could have moved to a more expensivebuilding that had these features. And 1 say"not promised" because Johnston claimed onlythat these features were inadequate, not thatthey were left unrepaired. No, this building wasjust what Mr. Johnston knew it was when hemoved in-cheap.)Where Does It End? '~But where will it end? Mr. Harris is nowfaced with meeting standards which may not beset until after some mishap occurs. As has beennoted elsewhere, one will give wide berth whenwalking near barbed wire, but wider still whenwalking near it in the dark.So time passes, and Mr. Harris and otherlandlords, upon advice of counselor the forceoffuture court judgments, significantly upgradetheir apartments. The wary landlord or futurejudicial legislator may well deem it the reasonablething to have bars on all windows, motiondetectors on the roof, a key card system at thedoor, cameras in the hallways and elevatormaybeeven a guard on duty. How about alarmbuttons in each room wired to the police station?That would be great. And a personalhealth and safety beeper each tenant couldwear? We can expect insurance companies torespond to Johnston v. Harris by providing in-

181surance at higher rates, and only to those withsecure buildings. Now that the courts have setthe standard of "not exposing others to foreseeablecriminal activities" even if they don't payfor or expect that service, where will it all end?Wherever the exact point is, I believe we canreasonably agree that it won't end until we havemuch more secure buildings.We know very well that buildings don't becomesignificantly safer by wishes. Time andmoney must be spent. A wide range of levels ofsafety are possible, and the landlord and tenantnormally choose the proper level for themthrough a mysterious and wonderful processcalled "the market."But now the market has been fiddled with.We, as do-gooders, will be convinced that thecourts have made it better. Still, if Mr. Harrisnow must make significant payments for securitymeasures, he either will have to increase hisrents or receive a lower return on his investment.We can assume that there is relativelyfree entry into the local market (no governmentlimits on numbers of units) so that he already ismaking pretty much the minimum acceptablereturn-if there were lots of money to be made,others would enter the market and drive rentsdown to that minimum point. So Mr. Harris,with the changes and expenses required, mustraise rents.Now Mr. Harris will enter a somewhat differenthousing market--one where the apartmentsare roughly the same as his, but wheregreater security has been so important to thetenants that they have been willing to spendmore oftheir limited resources for that security.And we would find, if we looked, that suchbuildings have been readily available to thosewilling to pay for that service-and if a personwon't pay for a service, is it right or efficient togive it to him? As do-gooders, we'll try not tothink about that.As we notice for the first time those buildingssimilar to Mr. Harris's but with more securityand higher rents, we might begin to wonderwhy Mr. Johnston didn't choose to live in oneof those apartments. There seem to be two possibilities.Ifhe didn't desire such security basedupon its price-perhaps he is not risk-averseand was willing to take the chance of assault tosave the money, just as some choose not tocarry insurance-then Mr. Harris gave him justthe kind of apartment he wanted. For Mr.Johnston now to demand more than he was willingto pay for is wrong, and this type of claimshould not be accepted.But wait-what if Mr. Johnston were poorand couldn't afford those more expensive apartments?In that case Mr. Harris provided Mr.Johnston an apartment' that he could afford, sothat he wasn't left out on the street. If in somesocietal sense we feel that it is morally wrongfor Mr. Johnston to have to live in these lesserconditions-in other words, the conditions hecan afford-then shouldn't we take that burdenupon ourselves? Do we have the right to forceMr. Harris to bear this burden alone? Is hisproperty ours simply to give to others at ourwhim? But suppose we say, "He's just a greedylandlord, let's make him carry this burden thatwe profess to feel." Here's how we will do it.The first step is to rule, in this lawsuit, forMr. Johnston. Now, without having to havepaid for security, he is compensated for its lack.How will Mr. Harris and other landlords respond?They will "upgrade" their apartmentsas described above (and raise the rents, ofcourse). Now there will be no inexpensiveapartments for people who choose to do withoutsecurity measures.Now all who can afford to pay the higherrents will be forced to live in the more expensive"secure" buildings. Of course, they hadbeen able to afford the rent for these buildingsall along and had chosen not to live there, so wehave just saved them from themselves. Goodfor us.And now all who cannot afford to pay thesehigher rents will be out on the street. Nocheaper apartments will be available. We canfix that, right?Sure, we can give the poor extra money topay Mr. Harris's higher rents. The problem isthat as do-gooders, we already are spending lotsof the public's money on these people, as wellas plenty of other things, and the taxpayers justwon't stand for any more. Budgets that don'tbalance are hard on re-election-and highertaxes are harder still. We just can't come upwith the money-don't want to either, reallytopay those higher rents we have caused. So?We can fix it. We can require, through our

182 THE FREEMAN. MAY 1989ruling in Johnston v. Harris, that buildings beimproved in terms of safety, but add to that ourace in the hole-rent control. We have it in ourpower to see a need (more secure buildings), fillthat need, and-here's the beauty ofit-we cansingle out a small, unpopular group known as"slumlords" and make them pay for it.I know what you're thinking-what if someoneuses words like "due process, " "no takingwithout just compensation," "equalprotection, " that kind of stuff? We'll do whatwe always do-we'll just say they don't applyhere. Wasn't that simple? So it ends here, right?Maybe not. How do those citizens, whom weare plundering due to their chosen occupation oflandlord, react to all this? How would you react?As best you could, I expect. First, you'dmake all the required changes if you could affordto, because the power behind governmentcontrols is really the power of a gun, and themoney isn't worth time in prison. Next, you'dtry to get out of this silly business---'-who needsthat kind of hassle? Life's too short, and younever know just what else the do-gooders mighthave in mind. Now that they have singled out"landlord" as a class ripe for confiscation, whybe a landlord? You're smart-you can alwaysdo something else. So you'd try to sell yourapartments.And who would want to buy them? Well, justabout anyone who likes to be the target of unpredictablepersecution, that's who. It seemslikely that at some price, probably much belowtheir value before Johnston v. Harris, someonewould take the chance. So your wealth-thedifference between the pre-Johnston value ofyour property and what you sell for-will eitherbe transferred to others (the new buyer, the tenants,the state) or it will be destroyed. Eitherway, you will be out of luck. Well, you were aslumlord anyway, so we have done a goodthing. People will have safer apartments for thesame old price, someone else will run them, andyou can deliver pizzas. Thank you for your cooperationin this matter. So, is this where it allends? I wouldn't think so.Even though the people who owned buildingshave either sold them or are eating the losses,there is that small problem known as "thefuture. " The demand for apartments-secureand less secure--continues to rise over time.With a growing population, we'll need a constantsupply of new apartments and replacementapartments for old, inefficient buildings. Sonow, in the face of rent control and a history ofpersecution, predict the likelihood that adequateresources will be devoted to apartment construction.Pretty high, right?Actually, what you're likely to have is a virtualabsence of construction of just the kind oflower-income apartment you were improvingwith Johnston v. Harris. Also, figure on buildingssimply being abandoned by their owners asa sinkhole for money they no longer have. Andwith rents controlled for present tenants, fewerof them will want to move-why give up a,'good thing"? As the rental market growstighter, it will become increasingly difficult foraverage people to make a move of any kind.People will either become trapped in an inappropriateapartment or won't be able to find aplace to live.Now this "cure" seems somewhat worsethan the poor lighting we set out to fix with theJohnston v. Harris precedent. So will this finallyend with an overturning of Johnston v.Harris-an admission of our mistake? I doubtit, because we have the power to "fix" thehousing shortage too! We'll let governmentbuild the houses that "the market fails toprovide. "Finally, we've arrived at the "just" resultJohnston v. Harris was destined to produce.Here is where it "ends." Remember, landlordsoffered rental property of a type we would notchoose to rent, so we forbade its rental. Thechanges we demanded tended to raise rents, sowe forbade the raising. The rent control reducedavailable housing, so we built the housing.Now, instead ofan entire range ofoptions, fromthe least expensive and least comfortable to themost expensive and comfortable, people have afew, stark choices. There are plenty of veryexpensive apartments, there are some cheapapartments that are never available for rent, andthere is lots of public housing. And it finallyends-with unsafe, poorly maintained, selfrespect-drainingdumps, used to warehouse thepoor in conditions we would not choose to rent.Johnston v. Harris claimed the power to improvethe lighting, and left the people in darkness.0

183Who Are theProblem-Solvers?by James L. PayneThe following is the author's reply to a correspondentwho wrote him urging greater use ofgovernment to right social wrongs.De~Mr.__You write that you ~e disturbed by the sufferingand unfairness you see in society. I amalso concerned about many such problems. Thequestion is, how should we go about making theworld a better place?The usual method is to tum to government.For example, you feel that doctors overchargethe poor. Following the political approach, youwould contact politicians and ask them to pass alaw reducing physicians' fees. I disagree withthis approach. First, it is based on coercion, andI don't think coercion is an appropriate remedyfor most things. This is a fundamental problemwith government action. Governments raisetheir money through coercion, and impose theirwill through policemen and soldiers. When wetum to it, we ~e turning to the sword. Maybethis method can't be avoided for some particul~lyintractable problems, but forward-lookingreformers should hesitate to use it.A second problem with government is that itrelies on bureaucracy: large, complex organizationsthat are handicapped by self-defeatingrules and staffed by less-than-dedicated employees.Bureaucracies cost a lot, often fail toJames L. Payne is a political scientist who is writing a bookon the theory and tactics of voluntary methods of reform.solve problems, and frequently make thingsworse.A third problem with government action isthat it is insensitive. Government acts throughuniversal prescriptions, laws that apply to everyone.It therefore attempts to regulate situationsit does not know anything about. For example,how can anybody claim enoughunderstanding to declare what all doctorsshould be paid? There are millions of differentdoctor-patient situations. Unless we study eachone, we cannot make a wise and fair determinationof the proper prices to be charged. Governmentwill not and cannot study each one;therefore it is bound to impose unfairness andinefficiency in many, many cases.The alternative method of dealing with socialproblems is voluntarism-laying aside the useof coercion and depending on individual action,persuasion, and voluntary organization. For example,if you felt physicians were charging toomuch, your first step would be to look into thematter and find out what doctors' costs were,why they were charging what they were charging,and so on. A next step might be to approachphysicians and try to persuade them tocharge less. This would engage you directlywith the problem, exposing you to the complexitiesof the issue and perhaps revealing gaps andintolerance in your own views. A third stepmight be to form a voluntary organizationaimed at persuading doctors to charge less, oraimed at helping the poor to pay medical bills.

184 THE FREEMAN • MAY 1989Would such methods work? Not perfectly, byany means. But, depending on the effort youput forward, they would be a start. All too often,we treat social issues as just another formof TV entertainment, like Monday Night Foot"­ball. We sit in our armchairs and expect, 'them, " the people on the screenquarterbacks,congressmen-to solve the problem.When it comes to making a better society,we should get out and work on the problemsourselves.To some extent, your belief in coercive controlsstems from a cynical view of human nature.You declare that "all people are naturallyselfish-and will take all that they can get. Ifyou do not believe this, tell me one person whowill not do it. " I agree with you that selfishnessis an element of the human makeup. But so areidealism and the desire to help others. The questionis, on which aspect of human nature shouldwe found our philosophy of social improvement?Shouldn't we stress the positive? Shouldn'twe adopt the voluntary methods that assumepeople will be helpful and sharing toward others?In this way we shall encourage those virtues.The coercive method that assumes peoplemust be forced to help others promotes moreselfishness and the ever-greater use of force.You ask me to show you "one person" whowill not "take all that they can get." I can:yourself. You took the trouble to type a threepage,single-spaced letter to me, a stranger, notbecause it would make you any richer. Youwere motivated by a deep concern with socialproblems. And I'll give you another person whois not totally selfish: me. I want to donate $100to your Society for Low-Income Medical Assistanceas 'soon as you've got it set up. Nowthat makes two of us, and we're on our way towinning the world.Sincerely,Jim PayneF·E·E / 1989Summer SeminarsJuly 23-29August 13-19Join us in Irvington to explore the philosophy of freedom. Our 5-acrefacilities in suburban Westchester County provide the ideal settingfor intellectual pursuit. Tuition: $350 (includes room and board). Forfull details and applications, write or telephone The Foundation forEconomic Education. (914) 591-7230.

185The Levelers:LibertarianRevolutionariesby Nick ElliottAmong students of intellectual history,. the revolutions in the United States(1776), France (1789), and Russia(1917) attract most interest as being the resultand cause of ideas: in America the liberalism ofThomas Paine and the later Federalists, inFrance the turbulent combination of the liberalismof Voltaire and Montesquieu with the populismof Rousseau, and in Russia the pathbreakingimplementation of Marxism.' Earlierrevolutions in the Netherlands and in Englandare often passed over.The first English "revolution," followingthe Civil War of 1641-1646, was a remarkableevent for the ideas which led up to it, and whichensued from it. England had been a profoundlyindividualistic society for centuries before thewar. As Alan MacFarlane has shown in TheOrigins ofEnglish Individualism, there was littleof the tradition of communal ownership anddependency in social relationships of the sortthat prevailed in mainland Europe. 1 This individualismmade England particularly hospitableto Reformation ideas, and subsequently to liberalprinciples.The Reformation was a challenge to themonolithic state churches. It also allowed forMr. Elliott works for the Adam Smith Institute, a freemarketthink tank in London. He is a regular contributor tothe journal Economic Affairs, published by the InstituteofEconomic Affairs.each believer to communicate with God in hisown way, and so made the church hierarchyredundant. The fragmentation of English religionwas aided by the translation and mass productionof the Bible, allowing each individualto interpret for himself. Religious radicals, likethe Leveler leader John Lilbume, drew upon thestories ofProtestant suffering told by John Foxein his Book ofMartyrs.One of the major reasons why civil warerupted was that Charles I and his Archbishopof Canterbury, William Laud, were attemptingto impose a uniform high church religion. Thispolicy was inextricably linked to the maintenanceof state hegemony. Laud ordained aweekly reading in every church of the DivineRight of Kings-the doctrine that kingship isdirectly conferred by God. The Church of Englandhad often been used before to control theideas and behavior of subjects. Those who challengedthe authority of the church also threatenedthe powers of the state. The Earl of Straffordrecognized this when he wrote: ' 'Thesemen do but begin with the Church that theymight have free access to the state. ,,2Early LiberalsAgainst this circumstantial background agroup developed known as "The Levelers, " aninformal alliance of agitators and pamphleteers

186 THE FREEMAN. MAY 1989who shared the same commitment to liberalprinciples. The Levelers have been neglectedby more recent liberals. Indeed, it has remaineda largely unchallenged assumption that they hadsocialist aspirations."Leveler" was a term of abuse, coined bythose seeking to exaggerate the threat of theirideas. The only sense in which they were levelerswas that they sought an equality of rightsin law; they railed against tipping the scales ofjustice in favor of those with wealth and status.Yet they explicitly disavowed the charge offavoringthe leveling of wealth. They distancedthemselves from the "Diggers" or "TrueLevelers, " who were genuine visionary communitarians.Against the despotism of the Stuart state theLevelers invoked the concept of natural rights.They drew upon the explication of natural lawby Christopher St. Germain in his book Doctorand Student. 3 Richard Overton, one of the leadingLeveler activists, expressed the principlelike this: ". . . by natural birth all men areequally and alike borne to like propriety, libertyand freedom.,,4Natural rights are a current of thought in theliberal tradition: the theory was later expandedby the philosopher John Locke and was thefoundation of the Declaration of Independence.When the Levelers spoke of rights, they assumedthem to reside with individuals. Theybelieved that each man should have freedomlimited only by regard for the freedom of others.What went alongside the principle of equalnatural rights was the principle of equality inlaw. In this the Levelers championed the causeof the common man by calling for the law tobe applied impartially, without favor to wealthor position. For them, the basis of law wasEnglish common law, supplemented by a fewstatutes which guaranteed individual liberty,such as the Magna Carta and the Petition ofRight.Levelers renounced most of the laws madesince the Norman invasion, the corruption ofthe common law tradition being seen as the resultofthe "Norman yoke." Sir Edward Coke'sInstitutes, the classic contemporary defense ofevolutionary common law, was used as a Levelerhandbook. Their approach anticipated thecase for evolutionary common law as opposedto statutory law made by later liberals such asDavid Hume and F. A. Hayek.It was a principle justified by bitter experience.The Leveler leaders suffered many timesfrom arbitrary arrest and imprison~ent, bothunder the Stuart monarchy and under the postwarrepublic. In a famous trial in 1649, JohnLilburne was indicted for high treason.· Lilburnemade a strident defense on grounds ofprinciple,and confounded his opponents with proceduraldelays. He convinced the jury of his innocenceand was acquitted. The result was hailed as agreat victory; bonfires were lit throughout thecapital. Yet, within a year he was tried andconvicted by Parliament, acting as judge andjury, and banished to lifelong exile in the Netherlands.He died under sentence, having spent12 years of his 42-year life as a prisoner of thestate.Lilburne held such a commitment to his legalphilosophy that he opposed the trial and executionof Charles I-whom Lilburne had enlistedin the Parliamentary army to dethrone. He believedthat if the King were to be tried at all,then it should be before a common law courtand jury, the procedure ofjustice that should beavailable to every free-born Englishman.To the Levelers, all men were born free andequal. It followed that government could be legitimateonly as a contract among free individuals.Government was justified only as a voluntarycombination to provide better protectionfor property. The cohesion of principles is illustratedby this statement made by LevelerMaximilian Petty at the Putney debates: "For Ijudge every man is naturally free; and I judgethe reason why the men when they are in sogreat numbers that every man could not give hisvoice, was that they who were chosen mightpreserve property; and therefore men agreed tocome into some form of government that theymight preserve property. . . .',5Monarchs had obligated the allegiance ofsubjects by claiming that their authority wasgranted by God. For the Levelers, governmentwas legitimate only ifthe consent ofthose underit was secured. In the context of history theirbelief in representative government was notablyadvanced; the idea was to become the basis ofWestern democracies.

THE LEVELERS 187The Response to DespotismIt is an accident of history that the Reformationmovement gave rise to ideas which reassessedthe relationship of the individual to thestate. Luther was shocked when his denouncementof church corruption led to uprisings inGermany, and he called for the rebellion to becrushed without mercy. Calvin was less conservativein accepting the consequences of his doctrinalchallenge, but the organization of societywhich the Calvinists established in Geneva wasvery closed and restrictive. Neither the statechurch, nor the Lutherans and Calvinistswanted pluralism in religion, but the unexpectedoutcome of their conflict was that overallcompliance was less easy to enforce.It was the same with religious toleration inEngland. Parliament had rebelled against theKing not because they objected to uniformity ofreligion, but because they disliked his own preferencefor a High Church, and Laud's inclinationtowards Arminianism. During and after thewar neither side held the authority to enforce adoctrine. The result, which neither Parliamentnor King sought, was de facto toleration.Many varieties of faith were being practicedthroughout the country. The Levelers themselvesdiffered in religion-Lilburne was amainstream Puritan until his conversion toQuakerism in later years. William Walwyn wasan antinomian, while John Wildman appears tohave inclined towards skepticism. The breakdownof conformity in religion made the law ananachronism, and made law enforcement an exercisein futility.The whole basis of Leveler politics was originalin that the foundation wasn't religious doctrine.What they sought was a secular republic,without religious direction from the state. Incommon with later liberals, they called for theabolition of tithes-the feudal fee charged topay for the state church. They argued for completereligious toleration-a position that wasvery radical for the time.Those in government, before and after theCivil War, felt alternative doctrines to be athreat. Tight controls were maintained over themeans of communicating new ideas, by vestingthe sole right to print and publish with agents ofthe state. Under Charles I all printing and pub-lication were controlled by the Stationers Company,which held a legal monopoly.Lilburne first became famous when, as ayoung man, he was arrested by officials of theStationers Company while assisting in the illegalimportation of texts from the Netherlands.Tried and convicted before the Star Chamber,he was flogged down the length of Fleet Street,pilloried, and then shackled in a prison cell.Lilburne was freed after two years, in time toenlist with the Parliamentary army. After thewar, Parliament was no more willing than theKing had been to relinquish control of printing.The Stationers Company was not abolished, butreformed as the "Committee of Examinations."Lilburne soon fell afoul of the Examiners.Locked away at their behest in Newgateprison, he wrote Englands Birth-Right Justified,an eloquent piece in which he called forthe dissolution of the "insufferable, unjust andtyrannical Monopoly of Printing. "The imposition of an alien prayer-book inScotland provoked rebellion and led to the FirstBishops' War against the Scots in 1639.Charles had not called a Parliament since 1629,and so had scant means to finance the war. TheStuart machinery of government was stilllargely feudal, and the King had to exploit whatexpedients he could to find revenue. He revivedknighthood fines, imposed fines for the enclosureof forests and common land, increased excisetaxes on domestically produced goods, andlevied "ship money"-supposedly to financethe navy-upon inland towns. Another expedientwas the creation of monopolies-the sale bygovernment of the sole right of manufacture.These expedients bridled the economy and wereparticularly onerous for small capitalists. Theywere one of the heavy grievances which ledmen to take up arms and fight a war against theKing.The most despised monopoly was the MerchantAdventurers Company, which held thesole right for trade in textiles. A booklet popularlyreceived was the anonymous A Discoursefor Free Trade, which called for the removal oftheir charter. 6 In the Leveler constitution, tradewas to be free from government intervention:"That it shall not be in their power to continueor make any Laws to abridge or hinder anyperson or persons, from trading or merchandiz-

188 THE FREEMAN. MAY 1989Oliver Cromwell(1599-1658)ing into any place beyond the Seas, where anyof this Nation are free to Trade.,,7Leveler support had its basis in the Parliamentaryarmy, which was uniquely suitable forthe spread of radicalism. Ironically, it was OliverCromwell, the leader at odds with the Levelers,who had formed the army into a meritocracy."Gentlemen" did not have automaticpassage into the officer elite: rank was dependentupon soldiering ability. Ordinary pikemenand musketeers were less divided from the menof status, and began to see themselves as equalin rights to their leaders. The most dedicatedfighters were motivated by religious zeal, andsome of them were forceful orators, with a captiveaudience of fellow soldiers.When the first civil war was won, the victoriousarmy hoped for great things. But, Parliamentviewed the standing army as a threat to itspower, and as a dangerously radical body ofopinion. They ordered the troops to disband,which added to discontent and reinforced Levelersupport. When the troops elected their ownagitators, the army became a political force.What followed were the remarkable Putneydebates, at which ordinary soldiers sat downwith generals-Qliver Cromwell and Henry Ireton-todiscuss political principles. The Levelersargued that government can be legitimateonly with the consent of the citizens. They contendedthat there was no basis for excludingpoor men from voting, because without havinga voice in the making oflaws one is not obligedto comply with those laws. Colonel Rainsboroughmade the case like this: ". . . for really Ithink that the poorest he that is in England hatha life to live as the greatest he; and thereforetruly, sir, I think it's clear, that every man thatis to live under a government ought first by hisown consent to put himself under thatgovernment. ,,8They drew up a constitution to be presentedand agreed to by the people, distributed in pamphletform as An Agreement o/the People. Thefirst Agreement appeared in 1647, and two variationsin subsequent years. The Agreementswere drawn up by people who had been severelydisillusioned by the new regime. Theyhad taken up arms to fight against the arbitraryrule ofKing Charles I, but now saw Parliamentbecoming equally despotic.The Agreements aimed to limit governmentby dispersing power among separated executive,legislative, and judicial branches. TheHouse of Lords was to be abolished. Certainindividual rights were to be protected from governmentinfringement by constitutional guarantee.The obvious parallel here is with the Americanrevolutionaries, who enshrined theirconcept of natural rights in a constitution whichwas aimed at restraining government.The separation of powers was incorporatedinto the Instrument of Government, Britain'sfust and only written constitution, drawn up byJohn Lambert. The Instrument established a divisionof powers among the Lord Protector,Parliament, and a Council of State. It also guaranteedcertain individual liberties against theencroachment of statute law; it guaranteed religiousfreedom for all but Catholics and followersof "licentious" sects. Although the Levelersdenounced the Instrument, their ideas had aclear bearing upon its design.The Leveler LegacyMany ofthe books written about the Levelerschart their "rise and decline" as a politicalmovement, as if their importance lasted only aslong as they had the ear of Oliver Cromwell.

THE LEVELERS 189More significant than the movement and its activistswere the ideas which they introduced intopublic discussion. Their ideas lived on, longbeyond their immediate political successes. In1826, when Thomas Jefferson wrote that"[T]he mass of mankind has not been born withsaddles on their backs, nor a favored few bootedand spurred, ready to ride them legitimately,"he was quoting the words of Leveler RichardRumbold. 9 Americans founded a republic witha government limited by constitution; they enactedwhat the Levelers had proposed.Religious uniformity could never be a seriouspolicy again with the great diversity of faithsthat had been flourishing outside of controls.Toleration in law was admitted in 1689, withfreedom of worship made permissible for all butUnitarians and Catholics. It was made completein the nineteenth century with the opening ofthepolitical nation to Catholics and Jews. However,state involvement in religion remained anissue ofcontention for the liberals oflater years.Tithes fell into disuse, although they were notformally abolished until 1936.For the same reason-the obvious futility ofthe law-censorship ceased to be a sensible undertaking.Improved printing technology hadmade pamphleteering simpler and cheaper.When in 1644 the poet John Milton publishedhis famous Areopagitica: A Speech for the Libertyof Unlicensed Printing, the work was illegallydispersed through the underground Londonprinting network; its spread was avindication of the very argument containedwithin. The output of private presses outgrewthe resources of the Examiners. In 1645 fewerthan'700 new publications were brought intocirculation. By 1648 the number had grown toover 1,400. It was in this year that The Moderatewas first seen, a regular newspaper withLeveler sympathies. In 1695 censorship was allowedto lapse from the statute book, in recognitionthat it had become ineffective.After many years of guarded privilege, theMerchant Adventurers government charter wasdissolved in 1689, as one of the acts of theGlorious Revolution. It was not until the 1840sthat trade was freed from the strictures of thelaw, as the result of the unrelenting efforts ofliberals and humanitarians. Monopolies of onesort or another have persisted, and remain asource of contention in modem times. Levelersupport for a wider franchise went unheeded atthe time, but was revived to become one of thegreat liberal campaigns of the nineteenth century.In the positions they took on these questions,the Levelers showed a remarkable anticipationof what became, much later, liberal andprogressive opinion.The overthrow of the monarchy in Englandremoved a structure of government that had existedfor centuries. For· the first time, a newfoundation of government had to be built.Questions of political philosophy took on a newimportance.It was also a time when the monopoly powersof government were not sustained. In their absence,individual liberty was left to prosper.People needed to worry less about offending thelaw when they practiced their religion or setdown an opinion in writing.For a time, in the postwar upheaval, whenthey had won support of the army, the Levelerswere power-brokers; Cromwell and the armyleaders had to consort with the Leveler leaders.Leveler fortunes climbed, and Cromwell remainedreceptive-but only while he neededthe army against Parliament and the Scots.Remarkable while it lasted, Leveler controlover the balance of power could be maintainedonly so long as there was instability. With theScots defeated, and Parliament brought intoforced obedience, Cromwell could act againstthe Levelers. Once more, their political activitiesplaced them in danger. They either retired,escaped, or went to prison. In retrospect, however,prison walls did not prevent the advanceoftheir ideas. In subsequent years, England becamea freer place in which to live, and thisowed something to the efforts of these earlylibertarians.D1. Alan MacFarlane, The Origins ofEnglish Individualism (Oxford:Blackwell, 1979).2. M. A. Gibb, John Lilburne the Leveller-A Christian Democrat(London: Lindsay Drummond, 1947), p. 35.3. Pauline Gregg, Free-Born John (London: Dent, 1986), p. 217.4. Richard Overton, "An Arrow Against All Tyrants," in TheLevelers in the English Revolution, G. E. Aylmer, ed. (London:Thames and Hudson, 1975), p. 69.5. Aylmer, p. 106.6. Gregg, p. 118.7. An Agreement ofthe People, in Aylmer, p. 165.8. Aylmer, p. 100.9. Christopher Hill, The Experience of Defeat (London: Faberand Faber, 1984), p. 37.

190At Whose Expense?by Philip SmithAquestion often overlooked in publicpolicy debates is deceptively simple:"At whose expense?" Let us reflectfor a moment on this question and see if, byanswering it, we can clarify some current issues.Take, for example, child care benefits. Whendescribed by child care advocates, the issueseems rather innocuous. "Shouldn't workingmothers," they ask, "have a right to adequatechild care at reasonable cost?" The answer tosuch a question would seem to be yes, sinceparents have a right to seek adequate child carewherever and at whatever cost they choose.But these advocates often go a step farther.They maintain that a parent's right to seek childcare somehow places a burden on a secondparty to provide it. This second party is usuallythought to be the parent's employer, or perhapsthe taxpayers. This second party, then, is theanswer to the question, "At whose expense?"Immediately another question then comes tomind-why?Why should an employer be forced to providechild care? Some will argue that unlessforce is invoked, there won't be enough childcare facilities. This is doubtful, since as a generalrule the free market works to meet consumerdemands. A demand for child care willbe met by profit-seeking entrepreneurs, if themarket is free from government interference.However, if child care providers are burdenedwith too many regulations, laws, and taxes,Philip Smith is a free-lance writer living in southern California.they may not find it worthwhile to stay in business.Furthermore, if entrepreneurs must competewith government-subsidized providers,they may be driven out of business, therebyreducing the options available to parents.Most important, however, is the fact that employersare people too-and they have a primaryright to do as they choose with their ownearnings and property. This includes the right todecide whether to offer employee child care.This is truly an "inalienable" right, and takesprecedence over other so-called "rights," suchas the parent's "right" to child care at the expenseof an unwilling second party.Likewise, imposing the financial burden onthe taxpayers still amounts to forcing the individualtaxpayer to purchase child care for someoneelse. Why should you be forced to pay formy child's care? I have no more right to usegovernment to take your money than I do toseize it directly at gunpoint. The only just systemis one in which child care is paid for withoutthe threat of coercion. Any other scheD;le,regardless of the noble intentions of its designers,plunders one person to provide care forsomeone else's child.Catastrophic Health CareAs an(i)ther example, let's consider catastrophichealth care for the elderly. We mightagree that this is a noble and desirable thingbutagain we must ask the question: "At whoseexpense?" And it is here that the arguments formandatory health care benefits collapse on ethicalgrounds. For, as with child care, we dis-

191cover that the burden of financing catastrophichealth care is to be placed on an unwilling secondparty-taxpayers. By what right?Logically, all people should be free to seekout health insurance from those willing to provideit. As long as the purchasers of a plan givetheir money willingly, no ethical problemsarise. But when one person is forced to fund aninsurance plan for another, that person's rightshave been violated.Consider someone who has purchased healthinsurance for himself and his family. By whatright should he be forced to also buy health carefor strangers? The answer, of course, is that noone has the right to demand this of him.The HomelessAs a third example, consider the plight of thehomeless. It is a sad but unchanging fact thatsome people cannot and will not be able to afforda home. Some concerned citizens think thesolution is to build housing for the homeless,and perhaps provide food and social services.But once again the question arises: "At whoseexpense?"The usual answer is the government. Butwho pays the government's bills? Clearly youand I do, through taxes taken from us by force.It is the individual taxpayer who finances anysuch "charity." Advocates of such programsbelieve themselves empowered to force us togive to their cause, not by persuading us, but bythreat of imprisonment under the tax laws.But what if I have my own favorite charitiesor causes, and already give to them all that Ican? Or what if my neighbor simply doesn'tbelieve he is obligated to build a house for astranger? By what right can he be forced to giveup his money simply because someone elsedoesn't have enough of his own? The answer,again, is that no such thing should be demandedof him.But what a cruel state of affairs, some willsay. What about those too poor to buy insurance,or child care, or a home? How will theysurvive?The answer is simple: private, voluntarycharity. Human compassion runs deep, resultingin thousands of charitable organizations thatexist solely to help the less fortunate, and whichget no government funding. These organizations,unlike the government, are limited topeaceful means of persuasion. They cannot takefrom us by force; they must convince us thattheir cause is worthy and their goals are in linewith our own. When we ask of their work, "Atwhose expense?" the answer is: willing donors.A distinction, then, becomes clear. With thehelp of the handy litmus question, "At whoseexpense?" we quickly skip to the core of matterswhich otherwise might seem a confusingmix of merits and drawbacks.The answer to the question will be either willingbuyers or unwilling victims. In the first case,those who benefit from a good or service arethose who pay for it, or for whom a charity haspaid the bill; in the second case an agent, usuallygovernment, is employed to rob from someto provide for others in the name of "justice" or"compassion." But America was founded onthe principle that ends don't justify means. Justiceand compassion are never served by violatingthe rights offree human beings, even for thenoblest causes. 0Wilhelm von HumboldtIn proportion as each individual relies upon the helpful vigilance of theState, he learns to abandon to its responsibility the fate and well-beingof his fellow-citizens. But the inevitable tendency of such abandonmentis to deaden the living force of sympathy, and to render the naturalimpulse to mutual assistance inactive.IDEASONLIBERTY

192Of Special Interestby Lloyd CohenIn every election campaign of recent memory,the phrase" special interest" has beenused pejoratively to describe the programsand appeal of one candidate or another. Whilethe phrase is frequently used, it is never defined.Although the failure to define a commonlyused term sometimes reflects a general understandingof its meaning, the more reasonableconclusion in this case is that it represents andconceals various forms of misunderstandingand misinformation. This imprecise usage is notonly a reflection of sloppy thinking but a causeofit as well. It is impossible to think clearly andargue convincingly when using language carelesslyand imprecisely.In an effort to add a measure of intellectualcontent to popular political discourse, I offer adefinition of "special interest" that is clear andconcise, permits meaningful distinctions betweendifferent kinds of government activity,and is in accord with the moral opprobrium usuallyattached to the phrase. While what followsmay seem like a lesson in elementary economics,it is not. It is, rather, a discussion of politicalrhetoric and morality, employing economicsas a vulgar but powerful tool to facilitateunderstanding.Every proposed government project will benefitsome and harm others. Any project thatwould benefit all has either long since been enactedor will be enacted with minimal opposi-Lloyd Cohen, Ph.D., J.D., is a JohnM. Olin Fellow in Lawand Economics at the University of Chicago Law School,andAssociate Professor ofLaw (on leave) at the CaliforniaWestern School ofLaw.tion. On the other hand, those proposals thatwould harm everyone have no proponents. Theonly proposals that are of any interest fall in themiddle; they help some and hurt others.The mere fact that a given program wouldhelp some and hurt others cannot be sufficientto qualify it as a special interest project. Otherwisethe term would lose all power as an analyticaltool, since every government programwould satisfy the criterion. Yet, both the publicand the media seem to use the phrase "specialinterest" in precisely this fashion. If someonedisapproves of a proposed government activity,he simply points out a discrete set of peoplewho will benefit, and proceeds to tar the projectwith the special interest brush. Thus in the 1984Presidential campaign, Walter Mondale was accusedof favoring projects such as domesticcontent legislation that would benefit laborunions, while Ronald Reagan, who favoredlower marginal tax rates, was portrayed as atool of moneyed interests.The special interest critique of proposed governmentactivity is sometimes presented in aslightly more sophisticated form. The critic depictsthe group that would benefit from a projectas narrowly as possible, and the group thatwould be injured as broadly as possible. Thenthe argument is made that because the losersoutnumber the winners the project obviouslyserves only a special interest and thereforeshould be abandoned.For example, those who argue for quotas ortariffs on low-priced imported shoes tend tocount only foreign producers and importers asthose who gain. They ignore consumers who

193benefit from lower prices and those employedin exporting industries who benefit from the increasein trade. (Imports are ultimately paid forwith exports.) Similarly, the class injured byshoe imports is expanded beyond those whoparticipate in the domestic shoe industry by presentingan apocalyptic vision of a decline inother sectors of American life which surelymust follow in the wake of imported shoes, asfor example, "our soldiers could be left withoutboots to wear in the event of war. ' ,The proper focus of the pejorative phrase,"special interest," must be a narrower andmore precise category. The general interest cannever be determined by a mere show of hands,whether or not those hands are properlycounted. Whatever virtue there may be to democratichand counting, it isn't synonymous withthe general interest.And as a corollary, the failure of a project tobenefit more individuals than it injures cannever be a sufficient condition to classify it asserving a special interest. A mere counting ofhands would fail to reflect the character andmagnitude ofthe gains and losses to the affectedindividuals.For example, those who would gain by theconfiscation and general disbursement of theproperty of a single individual will always outnumberthe one who would lose. Nonetheless,it is generally understood that the loss to theowner weighs more heavily on the scales ofjustice than the gain to the thieves. When thegovernment protects that individual's right tohis property, no one refers to that as a specialinterest activity in any pejorative sense of theterm.I would like to think that the following illustratesa widely shared public moral understandingthat defining a political special interest isn'tmerely a matter of head counting. Near the endof the 1988 campaign, when Michael Dukakisproclaimed that while George Bush representedthe interests of Wall Street, Dukakis representedMain Street, he was labeling GeorgeBush as representing a special interest (thewealthy) and declaring that he represented anotherspecial interest (the unwealthy). It was, Isuppose, Dukakis' hope that a majority of theAmerican people would vote their narrow selfinterest.Dukakis' decline in the polls after tak-ing this, tack, and his ultimate defeat, were perhapsin part a recognition by the electorate thathe was trying to appeal to special interests, andvindication of the principle that a Presidentshould represent a general interest rather thananyone's or even everyone's special interest.General Interest vs.Special InterestIf it is not merely the number of winnersversus the number of losers that is the propercriterion for the pejorative phrase "special interest,"what criterion is appropriate? In orderto distinguish intelligently between special interestand general interest projects, it is necessaryto compare what is gained by those who areserved by the project with what is lost by thosewho must pay. But, on what scale are thesegains and losses to be compared?The early utilitarians such as Bentham andMill believed it was both meaningful and theoreticallypossible to delve into the souls of theindividuals affected and measure pleasure andpain on some sort of scale in order to comparethose quantities among individuals. Were we toemploy such a standard, it would require thatwe determine the number of utils (units ofpleasureor pain) each affected person would gain orlose from a project, and sum those numbersover all the affected individuals. A special interestproject would then be one for which theutils gained by the winners were less than theutils lost by the losers. However, having faithneither in the metaphysical existence of thetheoretical concept, utility, nor a fortiori in theoperationalization of that concept, measuringutils, I prefer the use of a more concrete andaccessible measure.Although the concept of utility suffers severaldeficiencies, it also has one important virtue.Unlike a mere counting of hands, it givesdifferent weights to different people's interestsin a project. Its disabling shortcoming, however,is that the weight it gives, utils, is littlemore than a theoretical construct, about whichmodem scholars could argue with the same successas did our apocryphal medieval ancestorsover questions such as how many angels coulddance on the head of a pin.As an alternative to utility, social wealth is a

194 THE FREEMAN • MAY 1989far more accessible measure. The gain or loss toeach individual that would be generated by aproposed project can be measured by his willingnessto pay. Summing those gains and lossesprovides a measure of the effect of a given projecton social wealth.For example, if building a dam would confera benefit on someone for which he would bewilling to pay as much as 100 dollars, then 100dollars represents the value of the dam to him.If another individual who would be harmed bythe project requires a payment of 150 dollars tocompensate him for his loss, then 150 dollarsrepresents the cost of the project to that person.A special interest project may be defined as onefor which those who oppose the project wouldrequire more in dollars to accept it, than thosewho benefit would pay to enact it. Expressedanother way, a general interest project is one forwhich the winners could compensate the losersfor their losses and still retain some winnings,whereas a special interest project is one forwhich compensation of the losers by the winnerswould result in the winners joining thecamp of the losers. 1A Theoretical ToolThe definition of special interest projects thatI offer, Le., projects for which the dollar gain tothe winners is less than the dollar loss to thelosers, is a theoretical tool. You may still ask ofwhat use is this tool. Armed with it are we anybetter off than the utilitarians in our effort tooperationally distinguish special interest andgeneral interest projects? How can we determinehow much someone is willing to pay?Surely we cannot ask him. Once it was knownthat willingness to pay was the criterion bywhich government projects would be judged, itwould be all too easy for people to lie and claima willingness to pay enormous sums both for theprojects that they favor and to prevent thosethey oppose. How can we determine their truewillingness to pay?We have at hand an institution to help us inthis inquiry-the market. It is through the use ofmarkets that those who gain from the transfer ofresources (the winners) can compensate theowners of those resources (the losers). The operationof the market doesn't require coercedtransfers of resources by the government. If aproduct or service is offered on a market, noone need pay more for it than its market price.Therefore we can infer that if someone is unwillingto pay the market price, then the good orservice simply is not worth that price to him.Anyone advocating a government project thatresults in wealth transfers-and of necessitythey all do-should be required to explain why,if the transfer is a net benefit, it hasn't alreadyoccurred.The only legitimate answer must involvesome notion of market failure. That is, for somereason, although it is of net benefit in that thegain to the winners is larger than the loss to thelosers, the market fails to provide this project.The usual reason for such a failure is that it isimpossible to exclude from the benefits of theproject those who value it, but do not pay for it.Hence, although many would be willing to payif they had to, since they do not have to in orderto get the benefit they will not, and the projectwill not be financed.The quintessential example of such a projectis national defense. The self-declared pacifistwho refuses to pay for national defense claimingthat he has no fear of the Soviet Unioncannot be excluded from the protection that therest of us .pay for. Since it is in the narrowself-interest of each of us to free-ride on theprovision of this collective good, it is likely thatwe would have a severe under-provision withoutthe coercive power of government to compela contribution from each of us.It is out of necessity, but nonetheless withsome reluctance, that I acknowledge the validityof a market failure/collective good justificationfor government-financed projects that providebenefits to some at the expense of others.The existence of collective goods and the efficiencyproblems they create explain the necessaryrole of government in providing for suchthings as the national defense and a system ofcriminal justice. However, the market failureargument is all too easy to make, and virtuallyimpossible to prove or disprove.As an extreme example of the difficulties indisposing of alleged market failures, considerthe following. The women of America couldargue that perfume and dress purchases shouldbe subsidized because when they smell and look

OF SPECIAL INTEREST 195nice it gives pleasure to others, men in particular.The men would be willing to pay for thatpleasure if they had to, but because they cannotbe excluded from smelling and seeing womenwearing perfume and dresses they will not payfor it. Therefore in order to achieve an efficientlevel of perfume and dress purchases, the governmentshould use tax dollars to subsidize women'sshopping.This example may seem absurd and trivial,but it isn't clearly erroneous. Every private activitymay generate uncompensated benefits andcosts to others. There is no simple or obviousway to distinguish the significant and worthycases--deserving of government action becausethe benefits of such action will outweigh thecosts-from the trivial and unworthy cases. Ultimatelysuch questions must be decided by theexercise of an intelligent, good faith judgment.Nonetheless, the tools of economics can domuch to winnow the wheat from the chaff. Thenumber of projects that could pass a rigorousapplication of this "willingness to pay" testand be shown not to deserve the title "specialinterest" is, I believe, very small. The principleof the test is clear. It asks that we weigh equallythe dollar costs to those who must pay againstthe dollar gains to those who receive the benefits.Any other argument that proponents mightraise must rest, either explicitly or implicitly,on invidious distinctions in how the welfare ofvarious groups ofpeople should be weighted onour collective scale of values.A good example of a special interest projectis an import restraint. Economic theory hastaught for over 150 years that the net cost to thepublic of import restraints, above and beyondany benefit to the domestic industry, is immense.In the steel industry, for example, therestraints proposed by the United States InternationalTrade Commission in 1984 were estimatedby the Commission staff to cost theAmerican people several billion dollars a year,or $300,000 per American steel worker's job"saved." The people who would gain from theconstraint were primarily those employed in thesteel industry.Could the steel workers whose jobs are savedpay the rest of us $300,000 for each projectedjob paying $40,000 a year and still retain someofthe gain ofprotection? Clearly not. Why thendid they favor this protection? The answer issimple: special interest government projectsnever require that the winners compensate thelosers. It is only because special interest protectionistlegislation imposes the greater cost ofprotection on others that the protected industriessupport it.Those readers who view private property asinviolate may wish to treat the "willingness topay" test I ha~e proposed as a necessary, butnot a sufficient condition for approval of a governmentproject. It may strike them as unjustthat property rights be nullified for such a seeminglyarbitrary reason as whether other peopleplace a higher dollar value on the property.In defense let me suggest that we normallytreat every property right as contingent and limitedin just such a fashion. For example, eventhe most extreme Lockean believer in the sanctityof private property doesn't consider it trespassif I light a match on my property and thephotons of light emitted enter your property. Itis so obvious that permitting such reciprocalinvasions is mutually beneficial that it seemsabsurd to label it a trespass. But in its metaphysicalcharacter it is as much an invasion ofanother's property as ordinary trespass; the factthat we do not treat it as such is a reflection ofan implicit shared understanding that such so-

196 THE FREEMAN • MAY 1989cial wealth-maximizing invasions should bepermitted.The "willingness to pay" criterion for defininga special interest project that is rightly deservingof condemnation, and distinguishing itfrom a general interest project deserving of approval,does not lead to the approval of new ordifferent violations of individuals' propertyrights. Rather, the test simply provides a theoreticalunderpinning for those projects that eventhe most scrupulous property rights adherentwould already approve.A Legal Tool for LimitingSpecial Interest ProjectsOne legal tool for appropriately limiting theprojects that get government funding is to takeseriously the requirements of the eminent domain(takings) clause of the Fifth Amendment,which provides: "nor shall private property betaken for public use, without just compensation.,,2 This would require that the governmentnot take anyone's property for purely privatepurposes and that anyone whose funds orproperty were taken for a public purpose mustreceive full compensation. No special interestproject can survive the requirement that the losersbe fully compensated. If the winners mustcompensate the losers, they will do so only ifthe project has a net positive gain.The primary benefit of rigorously definingspecial interest is that it provides economic,moral, and political meaning to the worldaround us. It weighs each person's interest in aproject on a uniform and comparable scale. Theinefficiency and injustice ofspecial interest projects.have the same root. Social wealth is diminishedby every special interest project; thepie becomes smaller. The injustice is alsoreadily apparent. Advocating a special interestproject implicitly requires giving greater weightto the welfare of some more than of others.Ofcourse, those who favor such projects willuse a variety of rhetorical devices to obfuscatethe special interest nature of their proposals.They will describe the outcome of the market as"unfair," or assert that "we cannot expect themarket to solve all our problems. " The use ofsuch sophisms is meant to conceal the simpletruth that those who promote such projects arein effect saying that the losses to those whomust pay do not carry the same weight as thegains to those who benefit. The drawing of suchinvidious distinctions across individuals shouldbe righteously condemned. It can only injurethe fabric of a democratic society that rests itssense of nation not on a common race, religion,or culture, but on a political tradition ofequalityand liberty.The groups helped by special interest legislationare generally small and well defined incontrast to the larger, more diverse groups ofindividuals who are hurt. This helps explainwhy coalitions are formed that lead to the enactmentof this legislation, but the explanationof its political origin doesn't define a specialinterest project, nor is it sufficient to explain theterm's pejorative connotation.It is neither the failure to count heads nor theinsular character of the group served that offendsourintuitive sense of justice. It is ratherthe willingness to diminish the combinedwealth of all Americans to benefit a narrowgroup that is so morally odious. An evaluationof a proposed government action employingthis definition of the special interest will revealand clarify its moral, economic, and politicalcharacter and consequences.D1. For those with some formal training in economics, I note thatthis is the Kaldor as contrasted to the Hicks or Scitovsky compensationcriteria. See Henderson and Quandt, Microeconomic Theory(1958), p. 219.2. Richard Epstein's excellent book, Takings: Private Propertyand the Power of Eminent Domain (1985), provides a full-blowndescription and defense of this largely ignored Constitutional doctrine.

197Private Enterprisein Polandby Barbara SallThe shop is small, but well organized andhas a great location in the center of Krakow'sbusiness district in the old, medievalpart of town. Kristina, the proprietress,shows me her latest selection of avant-gardepins and earrings, and I hasten to buy several.At the black market exchange rate of 1,400 zlotysper $1, I figure the price of an originallydesigned pin to be about 50 cents.Kristina is a member of the fair!y large,struggling class of private entrepreneurs whohave survived decades of Communist rule inPoland, the land of eternal contradictions. Herbusiness, like that of her fellow private shopkeepersall over Poland, is legal and not underground.She garners her supply ofcostume jewelryand beautiful leather goods directly fromartisans and craftsmen. Her prices are a matterof supply and demand, although the pervasiveinflation of the Polish currency has had a devastatingeffect on her customers' ability to buy.I visited Kristina's shop when I traveled toPoland last June. Hers is one of many privateshops that provide a wide variety of goods.They sell explicit caricatures of Communist bureaucrats,posters that ridicule the Communistsystem and hint at revolution, and paintings ofdark and depressing scenes of life under Communism.At the same time, private flower stallsand produce stands are brimming with fresh-Barbara Salt is vice president ofThe International Alliancefor Freedom and Peace, based in Boise, Idaho. To protectthe identities of the Polish citizens interviewed for this article,pseudonyms have been providedfor some ofthe participants.and expensive-harvests. These small, privateenterprises provide over half the food consumedby Poles, and create ~islands of entrepreneurialactivity in the midst of the numbing regulationsof socialism.Despite over 40 years of Communist rule,Poland has retained an element of private enterprisethat surprises many Western visitors.There will be no need to instruct Poles on howto run shops, restaurants, small farms, or evenprivate manufacturing concerns should perestroikacome to Poland. All these businessescurrently exist in Poland, but their ability toprosper is severely hampered by governmentintervention.The largest private sector, by far, is in agriculture.Unlike leaders in other Communistcountries, Polish Communists lacked the resolveto collectivize the large landowning peasantclass. According to Neal Ascherson in hisexcellent book, The Polish August (Viking,1982), the Polish Communists were unwillingto commit the violence that would have beennecessary to force the peasants off their landand into communes. Because of this, Polandhas maintained a tradition of private ownershipof land unequaled in the Eastern bloc.Not that private farmers haven't had their difficulties.When scarce investment resources aregrudgingly allocated to agriculture, privatefarmers are way down the list and must try togrow food without access to fertilizers, machinery,or labor. The thousands of large workhorses you still see in Poland are the only farm"machinery" most private producers have, and

198 THE FREEMAN. MAY 1989A private vendor sells plump-but expensive-tomatoes on the streets ofKrakow.farmers must recruit extended-family membersto help with the harvests.So, although more than half of Polish food isproduced by private farmers, these landownershave very little ability to improve their farmingmethods. Also, unless they are able to take theirown produce to town to sell, they must sell tothe government at fixed prices that provide littleincentive to expand production.Private ManufacturersIn addition, Poland has a small, private manufacturingindustry. I was fortunate in beingable to talk to Marek, a worker in a privatechemical plant near Krakow. -To a Pole, the most important part ofworkingfor a private company is the pay. Marek earnsfour times the wages he would if he worked fora comparable state factory or laboratory. On theother hand, there is a great deal of uncertaintyfor workers in the private sector. If a privatecompany becomes too successful in competingagainst state-run concerns, the government canremove the licenses required to do business, orrefuse to supply raw materials.Not surprisingly, all this uncertainty is par-- ticularly hard on business owners. Although aventure may prove successful, and the first impulsewould be to reinvest profits, a suddencutoff of supplies can result in the loss of investedcapital. For that reason, businessmen arereluctant to invest more than they can afford tolose. Most private manufacturing concerns remainsmall and try to avoid the attention of theCommunist bureaucracy. This is not so difficultas a Westerner would assume because of thesurvival techniques developed by Poles overcenturies of invasion and occupation by unfriendlypowers.Business is often conducted only among oldfriends and in an atmosphere of reciprocity thatwould puzzle the American capitalist. The mostimportant commodity in Poland is information,and this can be relayed to selected individualsthrough an amazing network of "friendly"party officials, plant superintendents, and suppliers.

PRIVATE ENTERPRISE IN POLAND 199The need to engage in trades for informationand supplies, however, can lead to shady arrangementsthat involve bribes and suppliestaken illegally from state storehouses. Marekdeplored the need for such arrangements, butinsisted that they often are required to stay inbusiness.One of the objectives of Solidarity, thebanned trade union, has been to put an end tounderground deals and bribes-an idea that hasa great deal of support among Polish businessmen.They realize that Poles must be free tomake trades and buy supplies on world marketsin order to develop an extensive and successfulprivate sector. Reliance on the arbitrary whimsofgovernment bureaucrats and the black marketis no way to run a business.Although Polish entrepreneurs temper theirenthusiasm with large doses ofrealism, they areexcited about two bills currently before the Polishassembly.The first, and more important, would restructurethe present tax system, which is extremelygraduated. Any increase in profits is literallytaxed out of existence and, in the words ofMarek, "It makes it impossible to subsist andnot to cheat. Every private businessman is nowCheating-paying bribes and maintaining goodrelations with authorities in order to circumventthe tax codes."Ideologically it would be very difficult topass a meaningful tax reform. The idea of asocialist society that allows adequate profits inthe private sector is something even democraticsocialistic countries such as Sweden have a hardtime accepting.The brightest spot on the horizon concernsremoval of some of the many licenses and regulationsthat are stifling Polish businesses. Alist has been drawn up that would virtually excludemany firms, mostly service businesses,from current regulations.The new bill eliminates most educational requirements,supply restrictions, and wage andprice controls. Several of Marek's youngfriends plan to open day care centers and technicalservice businesses. They cite the government'sneed to promote any type of economicgrowth as the reason behind the new deregulationpackage, but are quick to point out thatwithout passage of the tax reform bill, deregu-lation is essentially meaningless. Marek hopesthat continued protests about the horrid state ofthe economy will pressure the government intogoing ahead with significant tax reform.I got an indication of how important the privatesector is becoming in Poland from KazimierzFugiel, a strike leader at the Lenin steelworksin Nowa Huta. Fugiel and all the othermembers of his strike committee were firedfrom their jobs at Nowa Huta upon being releasedfrom prison, where they had served timefor their involvement in the spring 1988 strikes.They were immediately offered jobs in the privatesector that would have paid three to fourtimes what they earned in the steelworks.But idealism is strong in Poland. Fugiel andhis fellow strikers refused the private sector offersand pressed the government to let themhave their jobs back. All were given their oldjobs and continue to represent Solidarity as activemembers of the strike committee. Still thefact that alternative jobs exist in the private sectorcreates a new tie between Solidarity labordemands and private enterprise.More ChangesIt is very doubtful that Poland will adopt afully capitalistic system in the foreseeable future.But, since Solidarity was outlawed in December1981, many changes have occurred.Production workers now realize the advantagesof dealing with private plant owners.More and more of them don't want to negotiatewith government officials who can call out thezomos (internal police), instead of listening tothe legitimate demands of the workers.Libertarian societies in Warsaw and Krakoware offering classes in the creation and operationof private firms. The instructors are businessowners.Free market economic theory and practice arebeing openly taught in major Polish universities.Required courses in Marxist theory are ridiculedby students and faculty alike. Somemembers of the Polish intelligentsia believe thateven the idea of a Communist or socialist societyis dead in Poland. Miroslaw Dzielski, chairmanof the Krakow Libertarian Industrial Society,told me, "The present leaders of theCommunist Party in Poland are not Commu-

200 THE FREEMAN • MAY 1989nists. They are the sons of Communists."But they also hold the power in a countrywhere opposition parties are illegal. The questioninPoland, I was told several times, is notwhether capitalism or socialism works better.Everyone knows that capitalism is the superioreconomic system. The question is, will those inpower relinquish even a small portion of theirpower; and if they do, will the Russians allowit?Although many Americans place considerablefaith in glasnost and perestroika, Polishdissidents look upon the new Russian opennessas a short-term, unimportant development. Thecycles of repression, hopeful change, and thenfurther repression have been all too frequent fordissidents to believe that real change will cometo Poland, or to the Soviet Union, as long asMarxism-Leninism holds sway.And yet, knowing that they can't remove theCommunists from power, the dissidents still arewilling to take terrible risks in slowly pushingthe Communist system as far as they can. Theyhave adopted the techniques of civil disobedienceto win concessions such as alternative servicefor draft resisters and promises to alleviatePoland's horrendous pollution problem.These victories give them hope, but Poles arewell aware that hard-won gains can be takenaway overnight. The Polish people exist on agame board with twice as many squares leadingback to "START" as those that would advancethem to the final elimination of Communism.But to end the game would be to lose everything,and this they refuse to do. They will continueto strike, to face the zomos, to go to jail,and to publish their underground works; but theoutcome is anything but assured. DReaders' ForumTo the Editors:Gary M. Anderson's otherwise excellent article(,'Profits from Power: The Soviet Economyas a Mercantilist State," December 1988)is too kind on Soviet-style command economies.It is difficult to imagine a weaker criterionthan that an economy should exist and producesomething ofvalue to somebody. If we reinstatethe usual criteria-namely, economic growth,the degree of consumer satisfaction, technologicalcapacity-these economies are utter failures.I suppose that under the weaker criterionboth Vietnam and North Korea have economies,but there isn't too much more to be saidfor them.A different conclusion is warranted: whereasin the 1930s and '40s the view that without aprice system no economy could develop overtime was logically plausible, only developmentsfrom the 1950s onward made it possibleto observe actual attempts around the world toemploy central command as an economIzIngdevice. Whereas before it might have been possibleto say that most command economieswould fail but some would succeed, now it ispossible to say definitively, for our time, atleast, that no command economy works well.For those in the Soviet Union and elsewherewho have sacrificed much in favor of this vision,this must be a crushing blow. For otherswho once aspired to such a vision, it is clear thatthey must choose otherwise. Whereas most socialtheories, given the nature of this recalcitrantsubject matter, remain around forever andit is very rare to see them discredited, we oughtto take pleasure in the fact that life has thrownup sufficient empirical experiments for almosteveryone to reach the correct conclusion.AARON WILDAVSKYUniversity of California,Berkeley

201Gary Anderson replies:Professor Wildavsky and I are in completeagreement about his major point, that Sovietstyleeconomies perform relatively poorly. Theonly dimension in which the Soviet-style economyreally excels is in enriching the dictatorand others who control the apparatus of theState.However, I object to the description of theSoviet system as a "command economy. " Thereality of the Soviet economy is not the abolitionof the price system, but massive governmentintervention which has driven the pricesystem partially underground. The economy remainsa market, although a grossly distortedone, because a large, complex economy mustbe a market; coordination requires a price system.Mises was absolutely correct in his assessmentthat socialism is impossible. The state hasimposed tremendous distortions which exploitconsumers terrifically, but the market has notbeen abolished. I believe that the end result ismore properly described as "mercantilist" than"socialist. "I also agree with Professor Wildavsky thatthe consistently poor performance ofthe Sovietstyleeconomies is gradually forcing many torealize the huge gap between their vision andreality. But we must also recognize that the Soviet-stylesystem remains a source of tremendousprofit opportunities for ruthless powerseekers.The worst who rise to the top in such asystem receive large benefits, and can be expectedto defend these special privileges withthe same ruthlessness.GARY M. ANDERSONCalifornia State University,NorthridgeTo the Editors:I would like to praise The Freeman for a mostoutstanding article which appeared in the February1989 issue. It is George Leef's "Why isThere a Drug Problem?" Outside of ThomasSzasz's writings, Mr. Leef's is the only one Ihave seen which truly addresses the drug problem.It is a sad tribute to today's currents ofnon-self-responsibility that absolutely everyoneblames drug usage on everything except thedrug user himself.I have long been convinced that the "drugproblem" is simply that large numbers of peopleseem to prefer to anesthetize themselves andron from reality rather than face their problemswith a clear mind. Mr. Leef has brilliantly expoundedupon this thesis in his article. The popularculture abounds with the mind-set of thedrug addict; no wonder so many drop out. Consider"TGIF" and "Miller Time." These andcountless other instances point to a popular disdainfor work and a wish to escape.If I may suggest it, I think that Mr. Leef'sthesis could be expanded upon in psychologicalterms. I believe those who tum to drugs do sobecause they harbor a self-hatred and a profoundfear of existence. To the drug user, theworld is a terrible, unpredictable, and dangerousplace. These psychopathologies have theirroots, I hypothesize, in the very same placesexamined by Mr. Leef in his article: the schoolingby the state, welfare policies, and the myriadmarket interferences which are inherent inthe mixed economy. After all, what people fearmost is uncertainty and doubt; the loss of personalcontrol causes terror.Ludwig von Mises has demonstrated thatgovernment interference in the market economygenerates ever more uncertainty and unpredictabilityand that this is the harrowing legacy ofinflation. If we school our children that thereare no principles, that knowledge is impossible,then they will grow up fearing a totally incomprehensibleuniverse and likely will tum todrugs for solace.Mr. Leefhas performed a great service to ourdrug war-weary nation.MICHAEL C. HOVEYWilmington, DelawareWe will share with readers the mostinteresting and provocative letters we receiveregarding Freeman articles and theissues they raise. Address your letters to:To the Editors, The Freeman, The Foundationfor Economic Education, Irvington-on-Hudson,New York 10533.

202A REVIEWER'SNOTEBOOKPassage to aHuman Worldby John ChamberlainIn spite of its occasional hop-skip-and-jumppresentation and its reliance on abstractions,Max Singer's Passage to a HumanWorld: The Dynamics of Creating GlobalWealth (Indianapolis: Hudson Institute, 390pp., $21.95) is a most comforting book to read.Its broad thesis is that the human race, barringthe possibility of destruction by collision with ameteor of asteroid size, is never going to sufferfrom lackofmaterials necessary to keep it on anonward and upward course.What kings and barons could have in theMiddle Ages, everyone can have tomorrow.The goal of a $3,000-a-year personal income isforeseeable in relatively short order for all savethe people in a small minority of Third Worldstates. Even they will be lifted to the $3,000­a-year category in time.Singer begins by establishing some broadfacts about the nature of wealth. We are accustomedto thinking of wealth in terms of gold,oil, growing forests, fertile farmland, and bigpower plants. We put great stress on the basemetals, such as iron and bauxite, or on a steadywood supply. But Singer says that fear that wewill run out of crucial metals and forest productsis part of a big "edifice of error. " There isplenty of iron in the ground and plenty of bauxitefor aluminum. The cheap metals cost lessthan ten cents a pound. Copper is "sort of in themiddle," as Singer expresses it. But whethercheap or in the middle, metals make up so smalla percentage of modem wealth that they havelittle effect in determining prices. What is importantabout modem wealth is that it consistsmainly of ideas.The way to get rich, says Singer, is to learn.He quotes a Mexican cab driver as saying,"Poverty is the result of people not knowinghow to do anything." We are more productivethan the people of Abraham Lincoln's time becausewe know more. And what one personknows, another may copy.Singer attributes the building of the "edificeof error" to a self-constituted elite-a "newclass" -that he calls the "University-OrientedAmericans. " These combine a conviction of intellectualsuperiority with a generally low moraleabout their country and the world. Thecommon people, in contradistinction to theUOA elite, have a high morale.Singer conveniently arranges his thoughtsabout the UOA and the ordinary citizen in twocolumns. According to the low-morale ideas inColumn A, the world is divided into rich nationsand poor nations. WorId population isgrowing faster than ever and is out of control.The U. S. is wastefully using a disproportionateshare of the world's treasures, and eventuallythese treasures will be used up. In wasting theresources the U.S. is exploiting poor nations.Continuing the Column A lament, Singersays the UOA elite considers modem technologyto be very dangerous and getting harder tocontrol. People working for profits cannot betrusted. They are not idealists. They don't help

203produce a fairer income distribution or encouragethe extension of democracy.All of the low-morale ideas in Column A,says Singer, are wrong. Actually (see his ColumnB), the world is moving quickly toward atime when most, if not all, nations will be rich.India and China, even with their huge populations,will be among them. Some nations aremoving faster through a transition than others.World population will level off in a way thatwill not cause harmful crowding. Modem technologyis a major reason why dangers to healthhave decreased so rapidly.As for profits, people who work for them arejust as trustworthy as those working for othermotives. Our country is an apt vehicle to expressidealism, for it is full of people who careabout real results. Many countries take inspirationfrom us even though they have their owndefinitions of democracy. So much for ColumnB.The pollution problem worries Singer, butonly because too many people are percentagepointperfectionists about it. We'll never haveskies that are completely free of ozone hazards.But we can do much to inhibit the spread ofcarbon dioxide. Every tree that is planted helps.To gain perspective, Singer amuses himself byasking, "How clean is your house?" It could bekept cleaner and neater, but maybe you havechildren. How dangerous is your house? Itcould have more smoke detectors. How manyburglar alarms do you have? Is your electricalwiring properly grounded? Do you have "grabbars" to protect against falling in the bathtub?You do your best to check on these items, andso strengthen your house investment over theyears. But you can't spend twenty-odd hours aday on the subject. The point is that our homesare as clean and neat and safe as we choose tomake them.The same is true of the larger environment.The coal supply could stand cleaning up. But ifwe don't reach absolute perfection, it isn't goingto make much difference to our health. Lifespans will still increase.Singer is, however, worried about what hecalls sneaky pollutions. One such was thesneaky pollution of scurvy. It was not until scientistshad -learned things about vitamin C thatthe British Navy prescribed limes for its sailors,and it was. a full forty years before the merchantmarine got similar treatment.Singer's book is written largely in terms ofhigh abstraction. He forces his readers to supplythe names of his University-Oriented Americanswho contribute to the edifice of error. Hedoes not identify any ofhis prime culprits. Theycould be faculties at Stanford or Berkeley or theUniversity of Chicago. He could have beenmuch more graphic if he had simply said "Harvard--orYale, or Princeton-hates America"and then gone on to name the individual projectorsof the hatred.You won't find anything about the Cold Warin the Singer book. Gorbachev is not in hisindex. Presumably Singer classifies the possibilityof destruction from nuclear warfare withthe likelihood of disaster from collision with anasteroid. It could happen, but as the Sovietsscramble to restore grain production to oldCzarist-day levels, it probably won't. DTHE ELECTRIC WINDMILL: ANINADVERTENT AUTOBIOGRAPHYby Tom BethellRegnery Gateway, distributed by Kampmann & Co., 9 E. 40thStreet, New York, NY 10016 • 1988 • 294 pages • $17.95 clothReviewed by David M. StewartIfirst read Tom Bethell's essays in Reasonin the late 1970s. At the time, I admiredhis clear, fluid style and effortlessly persuasivearguments on economic issues. But inhis monthly column for The American Spectatorin the 1980s, he has become a first-rankcritic of contemporary liberalism.In virtually every political essay Bethellwrites, there appears a one-, two-, or threesentenceepitome of some tenet or tendency ofliberalism. Sometimes the point made is the majorpoint of the piece, sometimes a brilliantaside or parenthesis. Regardless, Bethell can doto liberalism in a couple dozen words whatsome writers are unable to do in reams.The Electric Windmill shows off Bethell theliberal critic in good form. This wasn't, however,Bethell's main intention. In fact, he saysin his introduction that "It did strike me as a

204 THE FREEMAN. MAY 1989good idea to exclude the numerous policyorientedarticles that I have written over theyears."On a whole, though, the book moves smoothlyfrom "inadvertent autobiography" to, if notpolicy pieces, political culture pieces. But evenin the early essays, concerned with the frrst severalyears of his life after arrival in the U.S.from England in 1962, Bethell sprinkles observationsand comments on the political culturehe observed.The frrst essay is partly an account of his firstmonths in the country, partly an account of hiscontrition for his "wishy-washy liberalism."Bethell says that immediately upon entering theU.S., he "didn't hesitate to suggest variousways in which national customs and folkwayscould be improved."If he wasn't immediately surprised at himselffor offering his advice-after all, "it was understoodthat [Americans] were themselves frequentlyaware of their shortcomings and morethan willing to take self-improvement lessonsfrom educated Englishmen" -it eventuallycame to him "what a lot of nonsense I had beenpermitted to get away with.... after the passageof a few months most British immigrantsare to be found pensively staring down at thesidewalk, . . . recalling with embarrassmentsome vile rudeness and vowing not to let it happenagain."From New England and Virginia, Bethellwent to New Orleans, where he became a reporteron the weekly Vieux Carre Courier. Inthe essays about this period he traverses NewOrleans jazz and a brilliant jazz collector,William Russell Wagner, the vicissitudes of theNew Orleans real estate market, and a Kennedyassassination conspiracy investigation.From here Bethell moves on to Washington,D.C., spelunking the Beltway culture, exploringwhat he calls (after Joseph Sobran) the phenomenonof "the Hive" -the liberalism of theintelligentsia.These pieces aren't dry political treatises,though. On the contrary, they really are principallyreportage. He reports on crime fromcourtrooms and judges' chambers; on abortionistsand the pro-life movement from PennsylvaniaAvenue; on the Hive's vehicle, the DemocraticParty, in San Francisco; on the "loyalopposition," pragmatic, country-club Republicans,in Dallas; on AIDS and "safe sex" atStanford University.In each essay, though, Bethell leavens hisjournalistic observations with compact illuminationson the implications of what he sees orthe principles informing the agents' words anddeeds. What is most impressive is that he doesit on the fly, without sacrificing narrative continuity.Thus the incident giving the book its title.Bethell reports stumbling onto ACT '79, the"Appropriate Community Technology Fair," agathering of various energy technology visionariesand bureaucrats. "I decided to take a lookat the windmill," he writes, "a large threebladedpropellor on top of a tall tower. Thepropellor was churning around merrily, althoughthere was little or no wind at groundlevel. . . . It would save about half your electricitybill-ifyou lived in a windy spot. . . . Iasked the gentleman from Vermont why theblades were whirring around so smoothly insuch still air. 'It's not working off the wind,' hesaid. 'It's plugged into the power outlet.' Itwasn't demonstrating the production ofelectricity.Electricity was demonstrating it." 0(Mr. Stewart is an advertising copywriter and a free-lancewriter in Rochester Hills, Michigan.)LIABILITY: THE LEGAL REVOLUTIONAND ITS CONSEQUENCESby Peter W. HuberBasic Books, 10 E. 53rd Street, New York, NY 10022· 1988·260 pages • $19.95 clothReviewed by George C. Lee!When the solemn judgments of a nation'slegal system become the objectof jokes and sarcasm, there hasto be a serious problem. There may be plenty ofdiscussion over the correctness or wisdom ofMarbury v. Madison, the Legal Tender Cases,Lochner v. New York, or Brown v. The Board,but nobody has ever laughed at those decisions.But how about the case in which a contestant

OTHER BOOKS 205in a refrigerator-carrying race recovered againstthe manufacturer ofthe refrigerator for injury tohis back; the case in which a church was suedby the family of a person who had committedsuicide under the theory that the church hadexacerbated the suicide victim's feelings ofguilt and depression; the case in which NewYork City was held liable for compensatory andpunitive damages to the wife of a policemanwho shot her and then himself, on the groundsthat the city was reckless in requiring officers tocarry guns off duty; or the case in which a bankwas held liable to the widow of a guard who hadbeen shot when another guard went berserk, forhaving failed to discover the guard's mental defect?Cases like those cause sensible people tosnicker and wonder what this country is comingto.If you merely want a bandolier of ammunitionto use in arguing that our legal system hasgotten pretty silly, this book will be of greatuse. Each of the above cases is mentioned (withlegal citations) along with dozens more of thesame genre.But if you want to understand how this lamentablesituation of liability for almost anyinjury of any type whether you caused it or notcame about, and what its detrimental effectsare, this book is a must. It is an investigationinto the intellectual history of the liability revolution,the goals and theories of the"Founders" of this revolution (as Huber refersto a group of legal theorists from the 1950s ledby the late William Prosser, who taught law atHastings College; John Wade, Professor ofLawat Vanderbilt University; and California SupremeCourt Justice Roger Traynor), the predictableways in which the main players in ourlegal system-judges and lawyers-seizedupon these theories and used them to furthertheir own ends, and how the effects of the liabilityrevolution are proving harmful to almosteveryone. Peter Huber has written one of thoserare and wonderful books that help the reader tosee how the world really works.The Founders' principal belief was that ifmanufacturers were held strictly liable for anyaccident that befell a consumer of one of theirgoods, this soon would be reflected in higherprices and more efforts to design safe products.Consumers would, in effect, buy a no-fault in-surance policy along with every item theybought, whether the seller wanted to providethis "insurance" or not. The expected resultwas more coverage for individuals (who werepresumed to be too ignorant to purchase insuranceon their own) and ever-safer productsbrought into the market.Bringing about this revolution, which wasnever sanctioned by legislation, required destroyingcontract law between buyers and sellers.Often a sales contract allocated risk betweenthe buyer and seller in a way that theFounders thought improper. The contractmight, for example, disclaim the seller's liabilityfor various types of harm which could befallthe consumer. As long as such disclaimers hadlegal standing, the dream of universal no-faultcoverage for consumers could not be realizedfor the simple reason that producers would notvoluntarily agree to it.The Founders' solution was simple and brazen-judgessympathetic to the cause merelydeclared that liability disclaimers were unenforceable.Contracts were no longer viewed asbinding documents of mutual consent, butrather as flypaper that unconscionably trappedthe helpless consumer. The struggles of manufacturersand insurers to'keep their potential liabilitywithin bounds they were willing to acceptwere useless. Over a period of only some20 years, the ancient law of cOl).tract betweenbuyer and seller was demolished to make wayfor the Founders' new world of limitless liability.At the same time that contract law was undera slash and bum attack, tort law was undergoinga massive alteration as well. Having taken accidentsout of the realm of contract, theFounders needed to expand tort law to makeproducers responsible for injuries under virtuallyall circumstances.Under traditional tort law, the plaintiff had todemonstrate that the defendant had acted negligently,and that the plaintiff's injury had beencaused by that negligence. Furthermore, a numberof strong defenses were available to the defendant,such as contributory negligence on theplaintiff's part. This law just wouldn't do.The Founders therefore also had to rewritetort law through judicial fiat, which they did.The concept of negligence was redefined to

206 THE FREEMAN. MAY 1989mean, roughly, producing anything that isn'tperfect.Today, for example, if an automobile or avaccine isn't one hundred percent safe-and itcan always be claimed that the producer couldhave done something to make the productsafer-the producer may be held liable in anycase where a person is injured. The judgmentmay be for tens of millions of dollars, includingvast sums of punitive damages.It will do the company no good to argue thatthe plaintiff was almost entirely to blame for themisfortune. It will do no good to argue that thecausal connection between the product and theinjury was extremely tenuous or speculative.The company has money. It must pay.Has the liability revolution brought about thechanges anticipated by the Founders? Has thelevel of safety risen? Huber shows conclusivelythat it has not. In fact, he makes a convincingcase that the revolution has actually decreasedthe overall level of safety.For example, a new medicine might relieve agreat amount of distress and save many lives,but losing even one lawsuit to someone whosuffered an adverse reaction to the medicinewould more than wipe out the producer's entireprofit on the item. So the new product isn't soldin the United States.Or suppose that a manufacturer of a consumerproduct tries to incorporate every imaginabledesign change that marginally enhancesthe safety of the product. The resulting productwill be substantially more expensive than otherwise,and that factor may cause people to continueto use their old and far less safe model.Like so many grandiose plans for reforming andperfecting the world, this one backfired.The real beneficiaries of the revolution in liability?Lawyers, of course. Quite a few ofthem have gotten rich by getting a "good" juryand winning an enormous judgment againstsome hapless company. Our present liabilitylaw shifts resources away from safetypromotingactivities and into litigation. For allbut a few big winners in the liability slot machine,this is a bad trade-off.The solution to the mess created by the liabilityrevolution, Huber argues, is a return tothe law of contract. "Neocontract," he callsit-informed consent between buyer and selleras to how the risks inherent in a transaction willbe allocated between them.Revitalizing contract law would permit insuranceto function once again in areas where insurershave retreated in the face of limitless potentialliability.Insurance, Huber demonstrates,is far better than tort litigation as a means ofcompensating those who have been injured. Insuranceworks more quickly, fairly, and withmuch less overhead than does the tort liabilitysystem the Founders have saddled us with. Insurancealso doesn't discourage innovation andsafety improvements as our current systemdoes. But insurance cannot work in a legal environmentin which the chief maxim is "Thosewho have money must pay as much as the jurysays. "In proposing a return to contract, Huber affrrmsanother general principle familiar to readersof The Freeman. Not only do plans for perfectingsociety backfire, but the solution to theproblems created by such plans is a return toindividual freedom and responsibility. Many ofour nation's problems would disappear ifpublicofficials would just allow people to make theirown choices, rather than playing nanny all thetime.If you fear that a book on the law is going tobe a dull read, you need not fear this one. PeterHuber writes with more clarity and wit than Ihave ever encountered in a work on a legaltopic. I wouldn't have thought it possible for abook on law and economics to be so entertaining.A couple of cavils, if I may. First, the bookis not footnoted in the usual fashion with numbersin the text. Therefore, the reader doesn'tknow whether a case or statement has been footnoteduntil he looks under the notes for thatchapter at the end of the book. If, for example,you wanted the name and citation of the case inwhich a telephone booth manufacturer had topay for injuries sustained by someone who wasusing the booth when a car driven by a drunksmashed into it, you would have to look underthe notes for that chapter, only to find out thatthe information hasn't been provided. The virtueof traditional footnoting is that if you don'tsee a number, you know that the author is givingyou no further information.My second cavil is the way in which Huber

OTHER BOOKS 207alternates between the pronouns "his" and"her." Apparently this style of writing is employedout of a desire to be "non-sexist." Butthe idea that consistent use ofthe pronoun "he"is bad or wrong is just plain silly.Enough caviling. Huber has performed amonumental public service in so clearly andthoroughly analyzing this unfortunate developmentin the law. Get this book, read it, and thentalk about it with every thinking person you~~. D(George C. Leef is Associate Professor of Law and Economicsat Northwood Institute, Midland, Michigan, andadjunct scholar with the Mackinac Center.)BEYOND GOOD INTENTIONS: ABIBLICAL VIEW OF POLITICSby Doug BandowCrossway Books, 9825 W. Roosevelt Road, Westchester, Illinois60153 • 1988 • 256 pages • $9.95 paperbackReviewed by Carl HelstromDoug Bandow, a syndicated columnistand Senior Fellow at the Cato Institute,has written a book that will be of particularinterest to devout Christians. BeyondGood Intentions offers an outstanding analysisof political philosophy based upon a cogent exegesisofScripture from an evangelical perspective.Most of all, however, this book is a strongpersonal testimony that emphasizes aspects ofChristianity and politics that other recent writershave largely ignored.In the opening pages, Bandow explains how,in his opinion, a Christian should view politics.He shows how the current welfare system hasfailed, then examines viable alternatives in anexcellent section called "The Need for a NewPolitical Paradigm." He concludes that Christianityoutweighs any other world view becauseof its unique emphasis on individual morality.He states: "We live in a fallen world, and thereis no answer other than personal redemptionthrough Jesus Christ. All human institutions,including government, have been corrupted byman's fall. . . . Christians cannot stand alooffrom politics: quite simply, the stakes are toogreat. " Worldly ideologies and philosophies,Bandow believes, lack this outlook and, therefore,are deficient. These first three chapters areremarkable critiques, displaying Bandow'sability and experience asa policy analyst.Next Bandow presents several chapters ofBiblical exegesis, followed by an examinationof important issues concerning us today. Hedemonstrates ways in which the modem-dayChristian, interested and involved in politics,can make sound and prudent decisions. Themost important part ofthe book, however, is thelast chapter, "Christian Activism in the PublicSquare," in which Bandow sums up his views.A Christian, he claims, should put Christfrrst. This may seem to be simple commonsense, but he repeatedly emphasizes throughoutthe book the significance of being "Christian"before being "political." Putting politics beforeprinciple results in the use ofgovernmentalforce for religious purposes. A true Christiandoes not seek to use political power for religiouspurposes, and is possessed of theological viewsthat are singularly Christian and take precedenceover pragmatic policy-making. These arefundamental beliefs, or principles-the Christian'sintellectual tools or guidelines for actingin the secular world.The most significant argument Bandow putsforth is that this personal, Christian attitude necessarilyleads to a special view of governmentand politics, one that emphasizes responsibility,tolerance, and cooperation as the proper politicaldemeanor of the Christian who seeks to liveaccording to the compassionate and righteousexample of Christ. Concentrating on this approachserves to safeguard private property andto promote a limited government that actsjustly, rightly, and without privilege, accordingto the rule of law. As Bandow points out, thisposition allows for peaceful coexistence betweenChristians and other peoples.The author admits that Christianity and classicalliberalism share many attributes. Hereagain, however, Bandow reminds us he doesnot believe that secular philosophies have thenecessary moral component to succeed,"resting as they do upon secular premises andignoring Scriptural principles."What Bandow is getting at from a theological

208 THE FREEMAN. MAY 1989point of view is what Ludwig von Mises wroteof from a secular perspective in his book, Liberalism,in which he stated:[Classical] liberalism proclaims tolerance forevery religious faith and every metaphysicalbelief, not out of indifference for these"higher" things, but from the conviction thatthe assurance of peace within society musttake precedence over everything and everyone. . . only tolerance can create and preservethe condition of social peace withoutwhich humanity must relapse into the barbarismand penury of centuries long past. ' ,Peaceful coexistence is essential to the classicalliberal. He believes that the best possiblelife can be lived within a society that allows forthe private ownership of property and the freeexchange ofideas and goods, a society that providesfor lawful recourse in the event of wrongdoing.Consequently, the classical liberal believesin private property, political liberty, freeenterprise, limited government, and the rule oflaw, but most of all, he believes in peace. Hewill tolerate another person's views and actions,as long as no one is being harmed.The Christian is concerned first with salvation,but, according to Bandow, salvation andeternal life with God are individual goals. Theway to achieve those goals is through carefulattention to Biblical instructions, Christ-likecompassion, and right and respectful action.The Christian believes in God as Creator andDesigner and in Jesus Christ as His Son whocame to redeem us from the bondage of sin. Hechooses to seek salvation by accepting Christ,and is commanded by Scripture to do good.Faith in Christ's redemptive power guides thebeliever during his life on earth. But, as Bandowsays, "Jesus instructed His followers toleave the separation of the weeds and wheat upto the Father. . . ." A Christian must be tolerant,yet principled, persuading by good actionsand intellectual power. In other words, Christianpersuasion should be by peaceful methods,not by political force.This book is an important work that clarifiesthe relationship between Christianity and politics.It is a spiritual message for those involvedin the political arena who struggle with theirfaith in Jesus Christ, their commitment to civicservice, and the proper way to use politicalpower. And it is a sound political statement,reinforcing the concept of limited government,individual responsibility, private property, freetrade, and the rule of law. Most significant,though, Beyond Good Intentions is a personalmessage by a man who believes in what hewri~s. 0(Mr. Helstrom is a member ofthe staffofThe Foundationfor Economic Education.)A Theological Conference at FEE:Lay-Clergy DialogueJuly 9-13, 1989We invite inquiries from ministers and laymen alike for our thirdtheological conference. (You might want to recommend yourminister, or ministers might interest one of their church members.)Fellowships are available. Full details will appear in the May 1989Notes from FEE. For more information, contact:Edmund A. OpitzThe Foundation for Economic Education, Inc.Irvington-on-Hudson, New York 10533Telephone: (914) 591-7230

IDEAS ON LIBERTY212 Monopoly GovemmentThomas J. DiLorenzoGovernments compete unfairly with private businesses in the provision ofthousands of goods and services.CONTENTSJUNE1989VOL. 39NO.6217 Shipwreck Legislation: Legality vs. MoralityGary GentileWho may lay claim to property lost or abandoned at sea?224 Why PubHc Schools FailJames L. PayneA lack of market incentive hampers efforts to deliver an improved product.226 Faimess Doctrine, R.I.P.Jorge AmadorDismantling a cornerstone of government regulation of broadcasting.232 Hunger and Farming in Black South AfricaFrank VorhiesSolving the problem of low productivity on black South African farms.238 GATT and the Altemative ofUnilateral Free TradePierre LemieuxThe advantages and disadvantages of the General Agreement onTariffs and Trade.244 Book ReviewsJohn Chamberlain reviews Hernando de Soto's The Other Path. Other books reviewed:Advertising and the Market Process: A Modern Economic View byRobert B. Ekelund, Jr., and David S. Saurman and Robert LeFevre: "Truth isNot a Half-way Place" by Carl Watner.

THEFREEMANIDEAS ON LIBERTYPublished byThe Foundation for Economic EducationIrvington-on-Hudson, NY 10533President ofThe Board:Vice-President:Senior Editors:Contributing Editors:Bruce M. EvansRobert G. AndersonBeth A. HoffmanBrian SummersBettina Bien GreavesCarl O. Helstrom, IIIEdmund A. OpitzPaul L. PoirotThe Freeman is the monthly publication ofThe Foundation for Economic Education, Inc.,Irvington-on-Hudson, NY 10533 (914) 591­7230. FEE, founded in 1946 by Leonard E.Read, is a nonpolitical educational championof private property, the free market, and limitedgovernment. FEE is classified as a 26 USC501 (c) (3) tax-exempt organization. Other officersof FEE's Board of Trustees are: ThomasC. Stevens, chairman; Ridgway K. Foley, Jr.,vice-chairman; Paul L. Poirot, secretary; H.ELangenberg, treasurer.The costs ofFoundation projects and servicesare met through donations. Donations are invitedin any amount. Subscriptions to TheFreeman are available to any interested personin the United States for the asking. Additionalsingle copies $1.00; 10 or more, 50 cents each.For foreign delivery, a donation of $15.00 ayear is required to cover direct mailing costs.Copyright © 1989 by the Foundation for EconomicEducation, Inc. Printed in the U.S.A.Permission is granted to reprint any article inthis issue, except "Fairness Doctrine, R.I.~,""Hunger and Farming in Black South Africa,"and "GAIT and the Alternative of UnilateralFree Trade," provided appropriate credit isgiven and two copies of the reprinted materialare sent to The Foundation.Bound volumes of The Freeman are availablefrom The Foundation for calendar years 1969to date. Earlier volumes as well as current issuesare available on microfilm from UniversityMicrofilms, 300 North Zeeb Road, Ann Arbor,MI 48106.The Freeman considers unsolited editorial submissions,but they must be accompanied by astamped, self-addressed envelope. Our author'sguide is available on request.PERSPECTIVELittle TyranniesFor many Americans who are dedicated topersonal freedom, the steady growth in the sizeand power of the federal government is a preludeto tyranny. To counteract this trend, many advocatethe principle of "states' rights" or variationson the theme of "local control." The assumptionseems to be that individual liberty is less likely tobe eroded by government officials who live neartheir constituents.But this assumption is invalidated by the factsof daily life. In many cases local governments intheir zeal to promote the "common good" havebecome the willing instruments of tyrannyagainst the individual. As a result, a visit by one'slocal building inspector can be as devastating as aknock on the door by an IRS agent. I can cite examplesfrom my own experience and the experienceof others in my own relatively small Californiacity:A few weeks after I purchased my newly builthome, which is situated on a corner lot, I startedto erect a six-foot fence at the sidewalk on oneside of the house. I was promptly visited by azealous emissary from the building department,who informed me that I must cease building thefence immediately because I didn't have a permit.He told me I had to prepare a plot plan of myproperty and a drawing of the finished fence, submitthis with a fee to the building department,and wait three weeks for the planning commissionto meet and pass judgment on my proposal. Iasked what would happen if I just continued tobuild the fence, and the conscientious fellow toldme I would be fined and "forced" to remove allbuilding that had preceded the meeting of theplanning commission.Outside the city limits a vacant field at a busyintersection became an informal bazaar wherepeople sold everything from knives to oil paintings.All of this was with the permission of theproperty owner, who charged a small fee fromher informal vendors. When county officials discoveredwhat was going on, they ordered thepeddlers to leave because the field wasn't zonedfor commercial activity.In this same city a motel owner erected ahand-painted "Welcome" sign on his motel. Aneighbor complained anonymously, and it was

discovered that the motel owner had never submittedan application to erect the sign. He submittedone after the fact, but the Design ReviewBoard turned it down because it added to "visualclutter." The city ordered the motel owner to removethe sign.Had any of the above property owners notcomplied with local ordinances, they would havebeen fined or jailed or both. These local governmentalagencies had turned ordinary, innocent,and basically productive pursuits into criminal activities.Variations on these scenarios are beingrepeated daily in towns and cities throughout thecountry.Government as protector of an individual'sright to live and work in freedom has been replacedby government as enforcer of rigid and arbitrarystandards of esthetics and behavior. Thegreat despotisms of the world are just larger versionsof these little tyrannies.What If..?• •-WILMA MOORESanta Rosa, CaliforniaThe other day I sat down to read the newspaper,as I usually do in the morning. As soon as Iread through the first section, I knew it would beone of those "what if. . . ?" days. Every now andthen I'm agitated by those kinds of thoughtswhatif I were in that situation? Maybe you'vehad them, too.Well, on this particular day I was reading aboutstrikes, and quotas, and South Africa, and theWest Bank, and the Contras, and Congress grantingaid and giving money to this and that placeand passing a law for something or other. Suddenlysome· tremendous "what ifs. . . ?" hit me.What if the U.S. government didn't try to savethe world with dollars; and what if politiciansdidn't keep passing legislation to cure problemsthey caused in the first place?I ventured on to the rest of the paper andthrough the day I was preoccupied with my "whatifs... ?" What if our military worried only aboutprotecting us from foreign aggressors, rather thantrying to defend the rest of the world? What if wewere totally free to trade with less developedcountries, exchanging much-needed capital forinexpensive labor services to raise living stan-PERSPECTIVEdards in Third World countries, rather thanwatching Congress create "foreign aid" from taxrevenues and public debt? Or, for that matter,what if foreigners could freely invest in the U.S.without the problems and restrictions of protectivelegislation? And what if the string-pullers onCapitol Hill finally realized that almost everytime they get a bill passed, it's just one more restrictionon some citizens? Sure, it might benefita limited constituency or pressure group, but whodoes it hurt? Let me tell you, I was on a roll. . .and I hadn't even gotten to the deficit.That was some "what if. . . ?" day I had. Yet, Ithink the bottom line for all my "what ifs. . . ?"is that I believe raising living standards and producingneeded goods is an economic matter, not aconcern for politicians. Living by basic, simpleprinciples of economics makes for a stronger,healthier, and more fruitful society than any numberof politicians can conjure up. Somehow theidea that someone in Washington can tell me howto work, what to eat, and who to do business withbetter than I can tell myself just doesn't set right.But, maybe there's something I missed and thosepeople have a corner on what will happen in thefuture.Unfortunately, my "what ifs... ?" probablywill stay with me a long time, because I wouldlike to understand why people choose to supportpolitical expediency and promote government interferencein economic affairs. I would like to understandwhy people don't see the benefits ofprincipled economic activity on the market andvote for the limitation of governmental activity.So, I'll keep reading the paper in the morningand struggling with my "what ifs. . . ?" and I'llkeep dreaming of my greatest "what if... ?":What if we were left to hash out our own economicfate?-CARL HELSTROMThe Freeman Gets AroundIn the past year, Freeman articles have appearedin Argentina, Canada, EI Salvador,France, Germany, Great Britain, Greece,Guatemala, Honduras, Mexico, South Africa,and more than 50 newspapers in the UnitedStates. Including our three recent Reader's Digestarticles, The Freeman reached over 50 millionreaders during the past year.

212THEFREEMANIDEAS ON LIBERTYMonopoly Governmentby Thomas J. DiLorenzoIn theory, the goods and services provided byfederal, state, and local governments arepublic goods-goods that will not be providedin adequate quantities by the market systembecause of "market failure." But in reality, mostof the goods and services provided by governmentsare private goods. Governments in theU.S. provide literally thousands of goods and servicesin direct competition with private businesses.Governments, however, compete unfairly.They enjoy exemption from Federal, state and localincome, sales, and property taxes and immunityfrom minimum wage, securities, bankruptcy,antitrust, and myriad other regulations. Governmententerprises can also exercise the power ofeminent domain and borrow at interest rates considerablybelow those paid by their taxpayingcompetitors (especially small firms) because oftax-exempt interest payments. Their capital andoperating costs are subsidized by tax revenuesand, perhaps most importantly, they are oftengranted monopoly status by law. Thus, competitionbetween private businesses and governmententerprises is unfair.Unfair Competition byFederal Government EnterprisesThe federal government provides what manyconsider to be public goods, such as national defenseand the justice system, but it also providesDr. DiLorenzo is the Scott L. Probasco, Jr., Professor ofFree Enterprise at the University of Tennessee at Chattanooga.This article is partly adapted from his book, coauthoredwith James T. Bennett, Unfair Competition: TheProfits of Nonprofits (Hamilton Press, 1988).thousands of purely private goods and services.Former Senator S.I. Hayakawa of California statedin 1981: "Federal employees are currently operatingover 11,000 commercial or industrial activitiesthat the private sector also performs.. . ."1 The Senator added: "Since the business ofgovernment is not to be in business, I ask myselfwhy."The reason probably has something to do withthe desire to supplement agency budgets withcommercial profits. As seen in Table 1, Federalagencies enter businesses as mundane as laundrywork and as sophisticated as engineering andcomputer programming. All of the services listedin Table 1 are also provided by private firms.As one example of unfair competition by government,consider the Federal publishing business.Although much government printing consistsof publishing congressional hearings,executive branch memoranda, IRS tax forms,and other tools of running the government, muchof it is commercial and, therefore, competes unfairlywith private printers. The GovernmentPrinting Office (GPO) is the largest Federal publishingfacility. According to the director of theGPO: "We have . . . 33 acres under our roof,6,200 employees, of which over 5,000 . . . are inthe main plants ... and well over 100 presses....We are probably the largest . . . printer in theUnited States." There are also~"more than 300printing plants located in many governmentagencies."2Even a cursory look at the GPO's monthly catalogof publications reveals that the federal governmentcompetes on a large scale with privatepublishing companies. Consider the following ex-

213TABLE 1Examples of Commercial Occupationsin the Federal Government(as of October 31, 1981)OccupationNumber of employeesPainting and paperhanging 10,207Industrial equipment operation 18,061Food preparation and serving 22,680Plumbing and pipefitting 18,640Metal work 25,579Warehousing and stockhandling 39,762Laundry work 2,131Guards 8,193Computer operators 10,241Computer specialists 30,617Engineers and architects 154,210Librarians and archivists 9,761Supply clerks and technicians 31,501Mail and file clerks 23,536Electricians 13,096Source: u.s. Office of Personnel Management.amples from the January 1987 catalog. TheBackyard Mechanic "can help you save money bydoing simple auto repair and maintenance jobsyourself" and "discusses ignition systems andspark plugs and guides you through a tuneup, abrake relining, a brake system flushing andbleeding, a power-brake check, ..." and so on.Oddly enough, the debt-ridden federal governmentclaims expertise in financial management.In Managing for Profits readers are instructed in"production and marketing, purchasing and collections,financial management, taxation, insurance,and more." Also in the financial planningarea is Starting and Managing a Business ofYourOwn. Insurance and Risk Management for SmallBusiness "provides basic information in selectinginsurance and in reducing risk for the small businessman."The GPO also publishes advice tothe individual investor in A Guide to IndividualRetirement Accounts, which discusses "thevarious savings and investment vehicles available."The federal government may be notorious forproducing barely comprehensible laws, regulations,and forms, but it offers published advice onHow Plain English Works for Business: "twelvecase studies describe how some business organizationshave scored success by simplifying consumerdocuments."One of the biggest areas of commercial booksales has been health and fitness, including dietand exercise books. The federal governmentcompetes in this market with such publications asDietary Guidelines and Your Diet, which advisespeople to "maintain desirable weight; avoid toomuch fat; avoid too much sugar; and if you drinkalcoholic beverages, do so in moderation." Thefederal government competes with the flourishingcookbook industry by publishing hundreds ofcookbooks, including Country Catfish., which"describes 18 ways to serve them" and exhortsthat "Catfish are great-either plain or fancy."Getting Fit Your Way provides consumers with "atotal physical fitness program" and also "containsinformation on weight control and how to stopsmoking." The GPO produces more than 18,000publications, including all these books and thousandsmore that compete with commercial publishers.And they compete at a considerable advantagebecause of taxpayer subsidies and otherbenefits. Taxpayers pay for both the productionof books and pamphlets and for the marketing aswell. The GPO proudly boasts: "In addition toour mail order service, we [the GPO] maintaina nationwide network of Government bookstores."3Unfair Competition byState and Local GovernmentsState and local government enterprises providefew goods and services that are not privategoods. At the local level of government the majorcategory of expenditure is education, eventhough education is not a public good. Privateschools existed long before public schools wereestablished in the U.S., and they still proliferatedespite the competitive disadvantages they face.At one time, there was a pretense that publicschools provided a uniform education to everyone,but the great disparities that are apparent inthe quality of public schools have abolished thatmyth. Supporters also argued that morality couldbe better taught in public schools, but many parentsare concerned about the lack of moralitytaught in public schools, while others believe thatteaching morality violates the constitutional separationof church and state.. Public education isalso said to increase worker productivity throughskill enhancement, but that, too, is questionable

214 THE FREEMAN • JUNE 1989TABLE 2Services Provided by Both Local Governments and Private BusinessesServicePublic WorkslTransportationResidential solid waste collectionCommercial solid waste collectionSolid waste disposalStreet repairStreet/parking lot cleaningSnow plowing/sandingTraffic signal installation/maintenanceMeter maintenance/collectionTree trimming/plantingCemetery administration/maintenanceInspection/code enforcementParking lot/garage operationBus system operation/maintenanceParatransit system operation/maintenanceAirport operationPublic UtilitiesUtility meter readingUtility billingStreet light operationPublic SafetyCrime prevention/patrolPolice/fire communicationFire prevention/suppressionEmergency medical serviceAmbulance serviceTraffic controVparking enforcementVehicle towing and storageHealth and Human ServicesSanitary inspectionInsect/rodent controlAnimal controlAnimal shelter operationDay care facility operationChild welfare programsPrograms for elderlyOperation/management of public/elderly housingOperation/management of hospitalsPublic health programsDrug/alcohol treatment programsOperation of mental health/retardation programs/facilitiesParks and RecreationRecreation servicesOperation/maintenance of recreation facilitiesParks landscaping/maintenanceOperation of convention centers/auditoriumsNo. ofCities andCounties1,3901,1431,3141,6401,4831,2821,5697671,4547181,5887845555795611,2041,2481,2811,6591,6851,5201,3611,2561,5021,3109911,0591,5081,2624415671,1906113937436355081,4581,5391,5744520/0 UsingThe PrivateSector4958312691426531116132526301920523111627185113714356512268776898(Continued next page)

MONOPOLY GOVERNMENT 215TABLE 2, continuedNo. of0t'o UsingCities andThe Privateservice Counties SectorCultural and Arts ProgramsOperation of cultural/arts programs 707 9Operation of libraries 1,189 1Operation of museums 505 4Support FunctionsBuilding/grounds maintenance 1,669 19Building security 1,499 7Fleet management/vehicle maintenanceHeavy equipment 1,642 31Emergency vehicles 1,560 30All other vehicles 1,622 28Data processing 1,471 22Legal services 1,605 48Payroll 1,719 10Tax bill processing 1,320 22Tax assessing 1,098 6Delinquent tax collection 1,254 10Secretarial services 1,656 4Personnel services 1,663 5Labor relations 1,514 23Public relations/information 1,547 7Source: International City Management Assoc., Municipal Yearbook 1983 (Washington, D.C.: ICMA, 1983), p. 215.in light of the decades-long decline in educationalachievement in primary and secondary education.Private schools, by contrast, have demonstratedsuperior quality education despite fewerfinancial resources.Moreover, the mere fact ~hat education mayincrease worker productivity does not justify governmentalprovision of education. In fact, the oppositemay be closer to the truth. Ifone wishes toincrease worker productivity through education,the appropriate direction should be in favor ofprivate provision of education, not public provision,given the superior quality of private schools.Thus, the reason why local governments nearlymonopolize the primary and secondary educationindustry is not likely to have much to do with"market failure."Table 2 lists a sample of 59 different servicesprovided by both local governments and the privatesector. As shown there, local governmentsare involved in many private activities, includinggarbage collection, tree trimming, transportation,day care, and housing. The mere existence of privatesector firms in all these categories is directevidence that they are inherently not publicgoods, but private goods.It would appear that there is no economic justificationfor governmental provision of any ofthese services. The most likely explanation forgovernmental provision is the natural inclinationamong government bureaucracies to expandtheir domain by whatever means possible. Competingwith private business is apparently an expeditiousway of doing this, given that local governmentshave the taxing, spending, andregulatory power to do so. By using tax revenuesto subsidize local government enterprises andimposing costly taxes and regulations on privatesector competitors, local governments can easilydominate many industries.State governments also are guilty of usurpingthe domain of the private sector. States spend

216 THE FREEMAN • JUNE 1989vast amounts of money on education, highways,hospitals and health care, parks and r~creation,liquor stores, and utilities-all private goods.New York, for example, runs a transportationbusiness, operates museums, constructs "industrialexhibits," operates sports arenas, builds parksand other recreational facilities, finances homemortgages, and many other activities. Otherstates are involved in the same activities.So why does government have its hand in allthese commercial enterprises? It is certainly notbecause the market has "failed." A more likelyexplanation is that government is the monopolistpar excellence. By subsidizing its own enterprisesand taxing and regulating its private competitorsit can drive them from the market. Many otherprivate businesses will not even become establishedin the first place. That's why privatizationof "public" services is more than just a means ofcutting the cost of public service provision. It is agenuine anti-monopoly policy.For nearly a century antitrust policies havebeen used to persecute private "monopolies," butthe real monopoly problem lies in government itself.The government's so-called antitrust policiesare only a smokescreen. Under the guise of fightingprivate-sector monopolies, government drawsattention away from the real monopoly problemin America-monopoly government.One of the reasons the American revolutionwas fought was to escape the economic tyranny ofKing George, who had implemented a system ofBritish government monopolies to fleece thecolonists. That's why the privatization movementmight properly be labeled the second Americanrevolution.D1. Senator S. I. Hayakawa, Statement on "Government Competitionwith Small Business," Hearings of u.s. Senate Committee onSmall Business, Subcommittee on Advocacy (Washington, D.C.:U.S. Government Printing Office, June 24,1981), p.l.2. Statement by Danford L. Sawyer, Head of the U.S. GovernmentPrinting Office, Hearings Before the House AppropriationsCommittee, 97th Congress, 2nd Session, 1983, p.14.3. Ibid.What Is Seen and What Is Not SeenHaveyou ever heard anyone say: "Taxes are the best investment; theyare a life-giving dew. See how many families they keep alive, and followin imagination their indirect effects on industry; they are infinite,as extensive as life itself."The advantages that government officials enjoy in drawing their salaries arewhat is seen. The benefits that result for their suppliers are also what is seen.They are right under your nose.But the disadvantage that the taxpayers try to free themselves from is what isnot seen, and the distress that results from it for the merchants who supply themis something further that is not seen, although it should stand out plainly enoughto be seen intellectually.When a government official spends on his own behalf one hundred sous more,this implies that a taxpayer spends on his own behalf one hundred sous the less.But the spending of the government official is seen, because it is done; while thatof the taxpayer is not seen, because-alas!-he is prevented from doing it.-FREDERIC BASTIAT,Selected Essays on Political EconomyIDEASONLIBERTY$

217Shipwreck Legislation:Legality vs. Moralityby Gary GentileLaw is a reflection of society's code ofmorality.It is universally agreed among the culturesof man that murder, rape, and other crimesof assault need be dealt with severely, and it is theprimary purpose of government to protect its citizensfrom wanton abuse and foreign aggression.As civilization becomes more complicated, itrequires finer distinctions in legal process, andmore exact definition of transgression against individualrights. The Ten Commandments were agood starting point for biblical man, but the evolutionof society has provoked an evolution of thelaw that rules it. Since the latter is dependentupon the former, it necessarily lags behind thecultural ethic, and often works in direct contradictionto the precepts it is supposed to support.Admiralty Law and SalvageThat all property is owned by someone seemsa simple statement. Yet there comes a time in theexistence of every piece of property when itsownership no longer can be validated. Somethings are discarded, some abandoned, some lost,and some stolen.Items thrown away can be legally and rightlypicked up by anyone discovering them: trashpickers abound in every community, truckingaway old furniture for resale, broken appliancesfor parts, newspapers for recycling. People areglad to have those things taken. Likewise, aban-Gary Gentile, a professional diver, writer, lecturer, andphotographer, is the author of several books, includingAdvanced Wreck Diving Guide and Shipwrecks of NewJersey.doned automobiles are towed away in order toclear the streets for traffic. No one complains, becausethese articles have no owner.On the other hand, if my car experiences mechanicaldifficulties on the highway and I amforced to leave it to seek help, no one may take itin my absence, or help himself to its parts. Byseparating myself from my possessions, I have inno way given up my claim to ownership. On thesea similar rules apply, although with some necessarydistinctions.Despite beliefs to the contrary, a ship abandonedin peril is not without proprietorship.Those on board forced to relinquish control oftheir vessel do not give up title, any more than Ido with my car on the road. On the other hand,while a disabled vehicle is in no danger from theelements, a crippled ship is at risk of wrecking orsinking, a condition which significantly decreasesits value to its owner, perhaps to nothing. In thiscase, great latitude is permitted in the commonlaw of salvage to encourage salvors to rescue thevessel and any floating debris from otherwise totalloss.The salvage firm makes an investment fromwhich it can recoup its expenses only upon successfulcompletion of its task. The adage in thebusiness of "no cure, no pay" is a curt summaryof the hazards of marine salvage. And, since theoriginal owner of the imperiled ship would havelost everything but for the intervention of a readyand skillful outfit willing to take a chance oneventual profit, insurance syndicates and admiraltycourts are generous with salvage awards. Ifthey were not, it would not pay salvage firms tokeep tugs and crews on alert. In the end, it is the

218 THE FREEMAN • JUNE 1989best way for underwriting agents to reduce theirlosses. The owner, it is understood, receives fullpayment to the limit of his coverage.Taken a step further, even should the ship sink,the owner is no more dispossessed of his belongingsthan I would be should a rain storm surroundmy car with a puddle. The depth of waterdoes not transfer title of either the ship or its cargoto an enterprising profiteer, and one who removesgoods or ship's appurtenances at this stageis wrongfully relieving another of his property.Neither does a disaster taking place in internationalwaters sanctify such action-being out ofreach of a law-enforcement agency does not implythat one is beyond the bounds of morality.Theft is theft, despite venue and without gradation.Eventually, however, property may be legallyabandoned. This occurs first when the insuranceunderwriter concludes that the ship and cargo arenot recoverable with any degree of economic feasibility,and voluntarily relinquishes ownership.At that time anyone can lay claim and attemptsalvage-at his own expense, and without anyobligation or responsibility incumbent upon theoriginal owner.Barring this, a lost or sunken ship becomes"derelict" when sufficient time has passed duringwhich the owners have shown no intention of recovery.In the navigable waters of the UnitedStates, this period is 30 days. In international waters,the duration is somewhat nebulous. However,it is at least as long as the settlement of insuranceclaims. But when in doubt, the underwritershould be contacted. No response to the querycan be cited as an indication of abandonment.Within days of the loss of the Marine Electricoff the Maryland coast in 1983, a local diver tookit upon himself to perform light salvage (removingvaluable electronics), claiming the ship wasabandoned. Meanwhile, the insurance companywas investigating the cause of sinking and thepossibility of total salvage of the vessel. The actionsof the local diver hindered the overall examination.by the real owners. This is equivalentto a street gang's removing the tires from my carwhile I am gone for help, or while the police areinvestigating a traffic accident.No thought was given to the rightful owner,and the myth that anything lost at sea immediatelybecomes the property of the finder is perpetuatedby the mentality of people who know thatthe coin can never be reversed. That is, they willnever own a ship, and can never be on the losingside. So, they try to believe that they have a rightto take something which does not belong tothem.In keeping with the basic premise of admiraltylaw, "A claim for a salvage award requires thatthree elements be shown:(1) A maritime peril from which the ship orother property could not have been rescued withoutthe salvor's assistance.(2) A voluntary act by the salvor - that is, hemust be under no official or legal duty to renderthe assistance.(3) Success in saving, or in helping to save atleast part of the property at risk."Admiralty salvage laws have been enactedwith much forethought as to the justice of suchsituations, and have been working justly for hundredsof years.Who Owns AbandonedShipwrecks?Wreck diving isn't new. It goes back to beforethe time of Christ, when salvors practiced breathholdingto recover goods from sunken merchantvessels. They were paid according to workingdepth, much the same as today.As long as man has been plying the waves hehas been losing ships. And as long as valuableshave been lost, divers have been willing to hazardthe risks to recover them. Today, with increasedtechnology, the danger has been reduced to an inconsiderablelevel, and there are millions ofdivers exploring the oceans. Not all of them areinterested in hard-core salvage, but hardly anycan conceal a certain degree of fascination withthe lore ofshipwrecks.Add to this man's insatiable desire for possession,his fascination with the collection of rarities,his predilection for accumulating wealth andgarnering mementos of his accomplishments,and we have an instinctive urge to assemble andexhibit the fruits of man's labor and to vaunt hisprowess. Souvenir shops thrive on these basichuman traits.Man underwater continues to be the same.

SHIPWRECK LEGISLATION 219Author Gary GentileFrom the reefs he collects shells, from the wreckshe collects artifacts. But what right does he haveto do this?It already has been shown under what conditionsa shipwreck may become the spoils of thefinder, yet there are mitigating circumstanceswhere this is not true, as well as times when thefinder's rights are usurped by government.U.S. military vessels are never abandoned simplythrough the passage of time: they must be officiallystricken from the Navy list. This is theprocedure when a ship is scrapped, or when it issunk and the Navy has completed or decidedagainst salvage. Otherwise, they remain as fullycommissioned ships of the fleet, a kind of limbostatus that grants immunity from foreign encroachment.In s,uch cases each vessel technicallybecomes a little piece of America, wherever itmay lie, a steel monument honoring the dead,and is as sacred as the Arlington National Cemetery.This is also true of foreign, even enemy,ships lost in U.S. waters.Of course, there is nothing wrong with visitingthese grave sites-as there is nothing wrong withvisiting the war graves at Arlington. But differencesof opinion arise when the site is disturbed.Removing bones and skeletons from a shipwreckis equivalent to grave robbing, say those whosanctify dead bodies. Recovering parts of the shipis like dismantling Arlington's fences and tombstones,say others. For some, even touching therusted hull is like sticking your hands into theearth over a coffin. There are as many differentmodes of thought as ther~~re people, includingthose who believe that respecf for the dead ismore a matter for the heart, and how one feels,than the location or condition of human remains.But this is a matter of philosophy.The analogy breaks down when it is extendedto include the thousands of nameless freighters,tankers, and sailing vessels of old. Some wouldhave us treat every sunken ship as the final restingplace of anguished human souls, and thinkthat nothing should be disturbed. This is somethinglike leaving every crashed car at the site ofits roadside collision.Territorial rights extend in most countries tothree miles, a distance left over from a time whendefensive shore batteries had limited effectiverange. Thus, a foreign vessel could approach enemyshores no closer without fear of being firedupon. In the U.S., the states are granted dominionover this area, while up to 12 miles is the contiguouszone under Federal control. The 200-mileeconomic zone is designated to keep foreign nationsfrom fishing off American reserves. All inlandlakes and waterways are state controlled.A curious situation arises in the U.S., however.Unlike a communist society in which all land, indeedeverything that exists, is held by the state,the Constitution of the United States guaranteesrespect for property rights. This is the basis for afree, capitalistic society: the individual maintainscontrol over his possessions, earns the wealththat is the fruit of his labors, and retains ownershipof all his discoveries, inventions, creations,and finds.This last point is covered under the "law offinds," granting to the finder title to found propertywhich falls, for whatever reason, under theheading of abandoned property. The law reads:"The general rule in the law of finds is that thedetermination of the finder's right to abandonedproperty is unaffected ,by the ownership of theland on which the property is found." In otherwords, a prospector who locates gold on pubiicland stakes a claim and becomes the owner. By

220 THE FREEMAN • JUNE 1989the same token, if he happens across abandonedproperty, he still can take possession. But a problemdoes arise concerning ownership of the land.The Diver vs. The StateLet us delve into some actual court cases toperceive how the legal system is handling specificcircumstances.In the much publicized case of TreasureSalvors Inc. v. Unidentified, Wrecked and AbandonedSailing Vessel, 1981, the state of Floridaconfiscated all artifacts recovered by treasurehunter Mel Fisher from the site of the Atocha.State officials ignored the fact that the wreckwasn't within state jurisdiction: it was beyond thethree mile limit. Instead, they issued warrants forthe seizure of all property Fisher retrieved fromthe seabed, without offering any compensation. Ittook years of costly litigation before a Federalcourt finally ruled that "title to abandoned propertyvests in the person who reduces it to his orher possession."In Klein v. Unidentified Wrecked and AbandonedSailing Vessel, 1985, the issues were morecomplicated. Klein accidentally discovered ashipwreck while diving in Biscayne NationalPark. Subsequently he recovered artifacts, andbrought action to confirm his title to the wreckand its cargo, or at least to gain a salvage awardfor his efforts. The judges hearing the case fileddissenting opinions.On the one hand it was found that, first, sincethe United States was "the owner of the land onand/or in which the shipwreck is located, it ownsthe shipwreck." Second, despite the fact that thePark Service was unaware of the location or evenof the existence of the wreck, "it was certainly capableof 'rescuing' the property at that time withoutthe plaintiff's assistance." Third, and mostvalid, "The articles removed from the shipwrecksite were not marked or identified so as to preservetheir archaeological provenience," and "theplaintiff's unauthorized disturbance of one of theoldest shipwrecks in the Park and his unscientificremoval of the artifacts did more to create a marineperil than to prevent one."On the other hand, it was admitted that "thegovernment's argument that no marine peril existedignores the reality of the situation," sincethe wreck "is still in peril of being lost throughthe actions of the elements," and that the "plaintiffperformed a highly valuable service simply bylocating the shipwreck, and should be compensatedaccordingly."In Frank Chance, Paul Chance, and DavidTopper v. Certain Artifacts Found and Salvagedfrom The Nashville a/k1a The Rattlesnake, 1984,the three plaintiffs located the Civil War sidewheelsteamer on a sand bar in the OgeecheeRiver. They applied to the state of Georgia for anexcavation permit. Request was denied. Plaintiffsperformed diving operations anyway, until caughtand ordered to cease and to turn over all recoveredartifacts.The court agreed that "under general findsprinciples, it is well settled that in a suit betweencompeting salvors the first finder to take possessionof the lost or abandoned property with theintention to exercise control over it acquires titie."However, their claim to ownership wasweakened by the court's admonition that their argumentdid "not justify his entering upon theproperty of another without permission," andthat "backpackers and hikers must often obtainpermits before being allowed access to certain ofour national parks and forests, even though thatland is public and not private." In addition,"When personalty is found embedded in land,however, title to that personalty rests with theowner of the land."These are sticky problems for the courts becausethey are enjoined to make a distinction betweenthe law of finds and property laws, whereembeddedness was originally intended to includemineral rights. Rulings can go either way, dependingupon the circumstances. For example, ifsomeone loses a wallet on your front yard, youdon't necessarily assume ownership-it can go tothe little boy who finds it. But, if he has to dig upyour lawn to get to it, you can claim it as part ofyour property. Also involved is the adjudicationof trespassing.Contrary to the precepts of a free society,some states are setting themselves up as privatelandowners in order to appropriate publiclyowned property. Where a shipwreck lies at thebottom of a river, they claim sovereignty in theabsence of Federal regulation. The rationale isthat all waterways.are state owned.Some states are using laws passed for one purposeto further ends which were not intended in

SHIPWRECK LEGISLATION 221the initial enactment. Pennsylvania, for example,will arrest people caught picking up exposed Indianarrowheads on privately owned land, such asa farmer's field. This is certainly getting out ofcontrol. After all, the purpose of government isto govern, not to own. That is for the individual.As a ploy for getting laws passed, state legislaturesdon't actually prohibit the salvaging ofwrecks on supposedly state-owned land, but includethe seemingly innocuous requirement of apermit. However, once the states have control, asin the Rattlesnake case, they can simply deny thepermit. Thus, the people are tricked into givingaway their rights, expecting due process which isnot forthcoming. The states are taking control ofthe people, instead of the people being in controlof their states.Moving to the beaches and three-mile territorialwaters, we find further abuses of the commonlaw of salvage, where coastal states enact locallaws to pre-empt admiralty law in an attempt toseize the hard-earned gains of treasure salvors-after they have found treasure.It is interesting to note that in no instance hasa state actively searched for a treasure ship. Perhapsthey understand too well the immense effortand tremendous cost involved. Instead, they hugthe sidelines waiting for a businessman to make asuccessful find, then pass laws to take away therewards of his investment. (Remember theTreasure Salvors case.) This is like taking over amanufacturing firm after it has started earningprofits. It would appear that right and wrong donot necessarily have anything in common withwhat is legal or illegal, despite constitutionalguarantees of inalienable rights.Recently, while the states have attempted toannex private property, Federal court judgeshave wisely and judiciously decided otherwise.The Cobb Coin case (1981) cost its plaintiffs asmall fortune in defense, but the 50-page legaldecision in the Federal Supplement examined everyangle of Federal maritime laws. DistrictJudge James Lawrence King studied the historyof the 1715 plate fleet lost in a hurricane off theFlorida coast, and disagreed with the state's claimof ownership, thus:"The State of Florida is attempting to interfereimpermissibly with an ongoing federal matter.Such usurpation of the proper jurisdiction of thisCourt cannot be tolerated.""Florida seeks to claim ownership of thewrecks through legislative pronouncement.""The right so to search is a fundamental adjunctto the American principle that the high seasbe freely navigable to all seafaring persons tonavigate for pleasure or commerce, or otherwiseto ply their trades.""This country, throughout its existence hasstood for freedom of the seas, a principle whosebreach has precipitated wars among nations.""When property has been abandoned or becomederelict, anyone may put himself forwardas salvor.""The requirement that one be licensed to beable to explore the ocean for abandoned propertyat the bottom contravenes the maritime lawprinciple that potential salvors be free to explorethe open waters.""Florida's system of fixed salvor compensationconflicts with admiralty's flexible method of remunerationbased on risk and merit. . . . Theconsistent policy underlying admiralty's salvageawards is that salvors will be liberally rewarded."Judge King has written the most inclusive andexhaustive monograph in the history of shipwrecklegislation, and has gone to great lengthsto weigh both the legal and moral aspects of thecase. His conclusions fall back to man's inviolablerights as stipulated by the Constitution of theUnited States, and will be precedented materialfor generations to come. The purpose of salvagelaw is to encourage salvage in order to "return tothe mainstream of commerce goods otherwiseburied beneath the sea."He has stated flatly that shipwrecks rightly belongto those who find them, work them, andbring back their treasures in whatever form tothe mainstream of human awareness.Plight ofthe"Wreckless" DiverDespite this costly victory for individual rights,schemes abound that seek to overthrow the statusquo and to apply state dominion over all shipwrecks,whether within territorial waters or without,and to include locations where even the u.s.has no authority.The intended victims of these machinationsare not just big-time salvage operators, but millionsof sport divers as well. Most are unaware of

222 THE FREEMAN • JUNE 1989the spears being thrust at them, and those whoare don't have the backing or financial resourcesto protect their interests. Thus, a succession ofFederal bills has been in the offing to revert maritimesalvage regulations to the custody of thestates who, it has already been shown, are notsufficiently responsible in matters of individualrights.The ploy being used is the "preservation ofcultural resources," a phrase with a highly debatablemeaning, depending on who is using it. Perhapsbetter understood is "national heritage," beingthat part of history relating to the foundingand growth of a country.Historic sites such as buildings and battlegroundsare set aside, with interpretive centerserected nearby to guide visitors on a tour of thepast. The Liberty Bell, Betsy Ross's house, andthe trenches and bastions of Antietam, where somany soldiers lost their lives, serve as examplesof the War of Independence and the AmericanCivil War. Pride and tradition can be viewed atWilliamsburg. The fact that tourists flock to theseplaces is proof of the interest they maintain.Yet, not every battlefield has been preserved,not every ancient building still stands, not everyvestige of the past has survived the trash heaps.There is neither the room, nor the money, nor theconcern to preserve everything. All we need areexamples.Despite claims to the contrary, the same appliesto shipwrecks. Not every barge or trampfreighter has historic or cultural value. Yet theplethora of anti-shipwreck bills continually inCongressional hearings are implicitly all encompassing,and seek to put in the province of localauthority every shipwreck in navigable waters,off coastal communities, and those outside the jurisdictionof the United States. This is a giganticnumber of wrecks: over 4,000 off the New Jerseycoast alone. What are we to do with them all?And why preserve a sunken liberty ship whensome of them still ply the seas, or are being scuttIedas artificial reefs?The question is not whether we need culturalresources, but how many do we need? And howmuch are taxpayers willing to pay for them?While some don't like to put a value on history, amodicum of practicality must be applied. Wecannot preserve every old wreck just on thechance that a previously unknown piece of informationmay be retrieved from it. How importantis it to the general public to learn how manystrakes a Spanish galleon has, or whether thechine was curved? (What is a strake? What is achine?) Certainly, knowledge of this kind is notgoing to alter the course of human events, orfind homes for the needy, jobs for the poor, andclothes for the destitute. We live in an unevensociety, and the merit of everything must beweighed in context.Free enterprise is the American way, the basison which this country was founded. Resourcemanagement needs to do more than preserve; itneeds to utilize.The locations of most major historic shipwrecksare known through the efforts of speculatorsdiving and doing research in their sparetime, and at their own expense. To confiscate ashipwreck after such diligent work is criminal. Ifyou borrowed heavily to buy the materials foryour dream house, then built it yourself to yourown specifications, you would not expect thegovernment to take it away on the pretext that itwas too beautiful for one person to enjoy, andshould become public property. Why should aperson's claim to a shipwreck be any different?The individual should not be made to suffer atpublic expense, as stipulated in Amendment Vof the Bill of Rights.At the same time, archaeologists have a validconcern that valuable information is being lostdue to unprofessional salvage. To quote againfrom the Klein case: ". . . plaintiffs have not takenadequate steps to ensure conservation of theartifacts. While some artifacts have been placedin holding bins, the water in these bins has remainedunchanged, which is detrimental to theartifacts. Further, uncontradicted testimony revealedthat many items not currently stored inholding cells are piled in the plaintiffs' backyardwhere they are subject to random and deleteriousexposure to the various elements."Yet, while we abhor on a collective level theloss of these interesting artifacts, we lose muchmore by abrogating individual rights.Certainly we need to preserve for our childrensome of the memories and mementos of our past,but does this mean that all Civil War buffs shouldhave their collections of guns, bayonets, uniforms,and badges confiscated in the name of thepublic?

SHIPWRECK LEGISLATION 223Several years ago when I attempted to presentmy entire collection of thousands of recoveredshipwreck artifacts to a maritime museum, I wasmet with a stern refusal. It was not a matter ofcapital expenditure or space allocation, but simpie.apathy.They had no interest whatever in preservingor displaying our underwater heritage.The message is clear: museums are overstockedand public support is lacking. Museumbasements are crammed with packaged items forwhich there is no display space. Consider the caseof the New York museum which recently discoveredin its vaults an Egyptian mummy still in thecrate, waiting for over 50 years to be unpacked.Public institutions have no need to collectmore artifacts, and they have no place to keepthem. Why not put them in private hands? Theyare just as valuable there, are more easily maintained,and they will have been returned to thosepeople who, by their willingness to search forthem, collect them, and buy them, demonstratethe most interest in their history.To put things in their proper perspective, withinthe framework ofthe principles of this country,it is contrary to the public good to put any shipwreckor salvage operation under any form ofgovernment control, either Federal or state.Hope for the FutureThe sea is a sacrificial element: a bath ofcorrosivechemicals, an armory of hungry marine organisms,a morass of shifting sand, the site of topplingcurrents and destructive storms. Man'scarefully crafted structures and products soon fallprey to the whims of nature, which seek to reducehis handiwork to the substance from whichit came.The truth of this is obvious to anyone whodons a mask and views his first sunken wreck: hesees not a proud, shiny ship as it looked slidingdown the ways, but a battered hulk vastly overgrownwith coral and barnacles. From the day aship is launched the deterioration begins, and itends only when nothing is left. Every moment itremains in the water, man's maritime heritage isbeing relinquished.There is only one solution for ultimate conservation-removalto a controlled environment. Toparaphrase a real estate admonition, the besttime to remove an artifact was yesterday; thenext best time is today. It might not be there tomorrow.How best to meet the aims of scientistand layman, adventurer and armchair follower,conservator and souvenir collector?Emphasis must be made toward quick recoveryin some cases, plodding archaeological methodsin others. The most credible way to invokecivic responsibility is to settle on the standardthat best represents the American way: money.Archaeologists get paid for salvaging shipwrecks-whythen should treasure hunters betreated any differently? Or sport divers? The fundamentallawof salvage is to encourage it by offeringrewards commensurate with the amount oftime, effort, and money invested, and with thevalue of the property regained. And, as JudgeKing noted, "every day lost in the salving effortmeans fewer artifacts recovered for the benefit ofsociety."While the issues are complicated, one thing isevident: individual property rights in a free, capitalistsociety must be maintained to uphold theintegrity of that society. Legislative action shouldnot take away those rights, and enacting laws thatput one group at the disadvantage of another isnot within the bounds of freedom for all.Ultimately, what we need is less governmentintervention and more human involvement. 0

224Why Public Schools Failby James L. PayneThe 1980s have not been kind to supportersof public education in the UnitedStates. Early in the decade came evidenceof the shortcomings of the public schools fromthe massive 60,OOO-student "High School and Beyond"survey. As sociologists James Coleman,Thomas Hoffer, and Sally Kilgore summarizedthis study of U.S. secondary education, "studentsin both Catholic and other private schools areshown to achieve at a higher level than studentsin public schools." Their overall finding was that,controlling for social and demographic factors,students in private schools were one full yearahead of public school students.Now, an exhaustive study by political scientistsJohn Chubb and Terry Moe, published in the December1988 American Political Science Review,documents the theory behind this difference. Privateschools are better, say Chubb and Moe, becausethey are better organized to deliver qualityeducation.Private schools face a market test: If parentsand students aren't satisfied, they leave theschool and stop paying tuition. This propels privateschools to structure themselves so they candeliver a better product. When a public schoolstarts deteriorating, on the other hand, the taxmonies keep coming in. Hence inefficient arrangementspersist.What are the patterns of successful managementthat the private schools have adopted?From their survey of 500 schools, Chubb andMoe document how the private schools differfrom the public ones. First, in private schools, theMr. Payne is an independent political scientist who lives inSandpoint, Idaho.higher, distant authorities like boards and supervisorshave less power. In the public schools, theschool boards and supervisors try to micro-managethe schools-leaving principals and teachersfrustrated. This contrast, by the way, holds upeven for the Catholic schools: The higher ecclesiasticalauthorities meddle less in their schoolsthan· public school boards and supervisors do intheirs.Another difference is that private schools havemore flexibility in personnel policies. The proceduresto fire someone are less complex and takeless time. Thus private school managers can moreeasily discharge unsatisfactory personnel. Furthermore,private schools are more focused andcoherent in their orientations. Different privateschools may offer different approaches, but withineach school, Chubb and Moe found more clarityon goals and less disagreement among the staffthan prevail in the typical public school.Another key difference is with the principals.As documented by Chubb and Moe, the privateschool principals have more teaching backgroundthan public school principals. They are less interestedIn administrative duties than their publicschool counterparts, and more interested in educationalphilosophy. Also, private school principalsare much less likely to be seeking career advancement.The result of these differences is thatprivate school principals are educational leaders.This is less the pattern in the. public schoolswhere principals, hemmed in by higher authorities,regulations, and unions, tend to be seen asbureaucratic managers.With the principal given so much authority inprivate schools, what happens to morale and staff

225relations? To hear the unions tell it, without thegovernment and union "protection" found in thepublic schools, private school teachers must leada miserable life. Well, it isn't so. Chubb and Moefound that the work context is more rewardingfor a teacher in a private school: principal-teacherrelations are better; teacher-teacher relations aremore cordial and more supportive; teachers havemore influence in every phase of the school, fromchoosing texts and deciding what to teach to establishingstandards for discipline and homework.Private school teachers "feel more efficaciousthan public school teachers. Unlike theirpublic counterparts, they do not believe their successis beyond their control, and they do not feelit is a waste of time to do their best."In monetary compensation, private teacherslag behind. This, say Chubb and Moe, is perfectlyunderstandable: "Private school teachers aretrading economic compensation and formal jobsecurity for superior working conditions, professionalautonomy, and personal fulfillment. Publicschool teachers are doing precisely the opposite."What the unions and the politicians have overlookedis that job satisfaction for teachers dependson having the flexibility to accomplish themission of education. The regulations and restraintsthat enmesh the public school are underminingeveryone's morale. So even though we arepouring more and more money into publicschools, the quality goes down.Of course, there are some good public schoolswith effective programs. What the Chubb andMoe study gives is the overall, nationwide pattern.And that picture clearly shows that the lesson ofthe market applies to education, too: Where consumersare free to choose, suppliers organizethemselves to deliver a superior product. D

226Fairness Doctrine, R.I.Rby Jorge AmadorOn August 4, 1987, the Federal CommunicationsCommission (FCC) repealedmost aspects of the "Fairness Doctrine,"the regulation requiring broadcasters to covercontrasting views of important issues. With theexception of questions that are to be decided byvoter referenda, Fairness Doctrine enforcementwould stop.It was the end of the civilized world, to hearsome react to the prospect of unregulated debate.Without the Fairness Doctrine, predicted oneCongressman, "Candidates would lose the rightto reply, parties out of power would not be ableto respond, radio stations could allow supportersof one candidate to dominate the news, and localand state ballot issues could no longer be covered.""I am concerned that ... broadcasterscould use the public airwaves as their bully pulpit,"said another. "They could every day poundaway at their point of view, with absolute, totaldisregard to the other point of view."The national director of Americans for DemocraticAction simply warned that "The publicwould be considerably less informed if the FairnessDoctrine is repealed." Supporters twicepassed bills in Congress to make the FCC regulationinto law, only to be frustrated by Presidentialveto.And yet, nearly two years later, the sky has notfallen. Radio and television stations did not suddenlybecome vehicles for one-sided debate. Theopposition party is still getting its weekly reply tothe President's Saturday radio message. Electionyearcoverage clogged the airwaves with newsJorge Amador is a freelance columnist and editor ofThe Pragmatist, a current-affairs commentary.and views about candidates, conventions, and issues.However, the new administration may turn outless hostile to the Fairness Doctrine. A Federalcourt has been asked to review the FCC's decisionto abolish the doctrine. Some backgroundwill help us understand why the old doctrine mayyet rise out of its coffin."A Fa~adeofPious Theories"The Fairness Doctrine was a cornerstone ofgovernment regulation of broadcasting. ErnestHollings, the U.S. Senate's most eloquent proponentof the Fairness Doctrine, identifies four assumptionsunderpinning broadcast regulation:1. "A valuable public resource, the electromagneticspectrum, remains scarce relative to demand;broadcast channels are limited, despite theintroduction of new video and audio services."2. Congress in the Communications Act of1934 "has chosen a system where a select few arelicensed to utilize the broadcast spectrum in exchangefor a commitment to operate in the publicinterest as public trustees."3. "The doctrine has permitted those who donot own broadcast stations to have an opportunityto participate in important public debate andhas provided the public with a greater range ofviews upon which to make informed decisions."4. The doctrine is simply "no more than goodjournalistic practice that does not chill the speechof broadcasters."Government control over broadcasting ispremised on the idea that the spectrum is a limitednatural resource which many more people

227want to use than it can physically accept. Withoutregulation, users will interfere with each other'ssignals and render the whole medium useless.Hence government must step in to decide whogets to broadcast; to narrow down the field, itconditions broadcast licenses on the applicant'swillingness to serve the "public interest, convenienceor necessity."Around this logic has been spun a web of justifyingmythology. "Before 1927, the allocation offrequencies was left entirely to the private sector,and the result was chaos," wrote Justice ByronWhite in the Supreme Court's 1969 decision,Red Lion Broadcasting v. Federal CommunicationsCommission, upholding the Fairness Doctrine."Without government control, the mediumwould be of little use because of the cacophonyof competing voices, none of which could beclearly and predictably heard."Fairness Doctrine advocates are better theoriststhan historians. As one author put it, "to alarge extent" broadcast regulation "serves as nomore than a fa

228 THE FREEMAN • JUNE 1989themselves to remain silent at certain time slots.The practice became known as Silent Night.However, as the commercial value of radio timegrew, so did the pressure to remain on the air,and Silent Night was abandoned in 1927.The Commerce Department only reluctantlyopened new channels to relieve the artificial congestion.In the summer of 1922, a second bandwas opened for broadcast at 750 kilohertz. To escapethe clutter, some stations attempted tobroadcast slightly above or below the assignedfrequencies, but this was not tolerated for long.Secretary of Commerce Herbert Hoover, whoproclaimed the air "a national resource to beguarded," resisted proposals to treat channels asproperty that individuals could own, sell, and buy.Congress backed him up in 1926 with a joint resolutionto require licensees to sign a waiver ofproperty claims in the spectrum. However, thesame year a Federal court ruled that the governmentdid not, after all, have authority under the1912 Act to regulate a station's hours, power, orfrequency.The industry was thus left in an intolerable situation.Broadcasters could not defend themselvesagainst others intruding on their signals,yet the government would not act to prevent interference.The frontier was kept open to foragersand wanderers at the expense of homesteaders.After encouraging this chaos on the air, governmentoffered itself as the savior. In the RadioAct of 1927, Congress declared unequivocallythat the airwaves "belong" to "the people." Insteadof a no-man's land, the spectrum becamepublic property. Regulators were given new powersto deny or revoke licenses; the landlord woulddecide which peasants got to use the newly establishedmanor.Artificial ShortageLike any other natural resource, spectrumspace is not unlimited. But government has madeit more limited. "Whatever scarcity there is forcommercial broadcasting and other private usesof radio is partly a man-made problem whose dimensionsare defined by the executive branch." 4For decades the government has reserved foritself a large portion of the spectrum, which it haskept out of the reach even of regulators. Section305 of the Communications Act exempts fromthe. FCC's jurisdiction all "radio stations belongingto and operated by the United States." Aslate as 1977 government retained exclusive use ofmore than one-half of the spectrum, while anotherone-fourth was shared between governmentand private users. By 1925, Hoover was alreadydeclaring that "all wave lengths are in use"-allthat the government would part with, that is.Since then the number of broadcast outlets hasincreased twentyfold. During the Carter administrationthe shared government-private spectrumrose to 40 percent; the frequencies available toprivate users, to only 35 percent.The Federal Radio Commission, establishedfollowing the Radio Act in 1927, set out to eliminate164 of the 681 stations then in operation,even as technological developments underminedits rationale. "During 1930, broadcasting experienced'almost a complete revolution in the typeof equipment used' " which enabled stations tokeep closer to their frequencies-theoreticallypermitting more stations to operate without interferingwith each other. 5 Nevertheless, theFRC's campaign proceeded apace, and by 1932 atleast 77 stations had been abolished.Defenders of regulation concede that the governmentcould have allocated the spectrum differentlyto give more people a chance to use theairwaves. As Senator Hollings points out, insteadof a smaller number of full-power stations, itcould have called for a greater number of stationsat less power, mandated stations to share frequencies,or treated stations as "common carriers"offering use of the spectrum to anyone at setrates and without control over programming.But legislators instead "concluded that thepublic interest would be best served by fewer stationswith greater power each under the controlof a single owner. While the opportunity formembers of the public was thereby limited,broadcasters were required by statute to act astrustees for all the public in exchange" for theprivilege. 6Because the government allows only certainpeople to operate broadcast stations, the viewsexpressed by the chosen ones are said to enjoy anunfair advantage over the rest of us who aren'tpermitted to operate a station. "Since all whowish to broadcast cannot do so, there is an inherentdanger that the flow of information can be re-

FAIRNESS DOCTRINE, R.I.~ 229stricted." 7 As part of their public interest duties,broadcasters therefore should cover issues of localinterest and provide citizens with the opportunityto express their views. This is the heart of theFairness Doctrine.If broadcasters don't allow responses, wherecan the average citizen turn? When the FairnessDoctrine was in effect, anybody who felt his sidehad been slighted could file a complaint with theFCC, which could order sta'tions to give freetime. Broadcast regulation-and specifically theFairness Doctrine-hence promotes public debate,say its defenders. "The genius of the FairnessDoctrine," write Ralph Nader and DavidDanner, "is that it promotes debate without ititerferingin the editorial process. Nothing in theFairness Doctrine ever denies a broadcaster theright to say what he or she pleases. Rather, complianceis attained by carrying more, not less, discussionof issues." 8Again, Fairness Doctrine backers prove bettertheorists than empiricists. Rather than invigoratingpublic debate, the Fairness Doctrine chilledit. Instead of improving citizens' access to the airwaves,it was a reason to deny them. As RepresentativeHoward Coble put it during House debateon the doctrine, "In the abstract, 'fairness' islaudable. In the reality of an often expanding regulatoryatmosphere, a governmental determinationof 'fairness' will consistently fall short andfail to serve faithfully the public interest." 9"Cocked Gun" RegulationThere was little objection to the Fairness Doctrinewhen the FCC formally adopted it in 1949.In fact, it was an improvement over the previousrule, the Mayflower Doctrine, which prohibitedbroadcasters from editorializing at all.Not that they all wanted to. Broadcasters andregulators were already aware of the threat that aspirited debate could mean to the licensee. Asearly as 1934, it was known that "An innocuousschedule could mean prompt renewal" of thebroadcast license, while "A provocative onecould bring delays." 10 "Any vigorous presentationof a point of view will of necessity annoy oroffend at least some listeners," noted the FCC inits 1946 Blue Book. "There may be a temptation,accordingly, for broadcasters to avoid as much aspossible any discussion over their stations, and tolimit their broadcasts to entertainment programswhich offend no one."Nevertheless, declared the Commission, "thepublic interest clearly requires that an adequateamount of time be made available for the discussionof public issues." In its report formalizingthe Fairness Doctrine three years later, the FCCcalled on "broadcast licensees to provide a reasonableamount of time. . . to the discussionand consideration of public issues." Avoiding "seriousand provocative program content" was considered"an unfair use of broadcast facilities,"and could be grounds for revoking a station's license.But in practice a band of regulators in Washingtoncannot possibly monitor every station'sprogramming 24 hours a day, 365 days a year. Itmust rely on citizens to make sure that the"trustees" are fulfilling their obligations. Yet, asSenator Robert Packwood points out, "Mostpeople are not aggravated by what they do nothear; they are aggravated by what they hear, andthey think it is not fair, so they complain" to theFCC. Despite their obligations, broadcasters"simply avoid controversial issues, and nobodysues them much for that." 11It was not until 27 years after the FairnessDoctrine was proclaimed, in 1976, that the FCCcited a station for not covering a specific controversialissue of local importance.An FCC report released in August 1985 describedmore than 60 specific examples wherebroadcasters "shied away from covering controversialissues in news, documentaries and editorialadvertisements" for fear of triggering fairnesscomplaints, and concluded that the Fairness Doctrine"chilled" speech. It resulted in a "net loss,not an enhancement, of speech," said FCC generalcounsel Diane Killory in her statement announcingrepeal of the doctrine. As the DesMoines Register observed, "The doctrine doesn'tpromote fairness; it promotes blandness." Insteadof getting opposing sides, listeners oftenended up getting no sides of a debate.Doctrine supporters are quick to note thatcomplaints rarely resulted in action by the FCC,as if this were an argument in favor of the FairnessDoctrine. Colorado Senator Tim Wirth estimatesthat 98 percent of fairness complaints wereroutinely dismissed as frivolous or unfounded.Between 1980 and 1987, the FCC received

230 THE FREEMAN • JUNE 1989about 50,000 fairness complaints, but found onlyone violation. In the 35 years 1934-1978, only 5broadcast licenses were revoked for violations ofthe doctrine. For the overwhelming majority ofpeople, then, the Fairness Doctrine in practicejust didn't give us access to the airwaves.But if so, how could the doctrine really havechilled broadcasters? Simple: it was a "cockedgun." As the Supreme Court said in anotherpress-freedom case, "it is not merely the sporadicabuse of power . . . but the pervasive threat inherentin its very existence that constitutes thedanger to freedom of discussion."Defending against even frivolous complaints isexpensive. The cost to the station averages about$60,000 if the FCC calls a hearing. It's cheaper tokeep quiet, just in case.Nobody disputes that striving for balanced coverageis a desirable aspect of competent newsjournalism. Unfortunately, however, one person's"objectivity" is another's "hatchet job." A look ata list of organizations supporting the FairnessDoctrine, released by Representative John Dingell,reveals dozens of pressure groups on oppositesides of a wide assortment of emotional issues,each supporting the doctrine for its ownends: Americans for Democratic Action andAmerican Conservative Union; General Motorsand United Auto Workers; American JewishCommittee and National Association of ArabAmericans; Mobil Oil and Fund for RenewableEnergy; People for the American Way andAmerican Baptist Churches; Accuracy in Mediaand Media Access Project.Given the array of contending groups, eachone sharply tuned to the slightest hint that theother side might have put an extra spokesman orone more statement on the air, even the mostscrupulous reporter can hardly cover any controversialtopic in a way that will avoid bittercharges of "bias" from one side, maybe fromboth. When the charges may be accompanied bydemands for time under threat of referral to regulators,it is not difficult to understand why underthe Fairness Doctrine broadcasters often preferredto avoid certain topics altogether. And,given the way competing ideological groups usethe media for one-upmanship, it is not difficult eitherto understand why uninterested observersmight find most fairness complaints frivolous.For a hint of how public debate might proceedwithout the Fairness Doctrine, compare televisionwith a medium where the doctrine has neverapplied-eable television. In 1986, W. R. Grace& Co. had great difficulty placing on nationaltelevision a series of ads attacking the Federalbudget deficit. The networks were reluctant to air"advocacy advertising" that might have triggereddemands for free rebuttal time. On the otherhand Cable News Network, as a non-broadcastoperation, did not have to offer free rebuttaltime, and felt free to present strong citizen-initiatedmessages such as Grace's spots.Ironically, the Fairness Doctrine thus both frequentlyinhibited broadcasters from coveringcontroversy, and seldom permitted citizens to replyto what they perceived as "biased" programming.Broadcasters were chilled and the publicignored.Many Ways OutThe spectrum is not as scarce as we have beentold, and in any event the Fairness Doctrine, despitenotable individual cases, by and large failedboth to encourage vigorous debate and to providefor public participation.What, then, can activists and concerned individualsexpect now that broadcasters have beenfreed from fairness requirements? Is the only optionto give up and tell broadcasters: "We are atyour mercy; go ahead and say what you will, wecan't do anything about it"?Hardly. There may be a scarcity of broadcastalternatives in a theoretical sense, but this doesnot mean that there is a dearth of opportunitiesto utter opinion on the airwaves. Only certainpeople are licensed to broadcast, but they are not"few." Even today's artificially limited market offersnumerous outlets to hear and express ourviews.There are 1,570 television stations and 10,837radio stations in the United States. Ninety-sixpercent of U.S. television households receive fiveor more television signals, and 71 percent receivenine or more.Local television stations offer approximately600 public affairs programs, 170 talk shows, and124 "civic," "ecology," or news commentary programs.Radio stations produce some 2,200 separatepublic affairs programs, 1,400 talk shows,and close to 1,000 civic, ecology, or news com-

FAIRNESS DOCTRINE, R.I.~ 231mentary programs. Every one of these airs on atleast a weekly basis.With or without the Fairness Doctrine, today'sbroadcast marketplace offers no paucity of alternativesfor people to hear and express diverseviews. Talk shows, even all-talk radio stations,have demonstrated their commercial viability.They will not go away merely because the FairnessDoctrine was repealed.We don't need a broadcast license in order tobe heard. There are literally thousands of stationsand programs to which groups of various politicalstripes can turn to voice their opinions-at nocharge. But if a station refuses to grant free airtime to rebut a one-sided report, we can offer tobuy time.One of the ironies of the Supreme Court's celebratedRed Lion decision upholding the FairnessDoctrine is that the station airing the offendingbroadcast, WGCB in Red Lion, Pennsylvania, offeredthe plaintiff, Fred Cook, 15 minutes to replyat the regular rate of $7.50. The offending programalso had been a paid IS-minute broadcast.Instead, Cook demanded free air time underthe Fairness Doctrine. Off to the FCC and thecourts they went, and he got the time-five yearslater. By then the issue in contention was dead,and Cook declined the offer. Had he bought thetime he could have rebutted the original broadcastwhile it still mattered, and for a lot less trouble.If a station refuses to sell us time, there areplenty of others in the market who'll be happy todo so, and who will air our spot as many times aswe wish, often at surprisingly affordable rates.In 1985, we could buy a full half-hour programslot on radio station WPOW in New York Cityfor $200; for $85 on KAFF- FM in Flagstaff, Arizona;or for $75 on WEUP in Huntsville, Alabama.If we didn't need that much time to tell offour opponents, we could buy a one-minute spotfor $30 in Provo, Utah; $21.50 in Lawrence,Kansas; or $14.75 in Salem, Oregon. Multiple airingscost even less per spot. 12In 1962, 66 percent of AM radio and 25 percentof FM stations reported a profit. In 1972 thefigures rose to 72 and 38 percent, respectively. By1980, the proportion of profitable AM stationswas down to 59 percent, while 50 percent of FMstations made a profit.The historical pattern for television stations issimilar, though more favorable. In 1955, 63 percentof VHF and 27 percent of UHF stations reporteda profit; in 1977, 92 and 73 percent, respectively;but in 1980, profitable VHF stationswere down to 89 percent, UHF to 58 percent.The point is that, despite the market-limitingeffects of broadcast licensing, having a licensedoes not amount to "a license to print money."Broadcasting can indeed be very profitable, butthere are plenty of stations which are hungry forrevenue and which will eagerly sell air time to individualsor groups with something to say.This is not to imply that all broadcasters, nowfreed from the strictures of the Fairness Doctrine,will automatically sell air time for politicaldebate or cover both or even one side of an issue-anymore than while the doctrine was in effeetall broadcasters shied away from the issues.But on the whole we can expect, if anything, lesstimid coverage and more robust debate to comeon the air from broadcasters and citizens alike.The Fairness Doctrine was a questionable theoryborn of poor history. It both chilled broadcasters'freedom of speech and limited citizens'access to the airwaves, free or paid. What slenderlogic may have buttressed it in the beginning haslong since given way to the proliferation of audioand video services.Without the "fairness" gun cocked at theirheads, station operators will feel a lot more comfortableairing spots on controversial issues. Andwe'll have a better chance to get our say. D1. Sydney W. Head, Broadcasting in America: A Survey of Te Ievisionand Radio, 2nd ed. (Boston: Houghton Mifflin Co., 1972), p.461.2. Erik Barnouw, A Tower in Babel: A History of Broadcastingin the United States to 1933 (New York: Oxford University Press,1966), p. 533. Ibid., pp. 92-93.4. Erwin G. Krasnow et aI., The Politics ofBroadcast Regulation(New York: St. Martin's Press, 1982), p. 23.5. Head, p.162.6. Senate floor remarks by Ernest Hollings, CongressionalRecord, June 23, 1987, p. S844O.7. Letter by Morton H. Halperin and Barry W. Lynn, AmericanCivil Liberties Union, to Senator Howard Metzenbaum, April 21,1987.8. Ralph Nader and David Danner, "The Need for Fairness,"The Washington Post National Weekly Edition, December 7,1987,p.28.9. House floor remarks by Howard Coble, CongressionalRecord, June 3,1987, p. H4143.10. Erik Barnouw, The Golden Web: A History ofBroadcasting inthe United States 1933-1953 (New York: Oxford University Press,1968), p. 30.11. Senate floor remarks by Robert Packwood, CongressionalRecord, June 23,1987, p. S8444.12. Price quotes from Spot Radio Rates and Data, Standard Rateand Data Service, April 1, 1985.

232Hunger and Farming inBlack South Africaby Frank VorhiesAfrica has some of the hungriest peopleon earth. In nations like Ethiopia andMozambique, the human suffering isoverwhelming. The African people are alsoamong the least free people in the world. Thereare virtually no democracies on the continent.There is also generally no economic liberty. Simplystated, Africans starve because they do nothave the freedom to grow or trade for the foodthey need to eat.This essay focuses on black farming in SouthAfrica. It is written in light ofan emerging politicaland economic understanding of poverty andhunger in Africa. As noted, free people are generallynot hungry. They do not starve. The questionfor Africans is: Why are they not free? Whydo we not see African nations that are democraticand capitalistic?The emerging view of the problem can becalled a revisionist understanding of the impactof European colonialism on African development.The Marxists have long blamed the plightof Africa on colonialism and neo-colonialism.They are partially correct, but for the wrong reasons.Africa is not starving because Europeans imposedalienating and exploiting relations of capitalonthe African people. Africa is starving becausecolonialism prevented capitalism fromflourishing.The goal of most colonial systems was not toproduce, but to take. The classic examples areDr. Vorhies has taught economics at the University of Coloradoat Boulder, the University of Denver, and, most recently,at the University of the Witwatersrand in SouthAfrica. This article is adapted from a paper presented at the1988 Mises Lecture Series at Hillsdale College.the Spanish in Inca Peru and Aztec Mexico. TheSpanish conquered these peoples to extract theirwealth, especially their gold. Centuries later, theEuropeans went into Africa for the same purpose.The one major exception was the Afrikaners,people of Dutch, French, and German descentwho came to the Cape of Good Hope tosettle and to produce.In economic terminology, the European colonialistswere rent-seekers, not profit-seekers.They came to take a big slice of the African pie,not to bake more pies. They came to take andnot to stay. Accordingly, the Europeans set upstructures of government that maximized theirability to extract the wealth of the continent.They set up political and economic systems ofrent-seeking, not profit-seeking.When independence came to Africa starting inthe 1950s, the new African leaders took over theexisting structures of government. These structureshad been designed to extract rents for thosein power. They were not designed to promoteprofit-seeking activity. European colonialism wasreplaced by African neocolonialism.Into this situation entered the Marxists. FollowingLenin's flawed concept of capitalist imperialism,they labeled colonialism as part of capitalism.In fact, colonialism was part of thepre-capitalist system of mercantilism. Nevertheless,the Marxists, with international support, replacedso-called capitalist colonialism withAfrican socialism. The results have been disastrous.In Africa today, the hunger brought about byEuropean colonialism has in many nations beenreplaced by the starvation brought about by

233African Marxism. Angola, Ethiopia, Mozambique:they are all Marxist. Their peoples arestarving. Within South Africa itself, the sameproblems and challenges exist. Hunger stemmingfrom European colonialism persists. Starvationfrom the global effort to instill African socialismin the nation is a real possibility.Farming in South AfricaThe Republic of South Africa covers less than4 percent of the African continent. Yet the countryproduces 17 percent of Africa's red meat, 20percent of its potatoes, 27 percent of its wheat, 31percent of its sugar, 45 percent of its com, 54 percentof its wool, and 81 percent of its sunflowerseed. The government's Bureau for Informationproudly boasts of South Africa's significant agriculturalexports: "Today South Africa is one ofonly six net food exporting countries in theworld. . . . South African food exports have becomea lifeline for many countries in Sub-SaharanAfrica."With such impressive statistics, why should onefocus on hunger in South Africa? Its agriculturaloutput is indeed impressive. By African standards,malnutrition and starvation are low. Theaverage daily food consumption is 117 percent ofthe U.N. Food and Agriculture Organization'srecommendation. Though average levels of agricult.uraloutput and nutrition may be high, thevariations are also high. The wealthiest 10 percentof households earn 39.4 percent of nationalincome. The poorest 20 percent earn only 1.9percent of national income. By comparison, theU.S. shares are 23.3 percent and 5.3 percent, respectively.Hunger exists in the black regions of South

234 THE FREEMAN • JUNE 1989Africa. These regions are the legally separatedtribal reservations or homelands ("bantustans").The four independent homelands are Bophuthatswana,Ciskei, Transkei, and Venda. Thesix so-called self-governing homelands areGazankulu, KaNgwane, KwaNdebele, KwaZulu,Lebowa, and Qwaqwa. The government has assignedapproximately 40 percent of the 33 millionpeople in greater South Africa to these districts.The additional 30 percent of the population thatis black reside in the four (white) provinces:Cape, Orange Free State, Natal, and Transvaal.Early Black FarmingLeon Louw and Frances Kendall begin theirbest seller, South Africa: The Solution, with achapter called "Black South Africans: Their Riseand Fall." It reviews the early successes of theblack farmers in the eastern Cape. Under Britishcolonial rule, these farmers were allowed to ownland and to market their products freely.One of the more interesting stories is of theMfengu people. In the 1830s, the governor of theCape Colony allowed the 16,000 Mfengu to settlewith their 22,000 cattle in the area now known asthe Border Region. He used them as a buffer betweenthe Xhosas and the British settlements, includingPort Alfred and Grahamstown. TheMfengu took advantage of their new opportunitiesand developed into a prosperous farmingcommunity. Louw and Kendall explain:On arrival . . . they entered agricultural serviceas cattle herders and shepherds, and wereengaged in tilling, ploughing and reaping. . . .They used their wages to invest in sheep, wagonsand tools, and were rewarded with land forfighting in the Cape Army. . . . By the 18408and '50s they were selling tobacco, firewood,cattle and milk and disposing of surplus grainfor cash or stock. . . . By the 1870s, blackfarmers in the Eastern Cape were extremelyactive and prosperous. The Mfengu competedagainst white farmers at agricultural shows andwon many prizes. . . . By 1890 there weremany progressive black commercial farmerswho had purchased their farms outright. Theyinvested much of their profits in fences, irrigationand improved stock breeds, and adoptedthe most advanced farming methods of thetime. . . . By 1890 there were between oneand two thousand of these affluent black commercialfarmers.Like most colonized peoples during the lastcentury, the Mfengu lacked political rights andcivil liberties. They were, however, granted basiceconomic rights. The success of these early blackfarmers was due to a guarantee of private propertyand a free market.Regrettably, the development of a free marketfor black farmers in South Africa did not continue.A prosperous, independent black farmingcommunity did not fit with the developmentplans of British colonialism. These plans includedwhite-owned, black-worked farms and mines.European colonialism had been successful inthe western Cape, as in North America, becausethe indigenous population was easily eliminated.In the eastern Cape, however, the blacks weremore sophisticated herders and small-plot farmers.If British colonialism was to expand there,black advancement would have to be halted. Privateproperty and free markets would have to betaken away. Tribal land tenure would have to bereinstated.Through a series of Location Acts passed in1869, 1876, and 1884, the colonial governmentlimited the rights of the independent black farmers.This was done to force them to work on thewhite-owned farms and mines. An empire requiringcheap black labor could not allow for independent,prosperous blacks.In 1894, Cape Prime Minister Cecil Rhodeslimited the land that each black farmer couldown to ten acres, an amount barely sufficient forsubsistence. In so doing, Rhodes protected whitefarmers from black competitors and secured a laborforce for his mines.At the turn of the century, over a millionblacks were farming their own land or landleased from whites. The 1913 Land Act put anend to this by outlawing rent-paYing and sharecroppingfarming by blacks. Blacks were requiredto be wage-laborers for white landowners. In thename of the British crown, the colonial governmentclosed the free market to black SouthAfricans.Years before the 1948 rise of the National Partyand official apartheid, blacks had lost rights ofprivate property and free trade. Apartheid went

HUNGER AND FARMING IN BLACK SOUTH AFRICA 235further. It divided South Africa into the ten tribalhomelands. The State based these on traditionaltribal lands and on the reserves instituted underBritish colonialism. The homeland governmentsimposed inefficient tribal customs regardingproperty and trade. These were further supportedby the restrictive rules and regulations originallyset up by the British.The division of South Africa into white andblack areas, however, had virtually been completedby 1936. The Land Act of 1936 completelyoutlawed black purchase of white land. Duringthe 1960s, blacks still owning land in white areaswere forced to move. Today blacks still cannotown land in more than 85 percent of greaterSouth Africa.In the white areas, whites own their propertyoutright. They can buy and sell land on the openmarket. In the black areas, land is allocated on atribal/colonial basis. Under tribal/colonial law,the land available to blacks is commonly notavailable as private land.The effect of the lack of private farm land andof free agricultural markets is persistent hungerand poverty. Tribal chiefs allocate land for political,not economic purposes. Farming for profit isvirtually impossible. Writing in Land and People,David Cooper explains:In most areas landholding is based on a onefamilyone-plot system, with land allocated bythe Tribal Authorities. . . . Since chiefs andheadmen control the system and get their powerand privilege from the right to allocate land,they feel no need to find a more productivesystem of land-use. . . . A few individualsgrow crops for market, but most people producefor the home and sell only if they have asurplus. No organised market exists in most ofthese areas, so there is no incentive for peopleregularly to produce a surplus.The inefficiencies of the tribal/colonial landtenure are not unique to South Africa. In neighboringcountries, there exist similar systems ofland tenure with similar disastrous results. Agriculturaloutput in southern Africa, as in the restof Sub-Saharan Africa, remains far below potential.Unique to South Africa is the continuationof an inefficient tribal/colonial land system forblacks alongside a system of private oWIlershipfor whites. Tribal/colonial land tenure and theGroup Areas Act of 1950 prevent the developmentof a system of private property for blacks.Productive, commercial black farming is still notpossible.The Socialist PositionThe tribal/colonial system of land tenure hasbroader implications than low black agriculturaloutput. The system reinforces the socialist viewof political-economic relations in South Africa.At the English-speaking universities in SouthAfrica, including Cape Town, Natal, and the Witwatersrand,extensive research programs studyagriculture from a Marxist perspective.South African socialists view the tribal/colonialsystem that has existed since the days ofRhodes as part of the overall capitalist system. Itinsures that the (black) workers remain dependenton (white) capitalists for their livelihood.Agrarian problems are viewed as an integralcomponent of capitalist exploitation.With this perspective, Marxist scholars researchissues such as freehold tenure, the movestoward democracy, and the prospects for socialism.For example, in the December 1987 issue ofAfrica Perspective, 1. Krikler contends that agricultureis the "weak link in South African capitalism."Breaking that link is believed to be key to asocialist revolution.Others contend that so-called bourgeois reformswill not improve the conditions of blacks.They maintain that attempts to bring about privateownership and free markets in black farmingwill make conditions even worse. This view isclearly stated in a recent issue of the SouthAfrican Review:The establishment of a "free market" in bantustanland will have devastating consequences.Relations in the market are inherentlyunequal. The abolition of regulatorycontrols in favour of market forces are inherentlyunequal. . . . The privatisation of bantustanland based on free market principleswill lead to an escalation of landlessness andan intensification of poverty and inequality inaccess to economic resources.The socialist analysis of the agrarian problemin South Africa leads to proposals to socializeagriculture. Rather than advocating a move from

236 THE FREEMAN • JUNE 1989the tribal/colonial system to a free market system,the Marxists label the tribal/colonial systemcapitalistic. Private property reforms will onlymake matters worse, they claim. Black farmingwill be improved only through moving directly tosocialism.Socialism means nationalization of agriculturalland and the central planning of agricultural production.Krikler contends that: "Expropriationwithout compensation remains the only feasiblefirst step towards socialism in rural, as in industrial,South Africa." Once the land is seized by theState, it will be managed according to well-establishedsocialist principles. Writing in SouthAfrican Review, David Cooper emphasizes thispoint:The productive core controls so much productionbecause it owns such a high proportion ofagricultural land and capital. Leaving the peripherywith its poor land base and limited resourcesto provide for the majority of ruralSouth Africans, will in effect extend the bantustanswithout substantially changing the patternof poverty found there at present. . . . Itwill be essential to tap the resources of theproductive core for any land redistributionpolicy to succeed.. . . An expropriation policymust therefore concern itself with the organisationalforms-eollectives, state farms or cooperativeventures-that will be appropriate inthe productive core. Such a policy would involveintensive settlement of people from unviableareas.The South African socialists, however, are surprisinglyutopian about socializing agriculture.One effect of sanctions against the country seemsto be that of isolating them from learning aboutthe experiences of socialist countries. The historicalrecord of collective farming shows it to be adismal failure.A direct transition from a tribal land tenuresystem to a socialist system took place in China.Mao's program differed from Stalin's collectivizedfarming only in that it was even more disastrous.Alvin Rabushka explains:... Mao Zedong launched the most extraordinaryeconomic adventure the world has everseen-the Great Leap Forward of 1958. Hecombined agricultural cooperatives into communes.. . . The government confiscated privateplots, abolished rural free markets anddistributed grain on an egalitarian basis. ToMao's dismay, grain output fell 20 percent in1960 from 1957 levels, causing widespreadfamine and an estimated 30 million unnecessarydeaths during 1958-1962.Socialist policies that cannot work in Europeor in Asia also cannot work in Africa. The socalledAfrican socialism in Tanzania destroyedthat nation's agricultural economy. Before socialism,Tanzania had a strong agricultural sector.Over 80 percent of its exports were agriculturalproducts. Socialist policies soon changed this.Sven Rydenfelt writes:By 1979, five years after the enforced resettlement,domestic agricultural production in Tanzaniawas already incapable of providing thecities with food. Imports had to be increased tocompensate for declining production, and in1980 no less than half of the food needed byTanzania was being imported. A decade of socialistagricultural policy had been sufficient todestroy the socio-ecological system.The hunger perpetuated by the tribal/colonialland tenure system is surpassed by the massstarvation perpetuated by socializing agriculture.The continuation of an unproductivehomeland policy supports Marxist analyses ofthe South African situation. In so doing, it alsosuggests a utopian movement that will makematters even worse. The prevention of massstarvation requires instead a reformulation ofSouth Africa's agricultural policies to includeproductive black farming.Black Market for FarmingThe solution to the low productivity on blackSouth African farms is to create a system of privateproperty and free markets. In the tribalhomelands, prosperity requires that the blacks beallowed to exercise the rights to private sectorparticipation now available to the whites. As noted,the Mfengu tribe in the eastern Cape becameproductive and prosperous under a system of privateproperty and free markets. In South Africa,this system needs to be reinstated. Tribal/colonialland tenure and the Group Areas Act must go.

HUNGER AND FARMING IN BLACK SOUTH AFRICA 237Private property and free markets, furthermore,are culturally compatible with blackAfrican values. Triballcolonialland tenure in thehomelands only perpetuates inefficiencies existingin pre-industrial African customs. Socialistagriculture, on the other hand, directly conflictswith basic African values. George Ayittey, aneconomist from Ghana, strongly emphasizes thispoint:Africa does not need more IMP loans or Westernaid. The most effective aid the world canever give Africa is to help it reinstitute its ownnative freedom of expression. The emphasis ison native. In fact, the blueprint for real reformin Africa does not lie in the corridors of theIMF or Western banks. Nor in the inner sanctumof the Soviet bureaucratic behemoth, butrather in Africa's own indigenous system....A close study of Africa's indigenous system revealsthe existence of the basic tenets ofdemocracy, free markets, free trade, freedomof expression and free enterprise. . . . Insteadof developing the native institutions, we destroyedthem. That's why Africa starves and isenmeshed in chaos, crisis and disintegration.A recent study by G. Feder and R. Noronha inThe World Bank Research Observer supportsAyittey's view. The authors explain that the evolutionof land rights was distorted by colonial andpost-colonial governments. These interventionsbrought about serious inefficiencies and inequitiesthat would not have come about naturallyinAfrican markets. They contend:The evidence dispels some popular misconceptionsabout land rights systems in Sub-SaharanAfrica. There is increasing individualization ofownership, and in many areas possession hasalways been individual. . . . The lesson fromother parts of the world is that efficiency ultimatelyrequires formal recognition of individuallandrights.The promotion of private property and freemarkets for blacks will do more than overcomehunger in South Africa. It will help prevent massstarvation. It will undercut the ever-growing drivefor a socialist revolution in the country. At a recentconference, Professor J. A. Groenewald ofthe University of Pretoria looked at the strategicaspects of the South African agricultural situation.He explained:Many a revolution has had its stages of germinationand early growth in rural surroundings.. . . It is rather obvious that a happy, satisfiedrural population is of great strategic value.Revolutionaries and troublemakers find suchan environment to be a completely unsatisfactorygrowth medium.A happy and satisfied rural black populationwill be one that has the right to own farm landprivately and to trade their produce freely. Thoseopposed to hunger in South Africa and the growingprospect of mass starvation have no choicebut to support private property and free marketsfor all South Africans.DREFERENCESG. B. N. Ayittey, "A Blueprint for African Economic Reform,"Journal ofEconomic Growth, 1987, number 2, pp. 3-13.Britannica Book ofthe Year, (Chicago: Encyclopaedia Britannica,1987).Bureau for Information, This is South Africa (Pretoria: PromediaPublications, 1987).D. Cooper, "Agriculture in South Africa," Land and People,Volume 1 (Johannesburg: Environmental and Development Agency,1987), pp. 7-21.D. Cooper, "Ownership and Control of Commercial Agriculture,"in G. Moss and I. Obrey, eds., South African Review, Volume4 (Johannesburg: Raven Press, 1987).D. du Toit, "Direct and Indirect Contribution of Agriculture tothe South African Economy." Paper presented at Economic Societyof South Africa Seminar, Johannesburg, November 2,1987.G. Feder and R. Noronha, "Land Rights Systems and AgriculturalDevelopment in Sub-Saharan Africa," The World Bank ResearchObserver, July, 1987, pp.143-169.1. A. Groenewald, "Strategic Aspects of South African Agriculture."Paper presented at Economic Society of South Africa Seminar,Johannesburg, November 2, 1987.J. Keenan and M. Sarakinsky, "Reaping the Benefits: WorkingConditions in Agriculture and the Bantustans," in G. Moss and I.Obrey, eds., South African Review, Volume 4 (Johannesburg:Raven Press, 1987).1. Krikler, "Reflections on the Transition to Socialism in SouthAfrican AgriCUlture," African Perspective, December, 1987, pp. 95­120.L. Louw and F. Kendall, South Africa: The Solution (Bisho,Ciskei: Amagi Press, 1986).A. Low, Agricultural Development in Southern Africa: Farm­Household Economics and the Food Crisis (Cape Town: DavidPhillip, 1986).A. Rabushka, The New China: Comparative Economic Developmentin Mainland China, Taiwan, and Hong Kong (San Francisco:Pacific Research Institute for Public Policy, 1987).S. Rydenfelt, A Pattern for Failure: Socialist Economies in Crisis(San Diego: Harcourt Brace Jovanovich, 1984).T. Sowell, The Economics and Politics ofRace: An InternationalPerspective (New York: Quill, 1983).F. Vorhies and F. Glahe, "Liberty and Social Progress: A GeographicalExamination," in R. D. Gastil, ed., Freedom in the World(New York: Freedom House, 1988), pp. 189-201.

238GATIandtheAlternative ofUnilateralFree Tradeby Pierre LemieuxFrom December 5 to December 9 of lastyear, representatives of more than 100 nationalgovernments met in Montreal forthe mid-term ministerial review of the UruguayRound of multilateral trade negotiations underthe General Agreement on Tariffs and Trade(GATT).What Is GATT?GATT is a commercial treaty, whose aim, asstated in its preamble, is "the substantial reductionof tariffs and other barriers to trade and. . .the elimination of discriminatory treatment in internationalcommerce." Its main principles include:the most-favored-nation clause, accordingto which any advantage granted to one signatorynation has to be extended to all others (ArticleI); equal treatment of goods from signatory countriesin terms of internal taxation and regulation(Article II); fair trade against dumping and exportsubsidization (Article VI); the elimination ofquantitative restrictions and the exclusive use oftariffs for protection of domestic industry (ArticleXI); and negotiated settlement of commercialdisputes (Articles XXII and XXIII).The name "GATT" also refers to the somewhatinformal association of signatory nations~called "Contracting Parties." All Western Europeancountries, the United States, Canada, Australia,New Zealand, Japan, as well as some 70underdeveloped countries, plus a few Communist-blocnations (Czechoslovakia, Hungary,Mr. Lemieux is an economist and author who has beenwidely published in Canada and France.Poland, Rumania, and Yugoslavia) are members.TJ1e supreme governing body of GAlT is the annualSession of the Contracting Parties but, inpractice, the organization is ruled by the Councilof Representatives of member states. The secretariat,employing some 400 persons and headedby a Director-General, is located in Geneva.After World War II, protectionism waswidespread. Prewar tariffs and import quotas hadbeen supplemented by wartime measures such asforeign exchange controls. Tariffs on manufacturedgoods averaged 40 percent in the industrializedworld; in the U.S. they averaged 18 percentwith peaks of50 percent or more.In 1945, the U.S. government started two initiativesto liberalize international trade. First, aninternational trade treaty, to become known asthe Havana Charter, was proposed. Second, tradetalks were started among 15 nations-Australia,Belgium, Brazil, Canada, China, Cuba,Czechoslovakia, France, India, Luxembourg, theNetherlands, New Zealand, South Africa, theUnited Kingdom, and the United States-withthe purpose of immediately reducing tariffs.The Havana Charter was finally rejected as itaimed more at managed trade and economicplanning than at free trade. The second initiative,the trade negotiations, was more successful. OnOctober 30, 1947, 23 countries-the original 15plus Burma, Ceylon, Chile, Lebanon, Norway,Pakistan, South Rhodesia, and Syria-agreed ontariff reductions covering a significant proportionof world trade. They also rescued the commercialsection of the stillborn Havana Charter andsigned it under the name of the General Agree-

239ment on Tariffs and Trade, to come into effect onJanuary 1, 1948.GATT has remained a provisional agreementwithout a formal organization to supersede it. Asof June 1988, the Agreement has been officiallysigned by 96 nations, which represent more thanfour-fifths of international trade. It is also unofficiallyapplied by some 30 other nations.Tariff Reductions Under GATTBefore the actual "round" of multilateral tradenegotiations initiated in Uruguay in 1986, sevengeneral negotiations had been held under GATT.These negotiations have presided over significanttariff reductions. At Torquay, England, in 1951,tariffs were reduced by one-fourth on averagefrom 1948 levels. The 1964-1967 Kennedy Roundand the 1973-1979 Tokyo Round, both held inGeneva, brought more general tariff reductions:in each of these rounds, tariffs on manufacturedgoods were reduced by an average of 35 percent.Following the Tokyo Round, whose decisionscame in full effect in 1986 and 1987, average(weighted) tariffs are 4.4 percent in the U.S., 4.7percent in the European Community, and 2.8percent in Japan. Average tariffs on industrialgoods have thus decreased from 40 percent afterWorld War II to around 5 percent today.A voluntary dispute settlement mechanismwas established under the Agreement. A tradecomplaint brought by one state against another isdiscussed between them. Ifit cannot be settled byconsultation, it may be referred to the GATTCouncil of Representatives (or, more rarely, tothe Session of the Contracting Parties) who willnormally establish a special panel of three independentexperts. After holding hearings andstudying the contentious matter, the panel submitsa report which typically includes a ruling andsuggested remedies. Panel reports are generallyadopted by the GATT Council.In the 40 years of GATT, there have beenabout 100 complaints put before the GATTCouncil, only a small number of which were notfinally settled one way or another. More than halfof these issues could not be immediately resolvedand were the object of a panel study and report.Complaints to the GAlT have increased in thepast few years: in the 22 months from the beginningof 1986 alone, 20 panels were established.As with most GATT matters, decisions arereached unanimously. GATT decisions are generallyobeyed, although they often require furthernegotiations and compromise. The only penaltyprovided in the Agreement against a memberthat does not abide by a Council ruling is authorizationfor other countries to suspend advantagesto the offending party, but this has beendone only once.Indeed, in many instances, GATT has effectively,albeit slowly, enforced free trade. Resultsof its decisions over the years include: cancellationin 1961 of a British tariff increase on bananas;the 1985 liberalization by the Canadiangovernment of a foreign investment regulationforcing foreign buyers of Canadian companies toengage in a buy-Canadian policy; abolition in1986 of book printing protection through copyrightrestrictions in the U.S., following a EuropeanCommunity complaint.The New ProtectionismYet, GATT's performance has been mixed.High tariff peaks remain: the International MonetaryFund reports that on textiles and clothing,"More than half the tariff lines in Austria, Canada,Finland, Norway and the United States carryduties in excess of 15 percent" (Issues and Developmentsin International Trade Policy, December1988). More important, and despite someTokyo Round efforts, GATT has been quite powerless·inthe face of a new protectionism based onnon-tariff barriers, which not only have resistedthe trend to generally decreasing tariffs, but havebeen on the rise since the 1970s. Also, the Agreementitself has been used to legalize new tariffand non-tariff barriers. Subsidies, countervailingduties,and anti-dumping duties have increased.Non-tariff barriers are very diversified and includeimport licensing, foreign exchange authorizations,minimum import prices, and a numberof bureaucratic obstacles at customs points. In industrializedcountries, the major barriers aretechnical standards, government procurementpolicies, and quantitative restrictions.Technical standards and regulations. These arehealth, environmental, or consumer protectionregulations that are often used to close the domesticmarket to foreign products. Recent exam-

240 THE FREEMAN • JUNE 1989pIes include a Canadian government agency'sstandards barring some American plywood frombeing used in Canadian construction, or the EuropeanCommunity forbidding imports of Americanmeat treated with growth hormones.Government procurement policies. Governmentpurchases often involve preferences for nationalsuppliers. The Tokyo Round has slightlyopened up this market, but many contracts bystate, provincial, and local governments remainclosed to foreign bidders.Quantitative restrictions. This category includesimport quotas and export restraints, and isthe most important and disruptive type of nontariffbarrier. Import quotas apply on many agriculturalproducts (sugar in the United States isone example among many). In May 1988, 261 exportrestraints were in effect, most of the socalled"voluntary" variety. Many nations haveskirted GATT regulations by blackmailing othercountries into "voluntary" export restraint agreementsin such industries as steel (more than 30agreements), electronics, and automobiles. Includingtextiles and clothing, voluntary export restraintagreements cover some 10 percent ofworld trade.In a December 6 statement to the MinisterialMeeting of the Trade Negotiations Committee inMontreal, World Bank President Barber Conablenoted that trade affected by non-tariff barriers almostdoubled in the last 20 years. For example:56 percent of iron and steel imports are hit bynon-tariff barriers, nearly 90 percent of food importsby industrialized countries face such barriers,as do 21 percent of undeveloped countries'exports of manufactures to developed countries.In fact, many forms of the new protectionismhave relied on exceptions duly recognized andthus legalized by GAIT, such as anti-dumping orcountervailing duties, safeguards, and the MultifibreArrangements.Anti-dumping and countervailing duties.These measures are meant to counter so-calledunfair trade. Anti-dumping duties (such as the 6to 47 percent duties just imposed by the EuropeanCommunity against Japanese dot matrixprinters) are recognized by Article VI of GAITas a means of protecting domestic producersagainst products sold in their markets at lowerprices than in the exporters' own markets. If theunderselling is caused by a foreign government'ssubsidies, Article VI legalizes countervailing dutiesas a retaliatory measure. One recent exampleis the countervailing duties imposed by the U.S.government against Canadian soft-wood producers.Safeguards. Even when no unfair trade practicesare alleged, and notwithstanding otherGATT articles, a country is empowered by ArticleXIX to enact emergency actions or "safeguards"against any imported products that"cause or threaten serious injury to domestic producers."Safeguards may be tariffs, quantitativerestrictions, or any other measure. From 1950 tothe end of 1988, 134 Article XIX actions hadbeen taken; at mid-1987, 26 of these measureswere still in force.Multitibre Arrangements. Despite lip serviceabout the desirability of opening up developedmarkets to producers from poorer nations, lessdeveloped countries have been badly hurt by thenew protectionism, often with GATT's seal of approval.Protectionism in agricultural and especiallytropical products is one example. But perhapsthe worst case is the MultifibreArrangements, renegotiated many times since1974 under GATT. Under the Multifibre Arrangementsand the 60 or so bilateral agreementssigned under its authority, textile and clothing importsfrom underdeveloped countries into industrializedcountries are severely restricted. Thishas led to a 20 to 50 percent increase in clothingprices for consumers in industrialized countries.Other exceptions. Many other exceptions tofree trade are legal under GATT, such as restrictionsto safeguard the balance of payments (ArticleXIII), or to favor underdeveloped countriesand their policies (Article XVIII and the newPart IV of the Agreement).Subsidies. Government subsidies are oftenclassified as non-tariff barriers but should betreated differently. On the rise mainly in agriculturebut also important in other sectors (e.g.,aeronautics and shipbuilding in Europe, automobilesin France), they have provided good excusesfor a host of new tariff and non-tariff barriers.Two periods may be distinguished in the postwarhistory of international trade. From GATT'sformation until around 1970, tariff and, to a cer-

GATT AND FREE TRADE 241tain extent, non-tariff barriers were on the wane.Starting around 1970, a phenomenon began toparallel the decline of tariffs: the growth of nontariffmeasures. According to some estimates, thepercentage of U.S. imports covered by protectionincreased from 8 percent in 1975 to 21 percentten years later (The Wall Street Journal, November1, 1985). All over the world, this new protectionismhas now cancelled much of the liberalizationof the past decades.The Tokyo Round had tried to deal with nontariffbarriers, subsidies, agriculture, services,safeguards, and so forth, but with little success.Many of the unresolved issues, which are alsomain contributors to the new protectionism,stood in the forefront of debates and disagreementsin the recent negotiations in Montreal.Agricultural subsidies were the main contentiousissue; the U.S. proposal to eliminate them by year2000 was rejected by the European Community.Final adoption of frameworks of agreement onmatters such as tariffs, services, tropical products,and better enforcement of GAIT decisions weremade conditional upon resolution of this issue.Moreover, no agreement could be reached ontextiles and clothing, safeguards, and protectionof intellectual property. The Uruguay Round negotiationsare to last until 1990.GATT's multilateral trade negotiations arebased on the idea that trade liberalization requiresa global approach by all sides. Bilateralagreements, as were used before (including inGATT's early history), were found to be tooclumsy, slow, and inefficient. Multilateralism isnow threatened again by the rise of bilateraltrade actions, on the one hand, and by regionalfree trade areas, on the other hand. Bilateralagreements such as the Canada-U.S. Free TradeAgreement, the U.S.-Israel Free Trade Agreement,and the Australia-New Zealand CloserEconomic Relations Trade Agreement werepartly designed to counter the threat of the newprotectionism, but they may have added fuel toit. Bilateral or regional free trade agreements donot necessarily lead to freer trade at the worldlevel, and fears that protectionism may be actuallystrengthened by "Fortress Europe" and"Fortress America" are not without foundations.But, as we shall see, multilateralism, bilateralism,and regional free trade areas are not theonly alternatives.The roots of the difficulties in achieving freetrade lie in philosophical problems that are notunique to GAIT, but which help to explain therecent underachievements of this organization.In GATT's language and culture, individualsare identified with their countries which, in tum,are equated to their respective governments. Thisstatist approach leads to a related problem. Oneoften wonders whether what GATT tries to enforceis free trade or managed trade, i.e., its veryopposite. In GATT, everything is done by orthrough national governments, everything isthought of in terms of state action. One GAITbrochure (Aider la croissance mondiale) stressesthat the General Agreement is "not a 'free tradecharter' " but provides means for controlling protectionof domestic industry. The necessity ofsome protection is unquestioned and, as we haveseen, permitted or even encouraged underGATT. The requirements of domestic policiesand planning have precedence over the principlesof free trade. Has the Havana Charter made ananonymous comeback?Another aspect of this fundamental misunderstandingis the philosophy of inter-governmentalnegotiations, on which the whole GAIT systemis based. It conveys the false idea that the lessone government gives up and the more the other"contracting party" concedes, the better off peopleare. This approach is reminiscent of 17th-centurymercantilism which viewed exports as wealthand imports as costs.In a very real sense, freer trade does not needagreements between nations. Trade can be freedby declaring free trade unilaterally, which is basicallywhat the British government did in the middleof the 19th century. British Prime MinisterWilliam Gladstone went so far as saying that "acommercial treaty would be an abandonment ofthe principles of Free Trade. . . if it were foundedon what I may call haggling exchanges." Thebasic philosophical failure of GAIT is that it mayhave distracted us from the advantages of unilateral,one-way free trade.Unilateral Free TradeAlthough the idea of unilateral free trade hasnot yet passed into popular culture, it has beengenerally accepted by economists since the timeof Adam Smith (1723-1790), John Stuart Mill

242 THE FREEMAN • JUNE 1989(1806-1873), and the Physiocrats in 17th- and18th-century France. The desirability and feasibilityof unilateral free trade can be demonstratedin three steps.First, it must be realized that advantages frominternational trade stem·more from imports thanfrom exports.Individuals, not countries, are the real tradingpartners and the ones who benefit from trade.Now, the advantages from trade come more fromwhat one buys than from what one sells. Advantagesfrom trade with your butcher lie more inthe meat you buy from him than from the workyou do to earn the money to pay him. We tradebecause we think that what we get is worth morethan what we give up. Similarly, we work andproduce in order to consume.This applies also to international trade, whichis only inter-individual trade over a political border.As individuals produce in order to consume,and sell in order to buy, so they export in order toimport. From the point of view of individualtraders, importation is the goal; exports are just away to finance their consumption. Advantages ofinternational trade come more from the freedomto import than from the capacity to export.GAIT is plagued by the same problem as governments:it is more a producers' club than a consumers'association because, as shown by thePublic Choice school, the interests of the latterare less concentrated and, thus, less vocal. Maximumprosperity requires that we let consumers(and firms as intermediaries) import freely asthey wish.Would not freedom to import lead to chronicbalance of payment problems? No, for the simplereason that in order to import, residents of acountry must export an equivalent value. Exportsnecessarily equal imports. This is the second stepin demonstrating the advantages of unilateralfree trade.The basic reasoning is quite straightforward.As John Stuart Mill showed 200 years ago, "animported commodity is always paid for directlyor indirectly with the produce of our own industry."An American company pays for its importsin U.S. dollars, which are nothing but titles toAmerican production. The foreign firm receivingthe dollars can sell them in exchange for domesticfunds. The final foreign acquirer of these U.S.dollars will use them to import from the U.S., orwill save them to exercise later his claim toAmerican production. Alternatively, imports intothe United States can be financed by foreignloans, but these eventually will have to be repaidand thus represent titles against future U.S. production.Ifwe look beyond the veil of money andfinancial transactions, then, products are exchangedonly against products. Increasing importswill automatically promote exports.This is just another way of saying that, sinceeach trading company or individual takes careof his own balance of payments (i.e., revenuesand expenditures), there can be no overall balanceof payments disequilibrium. A current accountbalance deficit (higher imports than exportsof goods and services) is financed andexactly compensated by a capital account surplus(net inflow of capital). Conversely, a capitalaccount deficit (net capital outflow) serves to financeour partner's current account deficit, i.e.,to compensate our own surplus. The correspondenceneed not be exact between any two countries,but the equality of all exports and importsmust hold between anyone country and the restof the world.The third step in our demonstration will be toshow that domestic protectionism compoundsproblems.It is true that foreign protectionism will reduceAmerica's capacity to export. But as imports cannotexceed exports over time, foreign protectionismwill also reduce American imports. Now, supposethe U.S. government retaliates withdomestic protectionism. This will directly re~ucethe American consumers' liberty to import,adding further to the disadvantage of foreign protectionism.If Americans import less, they willnot be able to export as much since their importsare somebody else's exports and revenues. It canthus be seen that domestic protectionism reducesboth domestic imports and exports; it further limitstwo-way trade and compounds the problemsofforeign protectionism.It follows that if your neighbor is protectionist,you can limit damages to yourself by buYing fromhim as much as it is in your interest and capacityto do. These purchases will automatically financethemselves since, by permitting foreign vendorsto sell here, we also oblige them to buy from us,one day or another, a corresponding value. As aconsequence, unilateral free trade represents the

GATT AND FREE TRADE 243best strategy for the victim of protectionism.The argument for unilateral free trade waswell-known to French economists of the PhysiocraticSchool. Pierre Mercier de la Riviere (1720­1793) wrote about free trade: "It is obvious that anation can implement it by itself, independentlyof other nations; the right of property can becomea sacred right for its subjects without becomingso in all foreign countries." AnotherPhysiocat, Pierre Dupont de Nemours (1739­1817) added, talking about protectionism: "Ifsome foreign power becomes guilty of one of theoffenses we just talked about, let us never be ledinto retaliatory actions because these would beall against our nation's interest."These theoretical considerations can bebrought to bear on GAIT. Let us suppose thatthe Uruguay Round turns out to be a failure in1990. International markets could still be significantlyopened up by any large country or anynumber of countries unilaterally freeing their citizensfrom their own import restrictions.Through unilateral elimination of trade barriers,we could obtain many of the advantages ofGATT. Higher imports would result, but theywould have to be paid for by increased exports,or by capital inflows which mean increased exportsin the future.Any absolute advantage poor countries havein labor costs would be counterbalanced by ouradvantages in capital-intensive production and/orby exchange rate adjustments. Trade would increaseand flow according to comparative advantages.The economic distortions and moral disgraceof trade barriers against underdevelopedcountries would be eliminated. Indeed, the bestway of fostering development in these countries(besides a liberalization of their own internalpolicies) is to allow them to export in order to financetheir imports from us.As far as agricultural subsidies are concerned,the U.S. government is right in arguing that theymust be abolished. But again, this problem could,and should, be solved unilaterally. Let's just announce(in Canada and/or in the United States)that we will abolish our own subsidies. Even ifagricultural subsidies were not abolished elsewhere,unilateral liberalization would produce ashigh benefits for the economy as a whole as multilateralliberalization,as the International MonetaryFund correctly argues (Issues and Develop-ments in International Trade Policy, December1988).It is quite probable that European taxpayerscould not continue for long to subsidize agriculturalproduction, at the rate of two-thirds the EuropeanCommunity budget. Liberalizing our agriculturewould rapidly force them to follow. In themeantime, any disruptive effect of their temporarilyhigher subsidies would be compensated by theincrease in other exports from us which would benecessary to finance our higher imports of agriculturalproducts. Moreover, it is by no means certainthat free and productive producers can neverundersell subsidized and lazy ones. Boeing stillsells airplanes and often wins sales against subsidizedAirbus. The adjustment potential of a freemarketeconomy has been shown in thepetroleum markets for the last 15 years.The Real World,Today and TomorrowBut the real world is what it is and, until understandingof the advantages of unilateral freetrade has progressed, we may need institutionslike GATT. For the collapse of multilateral tradenegotiations under GATT probably would leadto all-around protectionism instead of declarationsof unilateral free trade.First best is multilateral free trade. Secondbest is unilateral free trade. Third best is institutionssuch as GAIT. Worst is unchecked protectionism.Provided it does not yield to managed trade,then, GATT serves a useful purpose for now.One advantage of such international organizationsis to impose some discipline on nationalgovernments, to prevent them from complyingtoo easily.with demands of domestic pressuregroups. Paradoxically, a club of producers' clubscan dampen local protectionist pressures.But this short-run strategy shouldn't deter usfrom limiting more directly the powers and tradeinterventions of our own governments. No onewould advocate that Western governments negotiateindividual liberty with Communist countries:"If you do not free your subjects, we willenslave ours equally...." But isn't this exactlywhat negotiating free trade amounts to in theeconomic realm? Let's consider the alternative ofunilateral free trade.D

244A REVIEWER1SNOTEBOOKThe Other Pathby John ChamberlainIn two trips to post-Allende Chile I skippedover Peru without a decent sight of Lima.But I've seen the shacks of squatters onthe hillsides in back of Caracas in Venezuelaand in the land around Santiago in Chile, andit is easy to visualize the same ring of unfinishedtin and cardboard huts around Lima.The shacks are illegally situated, but nobodydoes much to disturb them. For where else canpropertyless people go except back to thecountry, where life is all too hard for a merepeasant field hand? The shacks around Limabelong to what Hernando de Soto, a Peruvianwho runs a fact-finding agency called the Institutefor Liberty and Democracy (ILD) callsthe informal, as opposed to the formal, economy.This economy, which de Soto disdains tocall black, is the natural response to an impossiblesituation of people who, quite understandably,refuse to die. The story of "the invisiblerevolution in the Third World" is ably toldin de Soto's The Other Path (New York: Harperand Row, 271 pp., $22.95).The older inhabitants of Lima, with legalbusinesses staked out and their own housingneeds taken care of, don't welcome newcomersfrom the country, but they bow to faits accompliswhen these come with impressive planningand power. De Soto tells how the invadersfrom the country move in to seize emptystretches of land on the Lima periphery. Oneevening there may be nothing stirring on theland. But, come morning, a whole group of invaderswill have marked out their plots and setup the first approximations of scores ofhouses.Normally the police look on. The police knowthat the invaders represent a potential politicalpower that they may have to reckon with someday.The invaders speak of something they callan "invasion contract" based on "an expectantproperty right." De Soto's ILD found in 1985that out of every 100 houses built in Lima, 69were governed by the extra-legal system.After the first seizure comes the long wait.There are 159 bureaucratic steps which residentsmust complete in order to legalize, orformalize, their settlement. The process of formalizationtakes an average of 20 years.To start a legal business is almost as forbidding.First, there must come an adjustment ofland. This takes 83 months to complete. Thecost of an adjustment is $590.36, which is 15times the monthly minimum wage. Sewage andwater functions must be arranged for, andthere must be access to transport, which islargely illegal. It takes 12 months to obtaindocuments that allow building to start. Studyingcases, the ILD found that "the cost of accessto formal markets, in terms of time, wasan average of seventeen years, from the formationof a minimarket until the market·propercomes into operation." The difficulties ofbuilding their own markets explains why somany people decide to become street vendors.Even when one has a legal, or formal, businessgoing, 40 percent of an administrator's workinghours are used up by bureaucratic procedures.It is small wonder, then, that newcomers toLima are inclined to say to hell with formal

245procedures. They choose "the other path."Their time is their own, though they may haveto pay an occasional bribe. And their money istheir own.There are, however, certain costs of beinginformal. One is that the contracts betweenbuyers and sellers are not enforceable in law.People must trust each other. Another cost isthat credit to buy expensive machinery is hardto come by.De Soto's theory is that Peru, and much ofthe rest of Latin America, is still living in theseventeenth and early eighteenth centuries,when the system of mercantilism governedbusiness dealings. Mercantilist economies ultimatelystagnated because, as de Soto puts it,"their elite entrepreneurs specialized in exploitingregulations which favored them overnew methods of production." The changes inEngland came relatively peacefully as Parliament,impressed by Adam Smith, passed somegood laws. In France there had to be a violentrevolution followed by Napoleonic dictatorship.Napoleon's wars smashed mercantilistpractices in most of Western Europe.Michael Novak, Zbigniew Brzezinski, SenatorBill Bradley, and Jean Fran~ois Revel areamong those who are quoted on the jacket ofThe Other Path. Their laudatory comments arenot surprising. What is surprising is to findRichard Nixon, who once imposed pricecontrols, leading a chorus of praise for whatNixon calls "the clarion voice of economistHernando de Soto, whose book... is a pivotalstudy of the extraordinary entrepreneurialdynamism of Peru's underground economy."De Soto says of his book that there is nothingin it "that needs to be confirmed by complexlaboratory experiments. You have only toopen the window or step into the street." Whatyou will encounter in the Lima streets besidesthe illegal bus lines are 91,000 street vendorswho "maintain a little over 314,000 relativesand dependents." Besides the street vendorsthere are 39,000 proprietors of informal marketstalls whose businesses are valued at $40million. So it is really a misnomer to speak ofPeru's "underground economy." It couldn't bemore in the open. The "visibility" of it allmocks de Soto's own subtitle, "The InvisibleRevolution in the Third World."American readers of The Other Path willfind it. exciting enough even though de Sototosses the names of unfamiliar Lima mayorsand Peruvian military dictators and civilianpresidents into his text with no effort to specifywhat they stood for individually. For native Peruvianswho know their own history and havea detailed map of Lima in their heads the bookmust be incredibly exciting.DADVERTISING AND THE MARKETPROCESS: A MODERN ECONOMIC VIEWby Robert B. Ekelund, Jr., and David S. SaurmanPacific Research Institute for Public Policy, 177 Post Street, SanFrancisco, CA 94108 • 1988 • 212 pages • $29.95 cloth, $12.95 paperbackReviewed by Robert W McGeeProfessors Ekelund and Saurman take theneo-Austrian view that advertising promoteshuman welfare by providing marketinformation and lowering search costs. Theysee this view as a minority perspective, but onethat is growing in popularity.The majority perspective, espoused by AlfredMarshall, John Kenneth Galbraith, and others,sees advertising as wasteful at best and monopolyenhancing at worst. The authors show that themajority view of advertising is incorrect on severalcounts, and present one of the most thoroughcases yet written for the neo-Austrian view.Rather than verging on the unethical and manipulative,advertising helps consumers to discoverwhat goods and services are available.The book starts with a foreword by Israel M.Kirzner, one of the leading exponents of Austrianeconomics. The first chapter traces the historicaldevelopment of advertising and discusses themodern criticisms of mass marketing. As far backas the Middle Ages, advertising was regulated bygovernment, which gave monopoly powers tothose who were permitted to advertise. InFrance, for example, only town criers who werefranchised by the government could advertise aParisian tavern keeper's wine. In England, theadvertising tax helped retard the spread of literacybecause it made newspapers more scarce.Where advertising has been unhampered, consumershave benefited and markets have beenmore open. Restrictive practices, on the otherhand, have tended to help established producers at

246 THE FREEMAN • JUNE 1989the expense of newcomers. Far from being a barrierto entry, advertising is one of the principalmeans by which new competitors can enter a market.For example, before cigarette advertising wasbanned from television in 1970, an average of. one new brand a year successfully penetrated themarket. Between 1970 and 1974, no new brandwas successfully introduced. The beneficiaries ofthe ban were the firms with established brands.The losers were the companies that couldn't introducetheir products and consumers who neverlearned of the new products' existence.The theories that advertising raises overallprofits and increases concentration ratios also aredismantled by Ekelund and Saurman. (Concentrationratios measure the sizes of the leadingfirms in an industry, versus the size of the entireindustry.) Unrestricted advertising makes it easierto enter markets, which leads to increasedcompetition and lower prices.Ekelund and Saurman offer some telling examples:When MatteI started advertising toys onthe Mickey Mouse Club television show in the1950s, some toy prices dropped by 30 to. 40 percentin areas where advertising was relatively frequent,while prices remained relatively stable inareas where advertising was infrequent or nonexistent.The prices of eyeglasses are lower whereeye doctors haven't been able to push throughbans on commercial advertising. Legal servicesare cheaper where advertising is permitted. Unrestrictedadvertising also reduces the prices ofdrugs, gasoline, and numerous other productsand services. There is even some evidence thatthe qualities of goods and services improve whenrestrictions on advertising are lifted.The chief beneficiaries of advertising restrictionsare established firms that already have ashare of the market. They often defend these restrictionsby claiming that advertising bans protectthe consumer, who presumably isn't capableof making rational decisions. But as Ekelund andSaurman point out: "There is no validity in thenotion that consumers can properly evaluate proposednational policies when selecting officeholdersbut are somehow unable to choose betweenand evaluate the merits of two different cans ofbeans."Professor McGee teaches accounting at Seton Hall University.ROBERT LEFEVRE: "TRUTH ISNOT A HALF-WAY PLACE"by Carl WatnerThe Voluntaryists, Box 1275, Gramling, SC 29348 • 1988 • 236pages.- $14.95 paperbackReviewed by K. E. Grubbs Jr.Among libertarian philosophers, RobertLeFevre was sui generis, one of a kind.That is how the self-proclaimedautarchist would want to be remembered, ofcourse: as an individualist who packed several careersinto one life, and who made his mark on histimes by teaching an ethical code defiant of theprevailing collectivism. Consider those careers.He had been a failed actor, a radio announcer, astruggling hotelier, an innovative television newscaster,a newspaper editor, and the founder andpresident of a small college.I remember Bob, who died in 1986 at the ageof 75, as the most stimulating lecturer I had everheard, vastly more thought-provoking than mycollege professors. He vaguely resembled MarkTwain, and his wry humor could keep a class's attentionfor twelve hours a day, five days a week.Seriously. Freedom Newspapers, the nationwidemedia chain that employs me, would periodicallysend its editors through his course, which hecalled "The Fundamentals of Liberty." Uninitiates,hearing about the regimen, would imagine ascene from A Clockwork Orange: strapped into achair, eyelids pinned back, attention fixed on thelecturer, who would ladle The Truth into thenow-robotized participant's brain.No such nightmare. Bob simply drew on hismultitude of experiences as a communicator andsustained our keen interest. He never took anycourses in educational methodology; indeed, hepossessed no college degree. Had he such a credential,or had he suffered through the pedagogicaltechniques stressed in the teachers' institutions,his considerable capability would surelyhave been spoiled, his students reduced to snores.As a teaching phenomenon, he awakened usto the competing natures of man and politicalgovernment, the latter coercively hobbling allcreativity in the name of some collective good.He explored the alternatives ofvoluntarism, evenchallenging us to imagine how seemingly necessaryfunctions of the state could be conductedwithout taxation or force. Come on, we would

OTHER BOOKS 247think. Could interstate highways be constructedwithout taxpayers' money or the invoking of eminentdomain? You bet they could, if we but disciplinedour imagination and our morality. Such, ofcourse, were the exercises of the ideologicalpurist, but I daresay such kernels, planted back at"Freedom School," a.k.a. Rampart College, blossomedinto the privatization movement of today.It is well that someone should write a biographyof this man, this exceedingly gentle man.(Bob was a pacifist, though he shunned theword.) One of his dedicated students, Carl Watner,has produced a biography, a project authorizedby LeFevre himself, who cooperated by furnishingpapers and an oral self-history. LeFevrealso led Watner through several revisions beforehis death. Perhaps because the writer had such anunfree hand, Robert LeFevre: "Truth is Not aHalf-way Place" suffers drastically.Alas, if one wanted one's moral philosophytaken seriously, this is not the sort of introductionto it one would want published. Or so I shouldthink. Though again, perhaps it is to Bob's credit(and I can well imagine him being so brutallyhonest with himself) that he wanted it all out,warts and all. Here is a man who spent about thefirst third of his life deeply involved in-or tryingto extricate himself from-a truly odd religiouscult, the "I Am" movement.Bob, it seems, allowed a couple of peripateticcharlatans to explain, in terms of a gnostic formulathat fueled their enterprise, some astonishingmystical occurrences that he had experienced inhis early years. Somewhere in this world or thenext, or both (if 1 have this right), there existed"masters" who possessed true wisdom; they possessedsuch wisdom by being in touch with "St.Germain," who benevolently guided the earnestseeker's life. Bob was an earnest seeker, indeedsome thought a "master"; but he pursued "St.Germain" at the cost of considerable autonomy,becoming an acolyte of the "I Am" founders. Itwas not until he was nigh middle-aged that Bobwas able to shake the mental tropisms of a cultist;he brought a small circle of his followers, mostlyfemale, into the freedom movement with him.Then there were the touching romances andthe messy divorces, not just his own but that of afellow cultist he'd promised to marry, and thendidn't, if she would obtain her own divorce. Andthere were the philosophical squabbles and thebroken friendships or estrangements with otherlibertarian leaders, among them Leonard Read,F. A. Harper, and R. C. Hoiles. Winningly andcharmingly, Bob would allow that these unhappydevelopments made him learn and grow. Perhapsso, perhaps not.Read tried to warn him that funding for hisventure in the Colorado mountains, RampartCollege, would suffer unless he eschewed hismore extremist tendencies, which looked awfullylike anarchism (a word Bob really eschewed, infavor of the more curious "autarchism," whichsome dictionaries define both as "self-sufficiency"and "despotism"). Bob pressed on, refusingto compromise his belief that all coercion, bothinitiated and defensive, is immoral. When Read,embracing the necessity of defensive force, wrotehis Government: An Ideal Concept (an eminentlysensible book, by the way), LeFevre reacted as ifit were the height of naivete. Harper, who agreedwith him on the impossibility of an ideal government,would eventually tum down a leadershiprole at Rampart College-where such luminariesas Milton Friedman, Frank Chodorov, and RoseWilder Lane lectured-for fear that it woulddamage his academic standing.The most troubling break of all was with R. C.Hoiles, the patriarch of Freedom Newspaperswhose son, Harry, publisher of the ColoradoSprings Gazette-Telegraph, hired Bob as his editorialpage editor. LeFevre happened on one occasionto be staying at R. C.'s Santa Ana, California,home when out of the blue (in Watner'sversion) the senior Hoiles, using some stern language,threw him onto the street. Harry, who tohis father's disappointment had accepted Bob'sarguments against the death penalty, assured thestunned LeFevre of continued employment (laterconferring on Bob the title of editor-in-chief).Here Watner dabbles, ever so briefly, in psycho-biography.He speculates that R. C., towhom a close-knit family was sacrosanct, simplycould not abide the intellectual power Bobseemed to exert over Harry. Hence the explosivenessof R. C.'s encounter with LeFevre. Ihave known (and admired) all three men, and Isuspect there was more to this rocky event. R. C.,in addition to being a pioneer in the libertarianmovement, was a savvy businessman; 1 think, inhis dealings with LeFevre, he smelled a poseur, atleast suspected one. And R. C. did believe gov-

248 THE FREEMAN • JUNE 1989ernment could be an agent of defensive force.Bob, philosophically at least, would treat themost heinous criminal as a Hindu would a cow.The story tells us much about the nature ofwisdom and the nature of ideology. For all his unbending(some say dogmatic) morality, you alwaysgot the sense that R. C. Hoiles was thinking,forever re-examining his positions, right up to hisdeath in his nineties. In Bob LeFevre's case, youcould sense sometimes an evasiveness (eventhough he encouraged questions during his lectures),a promotion of the idea that he had sortedout a complete, non-contradictory belief system,case closed. IfI might myself dabble in psycho-biography,it is possible Bob carried over this variationof gnosticism from his "I Am" days, unconsciouslysetting himself up as a cult leader.Still, Bob was if anything politically liberating.To his resume one must add disappointed politician,for he once ran, in a Republican primaryelection for Congress, against Richard Nixon. Hefelt the mud slung at him and left political activismforever, prompting some to connect his antagonismto politics to a psychological source.But he also contended, compellingly, that politicalattempts to regulate behavior, whether fromthe left or the right, were equally destructive."Left and right," he would chuckle, "are buttwo wings on the same bird of prey." Surely, ithardly matters to a victim of torture if his tormentoris a lieutenant of Pinochet or a minion ofGorbachev. And attempts to regulate personalbehavior in the interest of traditional moralitycan be as counter-productive as regulation of economicbehavior.A useful metaphor, this bird of prey, but it isultimately specious because so symmetrical aview of history seldom occurs in reality. It is likethe guy who always answers "Fifty-fifty" whenyou ask about the odds of rain. Anyway, the leftwing may well be flapping with vastly more forceand velocity than the right wing, as indeed itseems to be doing in the late 20th century. I don'tknow ifBob really understood that.Where Bob was fundamentally liberating wasin helping us to fathom that man is, by nature, avolitional creature, and that attempts to substitutepolitical decision-making for individualchoice would always come a cropper. Where Bobmight have been deficient was in the spiritualrealm, a stuntedness that might have grown outof his miseducation in the "I Am" movement. Herightly twitted the atheists because, as he wouldpoint out logically, negatives cannot be proved.But he would settle on describing himself as eitheran agnostic or, curiously, a deist.1 well remember a poignant essay Bob wrote,in his LeFevre's Journal, on the passing of hislongtime friend Ruth Dazey. She had been withhim since the "I Am" days and had recently gonein for more orthodox enthusiasms, concerningwhich he wrote approvingly. Still, he held backsophistically,1 thought. 1 sent him two books,Malcolm Muggeridge's Jesus Rediscovered and J.B. Phillip's Your God Is Too Small, with thethought that they might reach into his iconoclasticheart.In what seemed like the next mail, I receivedwhat I thought would be a gracious, multi-pagedletter. Alas, it was neither acceptance nor rebuttal,but the same old skeptical territory covered,as it were, by someone who wanted to keep thecase closed. Watner's book gives us few cluesabout that dimension of Bob's life, perhaps atBob's insistence. My contacts with Bob after thatwere not so engaged, and I subsequently went offto Washington, D.C., the heart of the monster,where I was when 1 learned of his death. In aGeorgetown restaurant I ran into a friend whohad also been through one of Bob's courses, adecade and a half earlier, and who had ignoredBob's injunction against government activism bygoing to work in the White House."I hope he made it," my friend said fondly. Indeed,1 hope he has more enriching companythan "S1. Germain." 0K. E. Grubbs Jr. is editorial and commentary director ofthe Orange County (California) Register.

IDEAS ON LIBERTY252 Crime and ConsequencesRobert James BidinottoIn the first of his three-part series, Mr. Bidinotto looks at criminal responsibility-thecrime explosion, the "criminal justice" system, and the excuse-makingindustry which endeavors to explain away criminal behavior.CONTENTSJULY1989VOL. 39NO.7263 Section 89: Tax Code Limits Workers' ChoicesRoy E. CordatoHow a controversial part of the Tax Reform Act of 1986 threatens freedom ofchoice in the workplace.265 Deposit Insurance Deja VuKurt SchulerDeposit insurance crises are almost as old as government·deposit insuranceitself.270 Privatize Deposit InsuranceJeffrey Rogers HummelThe only solution that can overcome moral hazards in the banking and thriftindustries.272 Personal Responsibility: A Brief SurveyDavid C. HuffMonitoring the dangerous course away from personal accountability.274 Thomas Erskine: Advocate ofFreedomSean GabbA seldom-remembered defender of freedom and the rule of law.279 Racial Tensions: The Market Is the SolutionDavid BernsteinPutting aside prejudice in pursuit of self-interest.281 Readers' Forum283 Book Reviews:John Chamberlain reviews Nick Eberstadt's The Poverty ofCommunism.Other books: The Theory ofMarket Failure, edited by Tyler Cowen,Monopoly Mail by Douglas K. Adie, and The American Job Machineby Richard B. McKenzie.

THEFREEMANIDEAS ON LIBERTYPublished byThe Foundation for Economic EducationIrvington-on-Hudson, NY 10533President ofThe Board:Vice-President:Senior Editors:Contributing Editors:Bruce M. EvansRobert G. AndersonBeth A. HoffmanBrian SummersBettina Bien GreavesCarl O. Helstrom, IIIEdmund A. OpitzPaul L. PoirotThe Freeman is the monthly publication ofThe Foundation for Economic Education, Inc.,Irvington-on-Hudson, NY 10533. FEE, foundedin 1946 by Leonard E. Read, is a nonpoliticaleducational champion of private property,the free market, and limited government. FEEis classified as a 26 USC 501 (c) (3) tax-exemptorganization. Other officers of FEE's Board ofTrustees are: Thomas C. Stevens, chairman;Ridgway K. Foley, Jr., vice-chairman; Paul L.Poirot, secretary; H.E Langenberg, treasurer.The costs of Foundation projects and servicesare met through donations. Donations are invitedin any amount. Subscriptions to TheFreeman are available to any interested personin the United States for the asking. Additionalsingle copies $1.00; 10 or more, 50 cents each.For foreign delivery, a donation of $)5.00 ayear is required to cover direct mailing costs.Copyright © 1989 by the Foundation for EconomicEducation, Inc. Printed in the U.S.A.Permission is granted to reprint any article inthis issue, except "Crime and Consequences,"provided appropriate credit is given and twocopies of the reprinted material are sent to TheFoundation.Bound volumes of The Freeman are availablefrom The Foundation for calendar years 1969to date. Earlier volumes as well as current issuesare available on microfilm from UniversityMicrofilms, 300 North Zeeb Road, Ann Arbor,MI 48106.The Freeman considers unsolicited editorialsubmissions, but they must be accompanied bya stamped, self-addressed envelope. Our author'sguide is available on request.Phone: (914) 591-7230FAX: (914) 591-8910PERSPECTIVEWhy the Soviet EconomyIs Still in TroubleRecent reports from the Soviet Union indicatethat the Soviet economy has faltered underMikhail Gorbachev's perestroika, or restructuring.The news is puzzling to Western journalists,as it must be to the Soviet governors themselves.After all, the regime has promoted more efficientmanagement of the economy and waged a majorcampaign against the corruption that affects everylevel of Russian life. But instead of the expectedflowering of production, distribution, andconsumption, things have gone from bad toworse. Today, even in privileged Moscow, suchbasic items as beef, sugar, tea, coffee, toilet paper,and gasoline are usually scarce and often nonexistent,at least in the stores open to ordinary people.Such a development, however-or rather, sucha lack of development-will not surprise the economicallyalert. It is the essence of perestroika tobe a restructuring of the Soviet managerial economy,an assertion of power from the top down.Indeed, perhaps to facilitate his task, Gorbachevhas been increasing the already tremendous powersgranted to him under the system inheritedfrom his predecessors.The Soviet leaders and their legions of Westernadmirers do not see, however, that they aretaking precisely the wrong actions to achieveprosperity. The fundamental problem of the Sovieteconomy is that it is too heavily centralized,too thoroughly managed. The spontaneity neededto meet consumer demand, introduce newproducts, and adjust prices to each other simplycannot happen under these circumstances. Infact, one of the few things that keeps the Sovieteconomy running at all is corruption, for, in a societywhere nearly all economic activity has beenmade criminal, corruption is almost the only wayin which goods and services can be freely exchanged.So, by cracking down on corruption,perestroika has chilled the only area of Soviet lifein which genuine economic behavior is possible.At the same time, the few "market-oriented"reforms tried have been half-hearted and enmeshedin threats against those who seek to

"profiteer." In a nutshell, people are terrified tostart businesses, for they never know when eventhe slight incentives offered might be revoked,and those who have taken advantage of thempersecuted as criminals.Gorbachev mayor may not be a good manwho sincerely desires to improve the lot of thepeoples of the Soviet Union. What is certain isthat Gorbachev is wholly on the wrong track withthe policy of perestroika both as stated and as implemented.What the Soviet economy needs isnot "restructuring" but destructuring; not moregovernment control over the economy, but less. IfGorbachev and his henchmen could bring themselvesto simply leave the Soviet people alone togrow, to produce, to invent, to buy, and to sell,they would soon find themselves sitting on top ofan economic colossus, and it wouldn't take a pennyof Western aid.-NICHOLAS DAVIDSONWhy the RussiansDidn't MarchThere is a joke in which an American and aRussian argue about who has more freedom. TheAmerican says, "I can come up to the WhiteHouse and yell, 'Down with the President of theUnited States!'" The Russian says, "Well, I cancome up to the Kremlin and yell, 'Down with thePresident of the United States!' too!"This joke is a completely inaccurate reflectionof Soviet realities: Soviet citizens do not evenhave that kind of freedom. Here is a typicalepisode.In the year of the fiftieth anniversary of thefounding of the USSR, the Party organizer at oneof the departments of Moscow State Universitydeclared at a meeting that Communist enthusiasmwas waning in our society: no one had eventhought of organizing a parade to mark an eventof such importance. The Party organizer calledon the department to fan the dying flames byholding a march, on their own initiative, in honorof the anniversary of the Soviet state. Signs andposters had already been prepared, and the timePERSPECTIVEwas set for the march to begin. But the processiondid not take place. When the dean's officefound out about the proposed unauthorizedevent, they were horrified. The march wasbanned, the posters confiscated, and the Party organizerreprimanded.Why were the authorities so horrified? Thehapless Party organizer had unwittingly violatedone of the chief principles of Communist rule: adoctrine that contains absolute truth cannot givethe individual any freedom at all, not even thefreedom to support the doctrine on his own freewill.-GLEB ANISHCHENKO,writing in Glasnost, a dissident publication foundedin Moscow in 1987. Translation provided bythe Center for Democracy in the U.S.S.R., 358 W.30th Street, Suite I-A, New York, NY 10001.Social SecurityToday's workers should keep in mind that thepayroll taxes they pay will not finance their socialsecurity benefits. Rather, tomorrow's workerswill pay. for these benefits through payroll, orother taxes. Furthermore, in order to pay currentlypromised benefits, tax rates will have torise. Depending upon future economic and demographicconditions, payroll tax rates may wellhave to double or triple to cover social securitybenefit payments.Future workers, however, may object to everrisingtaxes. Faced with opposition, politicianswill alter the structure of social security, as theydid in 1983 when social security benefits weretaxed for the first time and the retirement agewas raised. Because social security is neither anannuity nor a legal guarantee, today's workersmay well find that the social security benefitsthey actually receive will be less than what is currentlypromised. Moreover, because of the detrimentaleconomic effects of higher tax rates, today'sworkers will face a lower standard of livingall along the way.-ALDONA E. ROBBINS, writing in The ABCsof Social Security, published by the Institute forResearch on the Economics of Taxation.

252THEFREEMANIDEAS ON LIBERTYCrime and Consequencesby Robert James BidinottoPart I: CriminalResponsibilityDuring the past Presidential campaign, theissue of crime loomed large-due, inpart, to this writer's Reader's Digest articleon the now-infamous Willie Horton case'!That story offers a fitting introduction to the subjectof America's seemingly intractable crimeproblem, and what's wrong with our criminal justiceand correctional systems.Horton was a habitual criminal, sentenced inMassachusetts to "life with no possibility of parole"for the savage,'unprovoked knife slaying ofa teen-age boy. However, like many other alleged"lifers" in that state, after only 10 years in prisonhe was transferred to an unwalled, minimum-securityfacility. There, he became eligible for dailywork release, as well as unescorted weekend furloughs,from prison.Following the example of 10 other "life-without-parole"killers over the years, Horton decidednot to return from one of his furloughs. Instead,months later, he invaded the home of ayoung Maryland couple, where for nearly 12hours he viciously tortured the man and rapedthe woman.Not even a "life without parole" sentence for agruesome murder had been enough to keep akiller off the streets-a fact which incensedCopyright 1989 by Robert James Bidinotto. Mr.Bidinotto, who has written several articles for The Freeman,is a full-time writer and lecturer specializing inpolitical and cultural topics.enough Americans to become a major election issue.It also reopened the public debate about thecriminal justice system in America. For as thecampaign rhetoric grew heated, many citizens beganto discover that the Horton episode was notan isolated exception. Instead, they learned that,in today's criminal justice system, justice is theexception.Now that public awareness of, and concernabout, such matters is intense, it seems an opportunetime to reconsider the way in which we approachthe problem of crime.Permit me to begin on a personal note. Mywork on the Horton story put me in touch withpolice, parole and probation workers; with politicians,prosecutors, and prison reformers; withjudges and jurists, therapists and theorists, correctionsofficials and-most important-crimevictims. The faces of victims have haunted me forover a year. So at the outset, let me declare mybias without apology: it is for them. Today, theyare too often the forgotten people in our legalsystem; and their cries for justice must be heardand answered.For months, the more I learned, the more I realizedthat what happened in the Horton episodewas symptomatic of a whole approach to crimewhich has gained sway during the past threedecades. In this article, and those in the next twoissues of The Freeman, that approach will be exploredin its many facets:• the reasons for the surge in criminality duringthe past three decades;• the various theories which purport to "explain"crime;• the nature of criminals;

253-the criminal justice system which confrontsthem;-the correctional system which tries to reformthem; and-the ways in which our approach to crimemight be changed.The Crime ExplosionAcross the nation, our system of dealing withcrime has utterly broken down.To put things in perspective, we must firstgrapple with some numbers. Crime itself continuesto increase, with no end in sight. The numberofcrimes reported in 1987 was 12 percent higherthan in 1983 and 21 percent higher than in 1978. 2Not only is the number of crimes increasing; sois the crime rate-the number of reported crimesper 100,000 people. From 1964 to 1980, the propertycrime rate increased nearly 2.5 times, whilethe rate of violent crime tripled. 3Though these rates declined somewhat duringthe first half of this decade, they have been risingsteadily since. 4Such statistics tend to depersonalize the issue.It's quite another matter when you are personallyassaulted or robbed; when your wife or daughteris raped; when your neighbor's home is burglarized;when an employee embezzles funds fromyour business. Such things happen to us more frequentlythan we realize. In 1986 alone, about onehousehold in four was touched by some kind ofcrime-meaning that at least someone in each ofthose homes fell prey to a criminal.5Another gauge of the crime explosion is therapid growth of prison populations. In 1960, therewere some 200,000 inmates in Federal and stateprisons; by 1987, there were 581,609. 6 This mightseem proof of a growing "get-tough" attitude towardcrime. Yet the percentage of serious crimescommitted which resulted in imprisonment actuallyfell sharply throughout the 1960s and 1970s.In 1986, the ratio of prison commitments to totalcrimes was 32 percent lower than in 1960. 7 Thismeans that a third fewer of total crimes were beingpunished with imprisonment. It also meansthat, despite rapidly increasing prison populations,the crime rate is growing even faster thanwe've built cells to hold all the new criminals.And in fact, even these statistics paint too rosya picture.The Federal Bureau of Investigation (FBI) announcedthat, in 1986, 13.2 million serious crimes,from murder to auto theft, were reported to localauthorities. 8 However, the FBI's statistics coveronly eight specific "index crimes." Moreover, itsnumbers reflect only those incidents reported topolice. In fact, the FBI's annual Uniform CrimeReports grossly understates the total number ofcrimes which actually occur.In an effort to get more reliable numbers, theAmerican Bar Association (ABA) recently compiledinformation from various sources, includingcrime-victim surveys. The ABA estimated that,in reality, about 34 million serious crimes hadbeen perpetrated nationally during 1986-some2.5 times what the official numbers indicate. 9This means that other official data-such ascomputations of arrest and imprisonmentrates-do not begin to convey how serious thecrime problem is. For example, FBI statisticsshow that only one of every five serious crimesreported to police are "cleared" by an arrest. 1OBut if the ABA is correct, we must multiply by2.5 to account for unreported serious crimes. Thisreveals that there is actually only one arrest forevery 12.5 serious crimes committed. Put anotherway: only eight serious crimes in 100 result in somuch as an arrest.What are the chances that even this small percentageof arrested criminals will ever see the insideof prison? Consider now what happens withinthe criminal justice system."Criminal Justice": An OverviewOf the eight felons per 100 serious crimes whoare arrested, one or two are teenagers who arerouted to the juvenile justice system (which is farmore lenient than the adult system). This leavesonly six or seven adults apprehended for every100 serious crimes committed. Of these, manyare released for lack of sufficient evidence or ontechnicalities; a few are acquitted after standingtrial. Of the tiny number remaining who pleadguilty or are convicted, most receive dramaticallyreduced sentences, or are allowed simply to"walk" on probation, thanks to "plea-bargain"arrangements.The results? According to the federal government,for every 100 serious crimes reported in1986, only 4.3 criminals went to prison. ll But ad-

254 THE FREEMAN • JULY 1989justing once again to account for unreportedcrimes, we find that in 1986, only 1.7 percent ofthe most serious crimes were punished by imprisonment.In other words, only 17 perpetratorswere put behind bars for every 1,000 majorfelonies.In calculating his chances of being punished,then, any would-be criminal would logically concludethat the odds are definitely on hisside-that today in America, crime does pay.Hence the phenomenon of the career criminal.Most crimes are committed by repeat offenders,often arrested but rarely imprisoned. For example,in 1986, Massachusetts state prison inmateseach had an average of 12.6 prior court appearances.Since, as we have seen, the typical criminalgets away with 12.5 felonies for his every arrest,simple multiplication (12.6 X 12.5) suggests that,on average, many of the Massachusetts inmateshad committed well over 100 crimes. Few ofthese inmates were teenagers: their average agewas 31. Yet despite their status as career criminals,47 percent of them had never before beenincarcerated as adults. 12The career criminal knows, too, that even inthe unlikely event he's ever sent to prison, all isnot lost. If he's been convicted of multiplefelonies, he stands a good chance of getting "concurrentsentences," to be served simultaneouslyinstead of consecutively. This greatly reduces thetime he'll spend behind bars. And he also knowsthat prison sentences almost never mean whatthey say.In most jurisdictions, parole eligibility comesafter serving only a fraction of the nominal termhanded down by a judge. In addition, from thetime he enters prison, the inmate is offered a defacto bribe of automatic deductions from hissentence for each day of good behavior (called"good time"), as well as additional deductions forblood donations or participation in various rehabilitationprograms. These may count eitheragainst his prison term itself, or his post-releaseparole supervision time.Furthermore, virtually every state offers the inmatea wide array of outside release programs.After serving only part of his sentence, the inmatecan become eligible to leave prison wallsand work at a job (work release), or attend classes(education release), or simply visit his familyand friends for several days at a time (home furloughs).The public's image of the hardenedcriminal leaving prison handcuffed to an armedguard is many years out of date. In many currentrelease programs, even dangerous killers (such asWillie Horton) are simply turned loose withoutany prison escort-presumably in the "custody"of a family member or friend.In summary: even among that small percentageof hardened, repeat offenders who are apprehended,convicted, and imprisoned, few willspend very long under lock and key. And within ashort time after release on parole, most resumetheir criminal careers. Proof of this lies in manystudies showing that paroled inmates have highrates of "recidivism" (or relapse into crime). Dependingon how recidivism is measured, fully athird to half of all paroled inmates are returnedto prison within a year or twa-and this despitethe very low chance of being arrested for any oftheir subsequent crimes.As every criminal knows, the "criminal justicesystem" is a sham. As we shall later see, the consequencesare undermining the motivation andintegrity of those who man the institutions of thelaw. Worst of all, millions of victims, who hopefor justice, find that some of the worst crimesagainst them are perpetrated after they go tocourt.Irrationality of this magnitude doesn't "ju~thappen." Nor would it long be tolerated, withouta complicated framework of abstract rationalizationsto soothe, confuse, and dismiss critics. Likemost compromised institutions, today's criminaljustice system is the handiwork of what I call the"Excuse-Making Industry."The Excuse-Making IndustryThis industry consists primarily of intellectualsin the social-science establishment: the philosophers,psychological theorists, political scientists,legal scholars, sociologists, criminologists,economists, and historians whose theories haveshaped our modern legal system. It also consistsof an activist wing of fellow-travelers: socialworkers, counselors, therapists, legal-aid and civil-libertieslawyers, "inmate rights" advocates,"progressive" politicians and activists, and so on.It was this industry which, in the 1960s and1970s, initiated a quiet revolution in the criminaljustice system. Its proponents managed to rout

CRIME AND CONSEQUENCES 255the last of those who believed that the system'spurpose was to apprehend and punish criminals.Instead, the Excuse-Making Industry was able finallyto institutionalize its long-cherished dream:not the punishment, but the rehabilitation ofcriminals.Prisons were renamed "correctional facilities,"and state bureaus of prisons became "departmentsof correction." Many aspects of the legaland prison systems, outlined above, were implementedabout ihis time. These reforms dovetailedwith other products of the industry: massivegovernment spending programs to eradicatewhat it called "the causes of crime." Welfare programsmushroomed; academic standards declinedso as not to "discriminate" against the "disadvantaged";"elitist" moral standards were scorned byvarious "liberation" movements.Summing up the unintended consequences ofthese efforts, Charles Murray has written: "Thechanges in welfare and changes in the risks attachedto crime and changes in the educationalenvironment reinforced each other. Together,they radically altered the [social] incentive structure."This became especially evident in the areaof crime: crime rates began to take off whilepenalties for crime lessened. Soon, "a thoughtfulperson watching the world around him. . . wasaccurately perceiving a considerably reducedrisk of getting caught. . . . It was not just thatwe had more people to put in jails than we hadjails to hold them. . . ; we also deliberatelystopped putting people in jail as often. From1961 through 1969, the number of prisoners infederal and state facilities-the absolute number,not just a proportion of arrestees-dropped everyyear, despite a doubling of crime during thesame period."13Clearly, it wasn't the intention of the social-scienceestablishment that crime rates soar. The Excuse-MakingIndustry is no diabolical, centrallydirected conspiracy, harboring some warped, unfathomabledesire to foster criminality. Rather,it's a sprawling intellectual consensus, consistingof many diverse, competing, and often conflictingelements-but united in a single premise: that thecriminal isn't responsible for his behavior.There are many variations on the theme thatbinds the Excuse-Making Industry.There are sociologists, who hold that environmental,racial, social, and economic factors have"driven" the criminal to his anti-social behavior-aview echoed by economists, usually of aMarxist inclination, who argue that criminals areformed by their membership in an "exploited"economic class.There are Freudian psychologists, who contendthat criminals are helpless pawns of emotionaldrives rooted in childhood; and behavioralpsychologists, who believe criminals are clay,shaped by "negative reinforcers" in their familiesand neighborhoods.There are biologists, who cite the alleged correlationbetween criminal behavior and possessionof a so-called "mesomorphic body type";other biologists and geneticists, who think criminalityis caused by genetic, physiological, or biochemicaldeficiencies; still others, who believethere may be a racial or ethnic "propensity" tocriminality.There are eclectics, who think a combinationof such "causes" can "explain" crime.But whatever the variation, the theme is a constant.The criminal is not responsible for his actions,because man is not a causal agent in anyprimary sense. Forces and circumstances outsidehis control "cause" him to behave as he does. Heshould be forgiven, or treated therapeutically, orplaced in a better environment, or counseled to"cope" with his uncontrollable inner demons.But he must not be held accountable for his actions-and,under no circumstances, punished forwhat he "couldn't help."For all its internal bickering, the Excuse-MakingIndustry's common theme may be summedup in a single cry: "He couldn't help it, because..."Arguments arise only in answer to the question:"... because why?"Consider some of the commonly advanced"explanations" for criminal behavior.The Sociological ExcuseIn the musical West Side Story, one juveniledelinquent incisively satirizes the sociologicaltheory of crime, telling the local cop, OfficerKrupke: "We're depraved on accounta we're deprived."Former U.S. Attorney General Ramsey Clarkoffered a more formal summary of the view thatcrime is "caused" by external social and economicfactors:

256 THE FREEMAN. JULY 1989If we are to deal meaningfully with crime,what must be seen is the dehumanizing effecton the individual of slums, racism, ignoranceand violence, of corruption and impotence tofulfill rights, of poverty and unemploymentand idleness, of generations of malnutrition, ofcongenital brain damage and prenatal neglect,of sickness and disease, of pollution, of decrepit,dirty, ugly, unsafe, overcrowded housing,of alcoholism and narcotics addiction, ofavarice, anxiety, fear, hatred, hopelessness andinjustice. These are the fountainheads ofcrime. They can be controlled. As imprecise,distorted and prejudiced as our learning is,these sources of crime and their controllabilityclearly emerge to any who would see,14This is probably the most widely held view ofcriminal causation-and probably the easiest torefute. Whatever might be said of the prevalenceof unsavory social conditions today, surely theywere even more prevalent in decades and centuriespast, and are more prevalent today inThird World nations. Yet despite the fact thatconditions and circumstances have been constantlyimproving for the vast majority of people,crime today is increasing; and it is increasingfaster in America and other developed countriesthan in most poorer parts of the world.ISThe sociological excuse (of which Marxist"class warfare" theory is a subset) flies in the faceof common sense and empirical evidence. Evenwithin the same poor, inner-city families, someyoungsters become criminals, while the majoritydo not. Sociology (including Marxism), based onthe collectivist premise that men are interchangeablemembers of undifferentiated groups, cannotaccount for such obvious diversity in individualbehavior under identical circumstances.Or consider the following example: "Duringthe 1960s, one neighborhood in San Franciscohad the lowest income, the highest unemploymentrate, the highest proportion of families withincomes under $4,000 per year, the least educationalattainment, the highest tuberculosis rate,and the highest proportion of substandard housingof any area of the city. That neighborhoodwas called Chinatown. Yet in 1965, there wereonly five persons of Chinese ancestry committedto prison in the entire state of California."16Clearly, factors other than economics and ethnicstatus affect the propensity toward criminality.How, then, do we explain the disproportionatenumbers of poor and black inmates in prisons?For one thing, those who are better-off financiallycan afford better lawyers, and manage to"beat their raps" more consistently than thoseforced to rely upon court-appointed attorneys orlegal-aid lawyers.We might also consider a heretical thought: notthat "poverty causes crime," but that criminalitycauses poverty.While most poor people behave responsiblyand work hard to better themselves, some do not.The majority's responsible behavior has a muchgreater likelihood of leading many of them out ofpoverty; but the minority's irresponsibility is analmost sure path both to continued poverty, andto criminality. Irresponsible youths tend to beself-indulgent and short-range in their thinking.They disrupt their classes, drop out of school, developcriminal associations, drink, gamble, get involvedwith drugs, malinger on the job, or simplyrefuse to work at all. These are hardly habits thatlead to upward mobility or which keep one out oftrouble. Also, the ranks of the poor are infuseddaily with new members: people who were oncebetter-off, but whose irresponsible attitudes andactions have caused them to lose their jobs orfamilies, to become addicted to drugs, or toassociate with people of bad character.If good people have a much greater likelihoodof ascending from poverty, and if bad peoplehave a much greater likelihood of sinking into orremaining in poverty, is it any wonder that theranks of the poor contain a disproportionatenumber of criminals? Character, it has been said,is destiny. It should come as no surprise that prisonsare filled disproportionately with people whoare both criminal and poor. But it was their criminalitywhich caused their poverty, not the otherway around.There is empirical evidence to support this hypothesis.In a classic study of male criminality,Sheldon and Eleanor Glueck conducted in-depthsurveys of 500 young delinquents, matching themwith 500 non-delinquent boys of similar ages, ethnicbackgrounds, 1.0.'s, and housing in comparableslum neighborhoods. Even so, the delinquentboys' homes were more crowded and less tidy,and had lower average family earnings, fewerbreadwinners, lower educational levels for par-

CRIME AND CONSEQUENCES 257ents and grandparents, greater histories of familydiscord, higher incidences of public welfare support... and crime. 17These facts may be characterized as symptomsof irresponsibility. Since the boys' impoverishedenvironments were virtually identical, the chiefdifferentiating factor between the two groupsseemed to be exposure to differing sets of attitudes,values, morals. Even though all the boyscame from the slums, the "bad boys" more frequentlycame from homes in which irresponsibilityand criminality were prevalent; and those factorswere correlated with even lower income andliving standards. This bears out the "crime causespoverty" hypothesis.Moreover, these influences by no means had auniform impact on the boys: plenty of the "goodboys" were exposed to bad moral influences, too;and many of the "bad boys" came from bettermoral environments. This is a telling argumentagainst the collectivist premises of the sociologists."Influences" are not the same as "causes":one's response to his environment (these factsseem to say) is individual.As for the reasons why members of racial minoritiesconstitute a disproportionate share of theinmate population, the facts lead to interpretationsother than "racism."As mentioned earlier, Charles Murray has presentedoverwhelming evidence that welfare-stateprograms increase incentives for irresponsible behavioramong their presumed beneficiaries. 18Historically, such programs have been directedtoward the poor, particularly blacks and other minorities.Murray shows that during the 1960s and1970s, when government programs for these socialgroups expanded enormously, a host of symptomsof irresponsible behavior among these samegroups followed-including a virtual explosion ofcriminality.19Based upon such evidence, we can safely concludethat the disproportionate incarceration rateof minorities is caused, not by their having some"racial predisposition" to criminality, nor by a"racist" legal system singling them out for arrestand imprisonment. It stems, rather, from the pernicious,unintended consequences of welfarestatism,which has increased incentives for irresponsibilityamong targeted minorities-mostnotably, urban blacks.The sociological "deprivation" theory of crimealso cannot explain the fact that "white-collar"crimes are increasing as fast as street crimes.From 1978 to 1987, forgery and counterfeitingwent up 23.5 percent, fraud soared 41.8 percent,and embezzlement skyrocketed 56.3 percent. 20Such crimes are not typically perpetrated bythose languishing in the social environmentlamented by Mr. Clark. The bookstores are currentlyloaded with similarly sordid tales of "highsociety" crimes, crimes by doctors and WallStreet con artists, crimes by high-living druglords. One wonders how sociologists would haveaccounted for the crimes and perversions in thecourts of Nero and Caligula: clearly, these folksweren't "depraved on accounta they're deprived."As Robert M. Byrn put it: "Not all criminal offenderscome from a deprived background, andonly a small portion of our disadvantaged citizensbecome criminals. Organized crime was not reformedwhen it moved into legitimate business.White-collar offenders frequently hold good jobsand live in respectable neighborhoods. Could itbe, after all, that the problem is moral as well associal?"21The point is simple. In various places at varioustimes, there may arise a statistical correlationbetween crime and any number of socio-economicfactors. But criminality cannot be causally attributedto external social and economic factorsalone. To excuse criminals because of poor socialenvironments leaves unexplained the crimes ofthose from good social environments. And thesociological excuse is an insult to millions of othersfrom the poor backgrounds, who have notturned to crime.The Psychological ExcuseWhere the sociological excuse for criminalityblames forces outside the criminal, the psychologicalexcuse blames forces inside the criminal.Both, however, share the view that whateverthese forces are, the individual has no power toresist or control them.Whether we treat criminals punitively or therapeuticallydepends upon the issue of "criminal responsibility"-whetherthe individual has controlof his actions. This issue' is at the core of the debateover punishment vs. rehabilitation. For if theindividual is not responsible, then we should not

258 THE FREEMAN • JULY 1989engage in what famous psychiatrist Karl Menningerdenounced as "the crime of punishment."Such psychological determinists believe "the ideaof punishment must be completely eliminated."22Freudian Psychoanalysis. Most of us wouldagree that some people are so mentally impairedthey shouldn't be held accountable for acts normallyregarded as criminal. But the notion, promotedby many psychological theories, that virtuallyall people are driven to act by inner forcesbeyond their control, undermines the verypremise of criminal responsibility.This notion is the legacy of the father of psychoanalysis,Sigmund Freud. Freud authored theview that the individual "can't help himself' becausehe is driven by dark inner forces beyond hiscontrol, that frustration of these·basic inner"drives" is the source of mental illness."I feel," he wrote, "that the irrational forces inman's nature are so strong, that the rationalforces have little chance of success against them."To Freud, human nature was, at root, virtuallycriminal. "Every individual is virtually an enemyof civilization. . . . Men are not gentle creatureswho want to be loved, and who atthe most candefend themselves·if they are attacked; they are,on the contrary,.creatures among whose instinctualendowments is to be reckoned a powerfulshare of aggressiveness. As a result, their neighboris for them not only a potential helper or sexualobject, but also someone who tempts them tosatisfy their aggressiveness on him, to exploit hiscapacity for work without compensation, to usehim sexually without his consent, to seize his possessions,to humiliate him, to cause him pain, totorture and kill him."23Freud's influence on American psychiatry,and on the culture in general, has been nothingshort of enormous. In a society groping for meaningand direction, his explanation of human behaviorbecame dominant. By the late 196Os, a nationalsurvey found that "Sigmund Freud's is theonly doctrine that has had any wide acceptance inpsychiatry today. . . ." Another psychiatristwrote in the International Journal of Psychiatrythat "as far as the large segment of educatedopinion in the United States is concerned, the attitudeof acceptance of Freud's theory has wonout." Likewise, Richard LaPiere, a Stanford sociologist,wrote in 1959 that the Freudian ethic is"the ethic that is most commonly advocated bythe intellectual leaders of the United States," anddescribed it as "the idea that man cannot andshould not be expected to be provident, self-reliant,or venturesome,and that he must andshould be supported, protected, socially maintained."24This ethic remains a cornerstone of the Excuse-MakingIndustry's efforts to rehabilitatecriminals (and, incidentally, to replace Americancapitalism with a paternalistic socialism). Yet howeffective has the theory of psychological causa- ·tion been in actually rehabilitating psychiatric patients?In 1959, psychologist Hans J. Eysenckanalyzed 19 reports covering 7,000 psychiatric patientsfrom 1927 to 1951. He found that the rateof improvement or cure was only 64 percent. Thespontaneous recovery rate for patients receivingno psychotherapy was 66 percent. In anotherstudy, Canadian psychiatrist Raymond Princespent 17 months with Nigerian witch doctors-andconcluded that their rates of therapeuticsuccess rivaled those of North American clinicsand hospitals.25More pertinent is the effectiveness of psychotherapyin rehabilitating criminals. In themost ambitious effort ever made to evaluatecriminal rehabilitation efforts, Robert Martinson,Douglas Lipton, and Judith Wilks surveyed 31different programs between 1945 and 1967.These employed individual or group psychotherapy(Freudian psychoanalysis as well as othertechniques) to reduce criminal recidivismrates-the percentage of inmates who, once released,return to crime.Their conclusion: "With few and isolated exceptions,the rehabilitative efforts that have beenreported so far have had no appreciable effect onrecidivism." For group therapies in particular,there were "few reliable and valid findings concerningtheir effectiveness." Individual psychotherapyonly seemed to improve certain criminalswho had been judged "amenable" totreatment; but in other cases, criminality actuallyincreased after treatment. These findings havebeen confirmed in a number of other studies. 26Theories are only as good as their demonstrablerelationship to the facts of reality. Most psychologicaltheories are based upon sweeping inferencesdrawn from dubious causal assumptions.The main problem is that these can't be demon-

CRIME AND CONSEQUENCES 259strated. At root, the psychological excuse simplyboils down to the truism that all actions are motivated.But this doesn't tell us much. It doesn't tellus whether those motives are causal primaries, orsimply the results of something else, over whichwe have a measure of volitional control. And itdoesn't tell us whether those motives, once theyarise, can be overridden or channeled by the individual.We're often tugged by competing emotions. Tosay that somebody had an impulse or inclinationto commit some crime, tells us no more than thefact that "he felt like it." Well, we already knowthat. The existence of civilization, however, is evidencethat we do have some power, at some level,to choose which emotions will prove decisive.But the psychological excuse assumes thatemotions are causally irreducible and irresistible.In effect, it equates all desires with compulsions.Another problem with the psychological explanationis that it isn't one explanation. There aremany psychological theories, each contradictingall the others. In practice, this means that no twopsychologists or psychiatrists seem to agree onthe specific "causes" of any given person's actions.In a review of the relevant literature on the reliabilityof psychiatric diagnoses, Wisconsin CircuitCourt Judge Ralph Adam Fine reported thefollowing: 27In one study, pairs of psychiatrists diagnosed427 psychiatric patients, and were able to agreeonly 50 percent of the time; in another study, 54percent of the time.Case histories of 34 patients at the UCLANeuropsychiatric Institute were given to 10 staffpsychiatrists, 10 psychiatric residents, and 10 untrainedcollege students with diverse backgrounds.There was no statistical difference in therates at which any of the groups selected the rightdiagnosis.Two University of Oklahoma researchersfilmed an actor playing a happy, problem-free scientist.They showed the film to 156 undergraduatestudents, 40 law students, 45 graduate studentsin clinical psychology, 25 practicing clinicalpsychologists, and 25 psychiatrists. Each groupwas told that the man looked normal, but hadbeen previously diagnosed as "quite psychotic."Result: the actor was diagnosed as mentally ill by84 percent of the undergraduate students, 90 per-cent of the law students, 88 percent of the graduatepsychology students and clinical psychologists,and 100 percent of the psychiatrists. Later,five identically composed groups were shown thesame film of the same actor-but were told thathe "looked like a healthy man." All ofthem diagnosedthe actor as free of mental illness.A final example. Eight normal volunteers, ledby a Stanford psychology professor, presentedthemselves to 12 psychiatric hospitals in fivestates, complaining of hearing voices that said"empty," "hollow," and "thud." Except for theiridentities, they answered all other questionstruthfully. All were admitted, at which point theybehaved normally. Their hospitalizations lastedfrom seven to 52 days, upon which time theywere released with diagnoses of "schizophreniain remission." However, 35 of 118 actual mentalpatients in the same hospitals voiced suspicionsthat the eight were utterly sane people sent to"check up on the hospital."These anecdotes make some serious points. Ifsupposed "experts" in the psychiatric field cannoteven tell if a person is basically sane or insane,how can they tell what subtle "forces" cause himto act as he does? Ifthey cannot reliably or objectively"explain" the causal antecedents of anygiven individual's actions, on what grounds dothey justify their general theories purporting to"explain" so complex a thing as criminal behavior?On what grounds do they presume to offer"expert testimony" in courtrooms concerning themotives of defendants, or to design "rehabilitation"programs for criminals?At present, psychological theories of causationhave more in common with demonology than science:they excuse outrageous behavior, but explainlittle.Behaviorism. Thanks to the failure of Freudianand neo-Freudian therapies, there has been aflourishing of competing theories of causation-themost notable being behaviorism. Inits most pure form (as in the theories of B. F.Skinner), behaviorism proposes an almost mechanicalmodel of human action-that man is littlemore than a stimulus-response machine, like arat or pigeon, instead of a conscious, thinking entitywith some power of choice. This billiard-ballapproach to human causality, say behaviorists, is"objective" and "scientific," unlike the "subjective"approach of psychoanalysis.

260 THE FREEMAN. JULY 1989Behaviorism thus ignores the "inner state" ofan individual or his past history, concentrating onaltering his present behavior strictly by "conditioning"him with rewards and punishments(called "reinforcers"). It is not going too far tosay that the behavioral approach to humanchange is essentially the same as that used by dogtrainers.Whereas Freudian psychology is the foundationfor the "therapeutic" approach to crime, behaviorism"reinforces" the sociological approach.It lends weight to such environmental excuses forcriminality as poverty, "peer pressure," racism,and the like. Behaviorists believe that people willchange their "responses" if we change the "reinforcingstimuli" in the external environment.(Some have taken this to mean the eradication ofthe profit motive and capitalism.)But proceeding on the premise that individualsare no more complex than pigeons apparentlyhas its limitations. For one thing, so-called "behaviormodification" programs don't seem tohave much more lasting impact on criminals thando those based on conventional psychology.One study examined 24 such programs between1965 and 1975, all aimed at altering the behaviorof institutionalized delinquent youths byuse of rewards and punishments. Almost all succeeded-whilethe youths remained in the institutions.But when four of the programs followedup on their subjects after they were returned tothe community, three reported no significant,lasting reduction in the young criminals' recidivismrates. The fourth program reported such areduction, but it wasn't a carefully controlledsample. Other similar studies have been unableto demonstrate any lasting impact of behaviormodification. 28It seems, then, that even criminals are morecomplex than dogs. Behaviorism, in refusing toconsider that an individual's thinking and valuesmight playa role in his motivation, joins conventionalpsychology as another failed theory of humanaction. While both provide a wealth of excusesfor criminal behavior, neither helps usunderstand, alter, or prevent it.The Biological ExcusesThis last group of excuses for criminality consistsof variations on the "bad seed" theory: theview that one is genetically or constitutionallypredisposed toward criminality. In fact, these theorieshave more empirical support than do sociologicaland psychological theories.There are certain physical attributes which repeatedlyhave been shown to correlate statisticallywith increased criminality: being male, havinglower-than-average intelligence, having certaintemperamental traits (such as hyperactivity), havinga certain body type (heavy-boned and muscular).In addition, evidence from the studies oftwins tends to show that the likelihood of findinga criminal twin, if the other twin was criminal,was statistically significant-and even greater foridentical twins than for fraternal twins. This heldtrue even in studies which discounted for environmentalfactors. A systematic Danish study ofover 14,000 adopted children also showed thatadopted children whose biological parents hadbeen criminals had a measurably greater likelihoodof becoming criminals themselves-evenmore than if their adoptive parents were criminals.This held true even for adopted siblingsraised apart.The best summary of such evidence appears inJames Q. Wilson and Richard J. Herrnstein'scomprehensive examination of criminal causation,Crime and Human Nature. They concludethat while "the average offender tends to be constitutionallydistinctive," he is "not extremely orabnormally so." But as moderate behaviorists,they believe such "predispositions toward crime. . .are expressed as psychological traits and activatedby circumstances."29In fact, these interesting correlations are farfrom being causally decisive. Even in the studiescited by Wilson and Herrnstein, the correlationsoccurred in only a small minority of cases. Whatevereffect such traits have on personality, thelink to criminal behavior is statistically weak. Inheritedfactors, for example, may predisposesomeone toward aggressiveness, a high degree ofphysical energy, and a short temper. But why dosome individuals with such traits become professionalfootball players, while others becomestreet criminals? A family argument might"cause" one short-fused man with a heavy, muscularbody to storm out of the house, cursing, and"let off steam" by chopping wood-while anothersimilar man will begin to batter his children.Personality traits only define general capaci-

CRIME AND CONSEQUENCES 261ties. There's no evidence that what one does withthose capacities is predetermined. Hence, eventhe "biological explanations" do not pose convincingexcuses for criminal behavior.Determinism, Free Will, andCriminal ResponsibilityLike the characters in the fable of "The BlindMen and the Elephant," each member of the Excuse-MakingIndustry grabs onto one part of humannature, then assumes it constitutes or explainsthe whole. Psychologists focus on aperson's emotional life; biologists focus on hisbrain, genes, or anatomy; sociologists and behavioristsfocus on his family and neighborhood.Each of these does so in the name of "science,"rejecting free will-the premise that the individualcan make some primary, irreducible choicesabout his thoughts, feelings, or actions-as "unscientific"or mystical.The Excuse-Making Industry is premised onthe philosophical doctrine of determinism. Deterministshold that, in any given moment, there'sonly one action that an individual can take-anaction determined by the sum total of all thecauses operating on him up to that point. To a determinist,human thoughts, feelings, and actionsare all necessitated by antecedent factors; the individualhas no choice about them. By contrast, afree will theory posits that some action, or choice,or thought is not necessitated by antecedent factors,but is under the direct, volitional control ofthe individual.30This is no digression. The issue of free will versusdeterminism is the key to resolving any argumentabout the causes and cures of crime. If determinismis true, then man truly "can't help"what he is or does; he is not the sculptor of circumstances'but the clay. Then, the entire idea ofcriminal responsibility-and of a criminal justicesystem to punish wrongdoers-is absurd. If, onthe other hand, ,man has some measure of irreduciblyfree control over his thinking, feeling, orbehavior, then he does ultimately bear responsibilityfor what he does-and the quest for justicemakes sense.Determinism certainly sounds scientific: itseems firmly rooted in cause-and-effect thinking.Everything requires a cause; thus humanthoughts, feelings, and actions require antecedentcauses. By contrast, at first blush, free will (or volition)sounds "causeless"-hence, unscientific.How can any human decision be "causeless"?As many philosophers have noted, however,the apparent conflict between "causality" and"free will" rests upon a dubious view of causality-whathas been called the "billiard-ball" theory.By this view, certain events are caused by precedingevents. The action of one billiard ballhitting another causes the second to move. Likewise,the action of a man stabbing someone iscaused by preceding events-in his childhood(the psychological excuse), in his neighborhood(the sociological excuse), or in his biochemistry(the biological excuse). In the first case, thestruck billiard ball had no choice but to move; inthe second case, the "affected" man had nochoice but to stab.There is, however, an alternative view ofcausality. By this view, it isn't actions which causesubsequent actions; rather, entities cause actions.This leads to a much more complex interpretationof causality, in which "external forces" actingon an entity are only one element "causing" subsequentevents. The most important cause, however,is the nature of the entity itself: its matter,form, properties, and potentialities, in conjunctionwith outside forces.This theory of causality, then, would hold thatthere are a number of forms of causality in nature.Inanimate objects respond passively; organismsare goal-directed from within; animals acton the basis of. perceptual-level consciousness,showing psychological causation; while man hasthe additional abilities to think, introspect, anddirect his awareness.By this theory, man has final self-control incertain areas. This doesn't violate the law ofcause-and-effect, since we act completely in accordwith our nature as conscious, reasoning entities.Human volition, then, isn't an affront to thelaw of causality: it's an instance of it. 31There are various doctrines and theories offree will, of course. Some 'posit total control overthoughts, feelings, and actions; some suggest thatonly thoughts might be under direct control; stillothers argue for a more narrow control, over thelevel and focus of consciousness. For our purposeshere, resolution of this question doesn't matter.What does matter is whether determinism is arespectable intellectual alternative. It is not.

262 THE FREEMAN • JULY 1989No, free will cannot be "proved." That's becauseproofpresupposes free will. It's impossibleto prove or to know anything if one's thinkingprocesses aren't free-if the outcome of ourthinking is predetermined by forces beyond ourcontrol. Volition lies at the starting point of allknowledge and proof-not at the conclusion ofsome logical chain. It doesn't need to be"proved," because it's a building block of proofitself.This poses a fatal dilemma for determinism,and for the whole Excuse-Making Industry whichstands upon it. Knowledge presupposes the freedomto validate or refute a belief by a self-directedthinking process. However, those who claim toknow that determinism is true must logically concedethat they, too, "can't help" what they think,feel, or do. Yet if that is the case, then they can'tclaim to "know" that determinism is true-becausethey were forced to believe in its validity.The dilemma is inescapable: the excuse-makersare slaves to their own theory. To claimknowledge of the validity of determinism, or totry to persuade others, presupposes a freedomwhich their own theory denies them. Deterministswant to have their free will, while eating it.It's therefore no wonder that the Excuse­Making Industry has failed dismally in its effortsto reform. criminals. By not taking into accountthe free will of the criminal, it's ignoring thevery factor which is decisive to his criminality:his responsibility for his actions. Instead, it hasshaped the institutions of the law to excuse himfrom justice-as we shall see in the next segm~tDNext month, Mr. Bidinotto examines the criminaljustice system.1. Robert James Bidinotto, "Getting Away With Murder,"Reader's Digest, July 1988.2. Federal Bureau of Investigation, Crime in the United States(Uniform Crime Reports, 1987), p. 41.3. Charles Murray, Losing Ground (New York: Basic Books,1984); from data on p. 256, Table 18.4. Crime in the United States, p. 41, Table 1.5. Bureau of the Census, Statistical Abstract ofthe United States,1988 edition, p. 163.6. Ibid., p. 154, Fig. 5.2.7. Bureau of Justice Statistics, Bulletin, "Prisoners in 1987,"April 1988, pp. 1,5.8. Crime in the United States, p. 41.9. American Bar Association, Criminal Justice in Crisis, November1988, p. 4.10. Crime in the United States, p. 155.11. Bureau of Justice Statistics, Bulletin, p. 5; shown as 43 imprisonmentsper 1,000 of the following reported crimes: murder,non-negligent manslaughter, rape, robbery, aggravated assault, andburglary.12. Massachusetts Department of Correction 1986 Annual Report,Appendix E, p. 20.13. Murray, pp.167-170.14. Quoted in Melvin D. Barger, "Crime: The Unsolved Problem,"The Freeman, February 1980, p. 98.15. James Q. Wilson and Richard 1. Herrnstein, Crime and HumanNature (New York: Simon & Schuster, 1985), Ch. 17.16. Ibid., p. 473.17. Ibid., pp. 175-179. The Glueck study had many other farreachingconclusions, and has been savaged by sociologists fordecades.18. See also Robert James Bidinotto, "Paying People Not toGrow," The Freeman, October 1986.19. Murray, especially chapters 8,12,13, and 14.20. Crime in the United States, p. 168, Table 27.21. Robert M. Byrn, "The Morality of Punishment," America,Jan. 15, 1972. Quoted in J. Weston Walch, Debate Handbook OnCriminal Justice (Portland, Me.: self-published, 1976), p. 89.22. Richard X. Clark, quoted in Walch, p. 52. Also Wilson andHerrnstein, pp. 489-90.23. Quoted in Frank Goble, Beyond Failure: How to Cure aNeurotic Society (Ottawa, IL: Green Hill Publishers, 1977), pp. 37­8.24. Ibid., pp. 39-40.25. Ibid., pp. 41, 43; also Wilson and Herrnstein, pp. 378-79.26. Stanton E. Samenow, Inside the Criminal Mind (New York:Times Books, 1984), p. 193. Also Wilson and Herrnstein, pp. 377­79.27. Ralph Adam Fine, Escape ofthe Guilty (New York: Dodd,Mead & Co., 1986), pp. 203-208.28. Wilson and Herrnstein, pp. 381-384.29. Ibid., pp. 102-103. See especially chapters 3-7.30. David Kelley, "The Nature of Free Will," recorded lecturegiven in Toronto, Canada in October 1986. (Published by UncommonSense Services, 59 Poplar Crescent, Aurora, Ontario UG3M4.)31. The author is indebted to David Kelley for the general argumentpresented in this section.

263Section 89: Tax CodeLiDlits Workers' Choicesby Roy E. CordatoOver the last decade workers have cometo benefit by an invigorating dose of• competition and choice with respect tohealth insurance plans. While most companiesonce offered their employees one health insurancepolicy-take it or leave it-most workersnow have the opportunity to choose amongdozens of options. Workers can now make tradeoffsbetween higher or lower wages and more orless extensive health care insurance coverage.They can tailor their compensation packages totheir own needs. If they are young, single, and atlow risk, they have the opportunity to acceptmore of their compensation in the form of wagesand less in the form of extensive health care insurancecoverage. Conversely, if they have a familyor are older workers who may be at higherrisk, they can make other trade-offs. Clearly,these kinds of options have helped the averagewage earner.One section of the Internal Revenue Codethreatens to take a good part of that freedomaway by penalizing both employers and employeesin workplaces where these kinds of optionsare available. The justification for Section 89, institutedas part of the Tax Reform Act of 1986, isbased on knee-jerk egalitarianism. The tax systemis being used here to reduce "employee-benefitdiscrimination," i.e., to see to it that lowerpaid workers get the same health care coverageas higher paid workers. In order to comply withSection 89, employers will have to correct disparitiesin health care coverage that is freely chosenDr. Cordato is an economist with The Institute for Researchon the Economics of Taxation in Washington,D.C.by lower and higher paid workers. Ifthese disparitiesare not corrected, those higher paid workerswith more extensive plans will have to pay a taxpenalty. The virtues of free choice are turned intovices by the tax code.There are many problems with the Section 89requirement, not the least of which is the underlyingassumption that all employees within aworkplace should have the same level of healthinsurance coverage. The fact is that when freechoice is allowed, it is likely that equality of resultwill never be achieved. People make choicesbased on their own needs and preferences, whichalways differ from one person to another. Policiesthat attempt to force equality of result at the expenseof free choice can never make people betteroff. Section 89 is no exception.But even from an egalitarian perspective, thisprovision in the tax code doesn't make muchsense. Its intent is not to ensure that everyone'slevel of compensation is the same, but to equalizeone component of everyone's compensationpackage in a given workplace. In fact, however,the after-tax dollar value of workers' compensationpackages isn't likely to be any more "equitable"after than before Section 89's leveling processtakes place.If lower paid workers are forced to take moreextensive health insurance coverage, it will be atthe expense of money wages or some other benefits.The issue for employers is how much it coststhem to compensate labor, not what form thatcompensation takes. The value of a worker'scompensation package is determined by howmuch the worker contributes to the productionprocess. Without an increase in productivity from

264 THE FREEMAN • JULY 1989the worker, there is no reason to expect that thedollar value of his compensation package wouldbe increased.This would be especially damaging to very lowpaid employees, working at or near the minimumwage. Since their wages could not be lowered,those whose productivity does not justify a highervalued compensation package would lose theirjobs. In cases where higher paid workers have totake less extensive coverage, wages or other benefitswould have to be increased in order for employersto retain their services. Section 89 wouldneither make compensation among workersmore equitable nor make workers better off.Obviously Section 89 is no deal for employerseither. Many companies offer their employeeshundreds of health insurance options. Remember,simply offering health insurance plans in anondiscriminatory way is not good enough forthe social engineers who crafted Section 89.Companies will have to determine if the dollarvalue of the insurance plans that their employeesactually choose is distributed among them in sucha way that lower paid employees do not havelower valued plans. As with nearly all governmentprograms, free choice is the enemy of Section89.Given that the administrative costs of this processwill be very high, it may be cost effective forcompanies to take what might best be called thenoncompliance option. If a company decides notto put itself through the battery of tests that theIRS requires, or if the IRS determines that inequitiesstill exist, those employees earning over$75,000 (as low as $45,000 under some circumstances)who have higher valued plans will betaxed on a portion of those benefits. Since thiswould be tantamount to a pay cut for these workers'it is likely that employers, in order to retainthem, would in~rease their wages to compensatefor the added tax burden. It may be less expensivefor an employer to do this than to bear thecosts associated with strict compliance. Of coursethe Treasury is hoping that many employers willtake this option because it is these tax penaltiesthat are supposed to make Section 89 a $300 millionrevenue raiser for the government.This suggests that Section 89 was put in the taxcode more for its possibilities as a revenue raiserthan as a means of achieving social justice. Thegovernment benefits from Section 89 to the ext~ntthat it is not complied with. This could providethe logic behind why it has been made socomplicated.Section 89 also might be a back-door methodof implementing a mandated health insuranceprogram. As with proposals to mandate healthinsurance, the formula that is used to determineif the values of health insurance policies are distributedequally includes part-time employeesworking more than 17.5 hours per week. Thismeans that many part-time employees, who typicallyhaven't qualified for health insurance benefits,must be provided with the same plans as fulltimeworkers.This could impose real hardships on theseworkers. In particular, it would create an incentivefor employers to offer part-time employmentthat entails less than 17.5 hours of work perweek. Workers who desire less than full-time employment,but more than just a few hours a week,may have to piece together an income from severaldifferent sources. Those employees who remainpart-time, but work more than 17.5 hoursper week, will probably have to trade off lowerwages in exchange for their health insurance benefits.Since most people who work at part-timejobs do so for the extra cash, not for the benefits,this kino of trade-off would clearly make themworse off.As social policy, Section 89 of the IRS Codehas no justification. It presumably is meant to improveliving standards for lower paid workers.But in reality it will make workers in all incomecategories worse off by restricting their liberty tochoose the compensation package that best fitstheir needs and to freely negotiate labor contracts.In addition it will raise labor costs to business,which will mean slower growth and job creationrates for the economy as a whole. D

265Deposit InsuranceDeja Vuby Kurt SchulerT· he mess in the savings and loan industry is• the worst thing to happen to the Americanbanking system since the Great Depression.As an indication 'of how severe theproblem is, government estimates of the cost ofbailing out bankrupt savings and loans, whichwere $30 billion a few months ago, rose to $60billion, then to $160 billion. And the cost is risingby $1 billion for every month that the federalgovernment lets 350 bankrupt savings and loansstay open because it hasn't budgeted the moneyto payofftheir depositors.American taxpayers will be footing the bill forthis because the federal government guaranteesalmost all bank deposits. The rationale of depositinsurance is that it is cheaper than the bankingpanics that supposedly would result without it.But the history of deposit insurance in the UnitedStates and other countries indicates that it is neithernecessary nor desirable. Outside the UnitedStates, deposit insurance, even where it exists,has not been needed. Competition has forced foreignbanks to develop nationwide branch networksand to diversify into lines of business forbiddento American banks. This has resulted inthe creation of large banks that are very securebecause they spread their risks among many regionsand types of activity.In the United States, deposit insurance hasbeen rarely self-financing because governmentregulation has prevented competition fromevolving the strongest banks possible. Indeed, depositinsurance crises are almost as old as depositKurt Schuler is a graduate student in economics at theUniversity ofGeorgia.insurance itself. The Federal Savings and LoanInsurance Corporation's current problems havemany precedents. Besides Federal deposit insurance,the United States has had about 30 statedeposit insurance schemes. Nearly half operatedbefore the Great Depression, and half since.Their experience has been dreadful. All but a fewhave gone broke. A brief look at their historyshows what we can expect again if Congressdoesn't use the current Federal bailout as an opportunityto free our financial system from thestranglehold of regulation.New York State started the first deposit insurancesystem in 1829. Banks paid a tax of 3 percentof their capital into a common "safety fund."New York City banks, which were among thelargest and most stable in the nation, opposed thefund. However, the more numerous rural banksinfluenced the state legislature to establish it. Thesafety fund's purpose was to instill public confidencein bank notes, although it also covered deposits.(Apparently, the legislature did not intenddeposits to be covered, but they were because thelaw it enacted was careless on that point.) Thesafety fund b~nefited rural banks most, becausetheir profits depended more on note circulation.Five other states imitated New York in setting upcompulsory bank insurance systems before theCivil War.The first to fail was Michigan's. It had been inoperation only a year when the panic of 1837dragged down most of the state's banks. Paymentsinto Michigan's insurance fund barely coveredsupervisory costs, so creditors of failedbanks got nothing. A few years later, 11 bank fail-

266 THE FREEMAN • JULY 1989ures depleted the New York fund. The state governmenteventually issued bonds to bail it out,much as the Bush administration has proposeddoing for the FSLIC. But some creditors waitedas long as 21 years for payment. A single failurewas enough to bankrupt Vermont's fund in 1857.Creditors there got less than two-thirds the valueof their claims.Michigan, New York, and Vermont effectivelyclosed their insurance funds when the funds wentbroke. Indiana, Ohio, and Iowa had funds thatstayed solvent. Oddly, the solvent funds hadmore potential for causing trouble than the others.Healthy banks were liable for paying failedbanks' creditors if the insurance funds should beexhausted. Hence, severe losses at a few bankscould have wiped out all banks in the state. However,strong industry pressure counteracted thetemptation, in effect, to play fast and loose withother banks' capital.In contrast to the systems that went broke,where bank examiners were government employees,in the solvent systems examiners were largelychosen by and responsible to the banks. Thenumber of banks was small - 41 in Ohio, 20 inIndiana, and 15 in Iowa. That made group actionagainst imprudent banks possible. Today, whenFederal deposit insurance covers thousands ofbanks, savings and loans, and credit unions, thiselement of the successful state systems would beimpossible to duplicate. Ohio and Iowa also reducedthe risk to their funds by guaranteeingonly notes, which were being eclipsed by depositsas the chief type of bank liability.!By 1866, changes in Federal banking law inducedmost banks to switch from state charters toFederal charters. Despite a Federal prohibitionon branch banking, Federal charters were attractivebecause they allowed banks to continue issuingnotes. State-chartered banks, in contrast,faced a 10 percent tax on note issue that made itprohibitively expensive. The Indiana, Ohio, andIowa insurance funds closed still solvent whentheir members got Federal charters. The savingsand loan industry began in earnest at the sametime, as a product of a provision in the same lawthat severely restricted Federally charteredbanks' ability to make mortgages. (These restrictionslasted until the 1970s. Since then, most ofthe other legal barriers separating banks fromsavings and loans have fallen as well.)Bank notes effectively carried a Federal guaranteefrom the 1860s until Federal Reserve notesreplaced the last of them in 1934. Issuers had toback notes 100 percent or even 110 percent withTreasury bonds, kept in a Treasury vault. Butnotes were becoming decreasingly importantcompared to deposits as the main form in whichalmost everybody held money."Honesty Taxed toPay for Dishonesty. • •The federal government did not insure deposits,despite many proposals in Congress from1886 onward that it do so. William JenningsBryan and other populist politicians favored depositinsurance as a way of protecting small depositorsand small banks. Leading bankersthought differently. Near the tum of the century,the First National Bank of Chicago's presidentexpressed their objections to deposit insurance inthese words: "Is there anything in the relationsexisting between banks and their customers tojustify the proposition that in the banking businessthe good should be taxed to pay for the bad;ability taxed to pay for incompetency; honestytaxed to pay for dishonesty; experience and trainingtaxed to pay for the errors of inexperienceand lack of training; and knowledge taxed to payfor the mistakes of.ignorance?"2Such arguments deterred the federal governmentfrom insuring deposits, but not some states.Oklahoma established deposit insurance in 1908.Seven southern and western states followed suitwithin the next decade. Their systems insuredfrom 100 to 1,000 banks apiece.Washington's, the last started, was the first tocrack. The depression of 1921 depleted its insurancefund. Since the system was voluntary, manyhealthy banks deserted it rather than suffer thehigh fees it would have imposed, and it shut

DEPOSIT INSURANCE DEJA VU 267jJp~~~~~5=~~~=============-":::::==::::::::::=------ -------=::Levery $1,000 in claims, and even after a tax-financedbailout, depositors lost three-quarters oftheir money.3Despite the unfavorable experience of thestate deposit insurance systems, the federalgovernment established nationwide deposit insurancein 1934. The failure of nearly 10,000banks since the Great Depression had begun in1929 put pressure on the federal government todo something. Many prominent economists andbankers advocated branch banking as the bestcure for the American banking system's instability.They pointed to foreign systems that allowedbranch banking, where failures had been few. Inparticular, they saw Canada, where no banksfailed during the Depression, as a model for theUnited States to emulate.However, the political clout of small banksand the worse than usual public image that bigbusiness had at the time kept branch bankingfrom getting political consideration commensuratewith its economic merits. Federal deposit insurance,once established, seemed to stabilize thebanking system. The banking panic of 1933 wasresponsible for much of the good reputation thatFederal deposit insurance enjoyed. It wiped outthe weak banks that would have put the greateststrain on Federal insurance funds had they begunin 1933 instead of 1934, when the panic was over.Since 1934, 14 states have chartered depositinsurance systems for certain banks and savingsand loans not covered by Federal insurance.Though nominally private, most state insurancesystems have been so enmeshed in local politics

268 THE FREEMAN • JULY 1989as to be in reality off-budget government agenciesdesigned to shelter members from the rigorsof competition. Their history has been as blightedas that of their predecessors.New York and Connecticut closed relativelyshort-lived funds intact decades ago when theirmembers voluntarily switched to Federal insurance.Funds have failed in half of the remainingstates - Hawaii, Nebraska, Ohio, Maryland,Colorado, and Utah. The 1985 Ohio and Marylandfailures required millions in tax money topay depositors in full. The aftershocks promptedmost states with solvent insurance systems to requireall participants to switch to Federal insuranceby 1990. Only three funds still offer insurancefor banks lacking Federal coverage. One, inKansas, is winding down as its members leave it.The others, in Pennsylvania, cover just a handfulof tiny banks. State deposit insurance is in effectdead. 4Success in Massachusettsand North CarolinaThe only truly successful state funds werethose of North Carolina and Massachusetts.Their good performance was the result of incentivesmore closely resembling those of the freemarket than other state systems faced. The storyof North Carolina's Financial Institutions AssuranceCorporation is particularly interesting becausethe fund started in 1967 as "a good oldboys' hideout from Federal regulation," as one ofits officers later recalled. A new president appointedin 1977 brought in a new managementphilosophy. The law governing the fund waschanged to require a majority of its board of directorsto be unaffiliated with member institutions.(The lack of such a provision in the Ohioand Maryland deposit· insurance funds encouragedself-dealing. Unlike the pre-Civil War Ohiofund, the latter-day Ohio and Maryland fundshad no counterbalancing liability features tomake their members keep an eye on each other'soperations.)The North Carolina fund began basing thepremiums it charged its members on the riskinessof their portfolios. It increased the minimum networth for members to qualify for insurance fromit. Furthermore, it closely monitored members'lending practices. For instance, it induced membersto reduce their investment in fixed-ratemortgages several years before the rest of thesavings and loan industry began having problemswith fixed-rate loans. In every respect, the NorthCarolina fund's actions contrasted sharply withthose of the FSLIC, which was vulnerable to politicalpressure from members, did not adjust insurancepremiums for risk, had lower net-worthrequirements, and did little to prevent membersfrom making reckless loans.The North Carolina fund's record was outstanding.Its stresston preventative measures, andthe incentives it gave for its members to avoidmaking overly risky loans, kept any of them fromfailing. However, the Ohio and Maryland collapsescast a pall over all state deposit insurancesystems. The North Carolina fund closed voluntarily,without losses, when many of its membersdecided to get Federal insurance. At about thesame time, the Massachusetts funds, which benefitedfrom that state's long tradition of conservativebanking, switched roles from substitutes tosupplements to Federal deposit insurance.sOf all state deposit insurance systems, then,few have been really successful. The others haveexisted too briefly to undergo a true test ofstrength, have folded up at signs of trouble, orhave failed. Now Federal deposit insurance is duplicatingstate deposit insurance's sorry record.The cause is the same: too many insured banks,mostly small, unable to withstand bad luck andbad management.Deposit Insurancein Other CountriesOther countries, by allowing nationwidebranch banking, have gained the stability theU.S. hasn't been able to achieve. Competitivepressures have resulted in very large banks, sosolid that they have not needed deposit insuranceand, in most places, have not had. It is true thatWest Germany's small Bankhaus Herstatt failedin 1974 and Italy's scandal-ridden Banco Ambrosianofailed in 1982. But there have been noother noteworthy bank failures in developed nations.Britain, which has had nationwide branchbanking longer than almost any country, has notexperienced a major bank failure since 1878.Every large Western country except Italy hasdeposit insurance. But in all except the United

DEPOSIT INSURANCE DEJA VU 269States, deposit insurance is a recent innovation,dating from the 1960s or 1970s. The banking systemsof those countries took their present shape,and enjoyed stability, long before they got depositinsurance. Furthermore, foreign deposit insurancesystems encourage depositors to monitorthe health of their banks, which the Americansystem does not. In some countries - notablyWest Germany - the systems are voluntary, sobanks that fear thatimprudent rivals are trying totake advantage of the system can quit it. InBritain and Switzerland, insurance doesn't payfor the full amount of depositors' losses, but onlyfor, say, three-quarters.Common to all foreign deposit insurance systemsis that they have much lower maximum limitsthan the American system - from one-half toone-tenth as much - and that foreign governmentsare more serious about imposing thoselimits in practice than the American governmenthas been. The possibility of suffering losses encouragesdepositors to entrust their money onlyto well-managed banks. Depositors abroad relymainly on the quality of the banks themselvesrather than on government insurance for protection.6The exception that proves the rule occurred inCanada, whose federal deposit insurance systemis most like that of the United States. In 1985,two Canadian banks went bust in Alberta - thatcountry's equivalent of Texas. Previously, nobank had failed since 1923. The Alberta firms,both founded in the oil boom of the mid-1970s,were small and undiversified, resembling U.S.banks more than the five nationwide giants thathave 80 percent of Canadian deposits.Canada instituted compulsory deposit insurancein 1967 despite the protests of its largebanks, who foresaw that it would be their premiumsthat would pay for small rivals such as theAlberta banks. The government guaranteehelped convince depositors to let the Albertabanks take imprudent risks with their money.The failure of the Alberta banks threatened todeplete the deposit insurance fund. To prevent arun on the two banks, the Canadian governmentpressured the big banks to take them over. Whenlosses turned out to be larger than expected, thegovernment backed out of its previous assurancesto the big banks (which technically were notbinding), causing them to bear the costs of thesmall banks' bad management.Unrestricted nationwide branch banking, suchas Canada and other countries have, is scheduledto arrive in the United States in 1991. That willbe too late to save hundreds of ailing banks andthrifts. Congress should remove barriers tobranching now. In particular, it should allow anybank to buy any savings and loan. (Currently,banks can buy only ailing savings and loans.)Small banks and savings and loans would opposesuch a step, because it would make themtakeover targets for expanding money-center and"super-regional" banks. But the alternative formany of them is to go broke, putting furtherstrain on the Federal deposit insurance systemand on taxpayers.Deposit insurance has repeatedly proven notto be self-financing under our artificially fragmentedbanking system. On the other hand, itwouldn't be necessary under a less regulatedbanking system. Ultimately, Congress should seta date - say, ten years hence - to abolish depositinsurance. At the same time, it should teardown the walls it. has erected separating bankingfrom securities, insurance, and commerce. Banksshould. be allowed to spread risk across lines ofbusiness just as branching enables them to spreadrisks across regions.American banks are suffering at home and inworld competition because they cannot engage inmany profitable lines of business open to theirforeign competitors. Given freedom, the U.S.banking system can become strong and flexibleenough not to need deposit insurance. The alternativeis to suffer another crisis when changingeconomic needs run up against outmoded regulations.D1. Federal Deposit Insurance Corporation, Annual Report,1953, pp. 45-67; Federal Deposit Insurance Corporation: The FirstFifty Years, a History ofthe FDIC, 1933-1983 (Washington: FDIC,1984), pp. 13-24.2. James B. Forgan, "Should National Bank Deposits Be Guaranteedby the Government. .. ?" Address to the Illinois Bankers'Association, June 11, 1908. (Chicago: First National Bank of Chicago,n.d.), p. 3.3. FDIC, Annual Report, 1952, pp. 59-72; Eugene NelsonWhite, The Regulation and Reform ofthe American Banking System,1900-1929 (Princeton: Princeton University Press, 1983), pp.188-222.4. FDIC, Annual Report, 1950, p. 67; Victor L. Saulsbury, "TheCurrent Status of Non-Federal Insurance Programs," Issues inBank Regulation, Spring 1985; FDIC Regulatory Review, Sept.-Oct.1987.5. Catherine England, "Private Deposit Insurance That'sWorked," Wall Street Journal, June 18, 1985, p. 30.6. William M. Isaac, "International Deposit Insurance Systems,"Issues in Bank Regulation, Summer 1984, p. 80.

270Privatize DepositInsuranceby Jeffrey Rogers HummelAmidst all the groping and furor over thesavings and loan crisis, no public officialhas pointed a finger at the ultimate culprit.The Bush Administration admits that thenation's ailing S & L industry will cost the governmentat least $90 billion. That would be themost expensive bailout in U.S. history-biggerthan those for Lockheed, Chrysler, New YorkCity, and Western Europe (through the MarshallPlan) combined, even after adjusting for inflation.But contrary to popular perceptions, the crisisstems not from too little regulation, but toomuch. It all can be traced to the perverse influenceof government deposit insurance.The federal government first insured depositsin reaction to the Great Depression. A scramblefor currency among depositors had led to runs onnearly 10,000 banks. This liquidity crunch forcedotherwise solvent institutions into emergencysales of their assets. Unnecessary bank failures, aone-third collapse in the money supply, and deflationwere the result. To protect the economyfrom future panics, the newly established FederalDeposit Insurance Corporation (FDIC) guaranteedsmall depositors against any losses.Comparisons with other countries now suggestthat the regulations already existing in the 1920swere responsible for the precariousness of theAmerican banking system. Canada, for example,permitted its commercial banks to open branchesnationwide and had yet to set up a central bank.Not one Canadian bank failed during the GreatDepression.However plausible the justification of depositinsurance for U.S. commercial banks, it certainlyIeffrey Rogers Hummel is Publications Director forthe Independent Institute in San Francisco.did not apply to savings and loan associations.Unlike banks, S & L's at that time didn't offerchecking accounts or any other deposit thatserved as a medium of exchange, nor were theyplagued by runs. Yet S & L's got similar guaranteeswith the establishment of the Federal Savingsand Loan Insurance Corporation (FSLIC) in1934.Government deposit insurance may havedampened the danger of bank runs, but only atthe cost of incurring another danger. Private insurancecompanies have long been aware of whatis called "moral hazard." If you protect someonefrom the painful consequences of risk, he willhave less incentive to avoid risky actions. Insuranceagainst fire or automobile accidents thus canbe so complete that it fosters carelessness andleads to more fires and accidents.One way insurance companies get around themoral-hazard problem is with a deductible, whichmakes the insured bear some of the cost of riskyactions. Private insurance companies also varypremiums according to actual risks; otherwisethey lose money. Government deposit insurance,in contrast, ignores these sound principles. Ittherefore subsidizes risk-taking by depository institutions.They pay the same premium regardless,and their depositors have no financial reasonto impose market discipline by doing businesselsewhere.Not until the 1980s, however, did this moralhazardtime bomb explode. Pervasive governmentregulation protected banks and S & L'sfrom competition while simultaneously restrictingtheir portfolios to safe assets. Only after theinflation and climbing interest rates of the 1970srequired these institutions to bid actively for de-

271posits did the government initiate financial deregulation.Unfortunately, deregulation did not gofar enough. By leaving deposit insurance untouched(except to raise coverage), it rewardedthe managers of banks and S & L's who gambledwith their depositors' money. All the colorfulheadlines about cowboy bankers and corporateswindlers overlook the way that the regulatoryenvironment distorts the normal market curbsagainst such behavior.Government favoritism for insolvent banksand S & L's aggravates the crisis. Ifthe FDIC andFSLIC were truly interested in protecting thesmall depositor, they would close insolvent institutionsand payoff the depositors directly. Instead,they usually arrange purchase and assumptionagreements that merge failed institutionswith healthy ones. Big depositors are protectedas well as small in a short-term solution thatmerely compounds long-term difficulties.The crisis has reached such epic proportionsamong S & L's that the FSLIC no longer hasenough resources even to arrange bailout mergers.Growing numbers of bankrupt institutionscontinue to compete with sound S & L's, drivingthe interest paid to depositors still higher. GenieShort and Jeffrey Gunther of the Federal ReserveBank of Dallas point out in a recent studythat "such policies penalize the more conservativelymanaged institutions over the more aggressiveones."Indeed, no regulatory sleight of hand can magicallytransform bad loans into good. Withoutenough income from these loans, the failed butstill operating "zombie" institutions can pay interestto their current depositors only with moneyfrom new depositors. The regulators therebysanction an escalating chain letter that makes thefinal accounting ever more expensive. When theytake over an S & L themselves, the regulatorsstill are powerless to do anything else withoutoutside funds.None of the Administration's proposals addressthe root cause. Attempting to re-regulatethe S & L industry by imposing, for instance,higher capital requirements, will simply destroyit. Market forces already are unleashed. Thecompetitive survival of banks and S & L's compelledfinancial deregulation. The regulatoryhaven that gave banks and S & L's a tidy marketsharingarrangement cannot be reconstructed.If Congress increases insurance premiums, thesound institutions will be the ones to pay. Thiswill further punish the very kind of managementthat should be encouraged. Nor can governmentever adequately administer variable premiums."A rational system of risk-based insurance premiumsoffered monopolistically by a public agencyis simply impossible," argues GeraldO'Driscoll of the Federal Reserve Bank of Dallas.Without the feedback of profit and loss, bureaucratshave neither the information nor the incentivefor matching premiums to risk.And foisting the cleanup bill on the taxpayer isnot merely unjust but also tempts politicians andbureaucrats to try the same scam again. Howmuch longer will the taxpayer be expected tocough up the cash for the government's self-servingand disingenuous pledges? How much higherwill the price tag have to soar? Unfortunately,some undeserving group must take the hit for theirretrievable S & L losses, but the depositors atleast voluntarily assumed a risk when they acceptedfabulous political promises at face value.If the depositors want compensation, let themturn not to the much-abused and long-sufferingtaxpayer but to the managers of the failed S & L's,perhaps to the sale of government assets, and ultimatelyto the personal liability of the politiciansand bureaucrats who perpetrated this outrage.Only one solution can overcome moral hazardsin the banking and thrift industries: privatedeposit insurance. The government must dissolvethe FDIC and FSLIC and remove all remainingregulations upon depository institutions. The firststep would permit the competitive forces of themarket to arrange actuarially sound insurancethat protects depositors without subsidizing insolvency.The second step would help depository institutionsgain the geographical and asset diversitynecessary to shore up liquidity during runs.The S & L crisis is just the tip of the moral-hazardiceberg. Although not yet visible, deposit insurancecreates the same perverse incentives forcommercial banks. The FDIC already rates 10percent of these institutions in the problem bankcategory, within an industry with $2 trillion worthof deposits. Unless deregulation proceeds to theprivatization of deposit insurance, the nationsoon faces a larger crisis throughout the bankingindustry.D

272Personal Responsibility:A Brief Surveyby David C. Huff"Freedom cannot be separated from responsibility. "- HENRY GRADY WEAVERThe idea of personal responsibility lies atthe heart of a free society. When responsibilitiesare shunned at the individuallevel, there is an eventual impact on all thosearound us.Let us examine some examples from key areasof public policy. In each case it should be clear, asHenry Grady Weaver has noted, that "Any attemptto give to government the responsibilitieswhich properly belong to the individual citizensworks at cross-purposes to the advancement ofpersonal freedom. It retards progress-morallyas well as along the lines of greaterproductivity."1Before the beginning of government-supportededucation, parents fulfilled the duties of trainingtheir children in a variety of ways. Whilehome schooling and church-based schools werecommon, education was also available througheducational missionary societies, especially forthe poor.Interestingly, private and home schools haven'tbeen eradicated by today's massive network ofstate-controlled education. One reason is thatprivate education is responsive to the demands ofthe market-its survival is dependent upon itsperformance. Ifa particular school isn't educatingstudents effectively, it will be replaced by one ofbetter quality.Educators in private schools tend to havemore time to devote to teaching, meeting the requirementsof parents rather than those of theDavid C. Huffis chieffinancial officer ofan Atlanta-basedmanufacturers' representative.education bureaucracy. Such a focus will alwaysproduce a better product-in this case, a qualityeducation.When parents began to delegate educationalresponsibilities to the government, a decline soonfollowed. A variety of educational options werelost through standardization; academic excellencegave way to decreasing quality; freedom of mobilityand choice became hindered by such tacticsas busing.Probably the most sobering aspect of whathappens to freedom when the personal responsibilityfor education is handed over to the state isthe issue of authority. As Gary North has written:Naturally, parents have to delegate responsibilityto someone. Few parents have the time orskills to educate their children at home. Butthe fundamental principle of education is thetutor. . . . Parents hire specialists to teachtheir children along lines established by parents.The private school is simply an extensionof this principle, with several parents hiring atutor, thereby sharing the costs. But the parents,not the tutor, are institutionallysovereign. Since sovereignty must bear thecosts, education should be parent-financed.Anything else is a transfer of authority overeducation to an imitation family.2Since the transfer of authority involves thetransfer of control, the impact of our decisions inthe area of education warrants serious examination.Our prisons, and indeed our entire criminaljustice system, would benefit greatly from a

273stronger emphasis upon personal responsibility.A philosophy of offender rehabilitation whichsimply attributes criminal acts to the "environment,"while concentrating resources primarilyon building more prisons, misses the crucial issuesof responsibility and restitution. This helpsexplain the failure of most prisons to reform theirinmates for a successful return to society.The weaknesses inherent in such environmentaldeterminism should be replaced by policiesthat require convicts to make adequate restitutionto their victims whenever possible. Financialrestitution, for instance, could be paid by the prisonerfrom his earnings through work in sometype of prison industry. Coupled with sentencingthat accurately reflects the degree of offense,thereby teaching accountability, such a programwould encourage lasting rehabilitation based onpersonal responsibility.As Charles Colson has pointed out: ". . .working with the purpose of paying back someoneyou have wronged allows a criminal to understandand deal with the real consequences ofhis actions. . . . Studies of model restitution programsdemonstrate that they greatly reduce theincidence of further crime, since they restore asense of individual responsibility, thus making theoffender more likely to be able to adjust to society."3The trend away from personal responsibilityhas also become evident in the health care andsocial service fields, where the state is increasingly·viewedas a surrogate parent owing benefits toits citizen-children. Attempting to fulfill these demandingexpectations, governments at all levelschum out program after program-Social Security,.welfare, food stamps, Medicare, and the like.This effort also generates an array of legislationaimed at businesses, forcing them to bear anincreasing share of the costs of many forms ofemployee protection and benefits. In turn, theseadded expenses are passed along to consumers,both through outright price increases and bureaucracy-inducedinefficiencies.As with other services, health care and socialwelfare programs are most effectively providedby the private sector. Cotton Lindsay has written:"Long before governments took an active role inthi~ area churches and charitable groups caredfor the poor. I have seen no evidence that theirhealth or anyone else's is better served now byour own or any other form of governmentmedicine. "4Few areas of public policy impact our dailylives in so many tangible ways, and yet are moremisunderstood and debated, than the broad fieldof economics. But it is here that the principle ofpersonal responsibility has especially wide application.For instance:• One of the foundations of free enterprise isthe incentive of profit, as well as the risk of loss,for the entrepreneur. The entrepreneur's successor failure in the marketplace hinges on how responsiblyhe controls costs, manages workers,and guides his business toward satisfying the consumer.Government intervention or redistribution,in whatever form, hampers the accuratemeasure of a businessman's effectiveness in theseareas. This allows marginal businesses to stayafloat by avoiding the market's consequences fortheir inefficiencies.• Government unemployment programs arerife with abuse, allowing people to live off thestate while taking an excessive amount of time tofind employment. Such a situation rarely encouragesworkers to gain new, marketable skills, but itdoes allow responsibility to slip from the individualto the state.• Taxation makes it difficult for many citizensto meet their personal financial responsibilities.As time passes, more and more families adopt anattitude of resignation, and fall back on governmentaid.The concept of personal responsibility pervadesevery area of our public lives. Those whowould promote the principles of freedom shouldalways be alert to this concept, and seek to understandthe importance of its application. 01. Henry Grady Weaver, The Mainspring of Human Progress,(Foundation for Economic Education, 1953), p. 61.2. Gary North, Unconditional Surrender: God's Program ForVictory, 2nd ed. (Tyler, Texas: Geneva Divinity School Press, 1983),p.95.3. Charles Colson, "Crime and Restitution," Policy Review, No.43 (Winter 1988), p. 18.4. Cotton Lindsay, Clemson University, quoted in "Medicareand the Myth of Equality," by Mark D. Hughes, The Free Market(Ludwig von Mises Institute, September 1988), p. 3.

274Thomas Erskine:Advocate ofFreedomby Sean GabbThough largely now forgotten, the nameof Thomas Erskine (1750-1823) deservesa place in the heart of everyonewho values freedom and the rule of law. But forhis resolute stand in a moment of crisis, the subsequentcourse of English history might well havebeen very different-and very much less an inspirationto other peoples.I speak of England, though Erskine, in fact,was a Scotsman.·He was born the youngest son ofthe tenth Earl of Buchan. His father's title wasgrand, but his life was otherwise. The familylived, on £200 a year, in an upper apartment inone of the less fashionable areas of Edinburgh.Taught at home, and then in various localschools~ Erskine received what, by the standardsof his day, was a patchy education. From his earliestboyhood, he read both widely and deeply inthe English classics. But his Latin was never morethan moderate, and he had no Greek. For awhile, he studied mathematics and natural philosophyat St. Andrews University, but left beforehe could matriculate.Though he wished to enter one of the professions,his father was too poor to assist him. Unableeven to afford a commission in the army, inMarch 1764 he joined the navy as a midshipmanaboard the Tartar. He sailed at once for the WestIndies, and didn't see Scotland again until he wasan old man.He passed four years stationed in the West Indies,where he continued to read widely. He leftthe navy on failing to gain a promotion, and, hisfather now dead, laid out his entire legacy on aMr. Gabb, a civil servant in London, writes for severalBritish journals.commission in the army. About this time he married.The next two years he spent with his wife ongarrison duty on the island of Minorca, then aBritish possession.In 1772 he went on leave to London. There,through his noble connections and engaging manner,he gained easy entry into polite society. Hebecame acquainted with Samuel Johnson, JamesBoswell, Edmund Burke, Edward Gibbon, andthe other great names of what was perhaps themost brilliant age of English prose. Shortly after,however, he made an acquaintance no less grand,but of infinitely greater importance to his futurecareer.One day, acting on a whim, he strolled into acourtroom where Lord Chief Justice Mansfieldwas presiding. Mansfield no sooner looked onErskine than was captivated by his appearance.He, went so far as to invite the young man to sitbeside him on the bench and have the case inprogress explained. His interest aroused, Erskinedecided to take to the law. He enrolled in one ofthe Inns of Court, which are the ancient lawschools situated on the north side of the Thamesbetween the cities of London and Westminster. Inspite of financial hardship and a growing family,he pressed forward with his studies, being calledto the English bar in July 1778.Within a few months, poverty was behind him.This occurred quite by chance. One Thomas Bailliehad accused Lord Sandwich, a Governmentminister, of corruption. Sandwich began a suit forcriminal libel-a type of civil action that couldend not only in damages but also in imprisonment.Out for an evening walk, Erskine wascaught in a rain shower. He took refuge at the

THOMAS ERSKINE: ADVOCATE OF FREEDOM 275Thomas Erskine, 1750-1823house of a friend, where Baillie was part of thecompany sitting down to dinner. The two struckup a friendly conversation. The next day, Baillieretained Erskine as one of his defending counsel.The trial opened badly. Baillie's other counselhad advised settling out of court. Told by Baillieto fight the case to a finish, they used up an entireday in raising fine points of law. Next day, as theSolicitor General was about to reply, Erskine gotto his feet. He found courage, he later said, bythinking of his children about him, plucking at hisgown and crying for bread. In any event, he madea ferocious, if not entirely regular, attack on LordSandwich. His eloquence and bearing were suchas to throw the court almost into a trance ofamazement. Against all expectations, Bailliewon. Erskine had achieved instant fame. Workflooded in, and he was a made man.In 1779, he defended Admiral Lord Keppel ona charge of incompetence in the face of the enemy.(Great Britain at this time was at war with itsAmerican colonies and a coalition of Europeanpowers.) His defense succeeded, and he was given£1,000 by Keppel, an enormous fee.Two years later, he defended Lord GeorgeGordon on a charge of high treason. Gordon,whose mental state varied between the eccentricand the insane, had raised the London mobagainst the Government for having brought in abill relieving Roman Catholics from some obsoletepenal laws. Crying "No Popery," the mobhad gone on a three-day looting and burningspree, which came to an end only with the arrivalof armed troops diverted from embarking for theAmerican War. Gordon's fate seemed assured.The court had sat all day and all evening, and,when Erskine opened to the jury, it was past midnight.But his speech, together with his manner ofdelivery, was so persuasive that he secured Gordona complete acquittal.Erskine continued his spectacular progressthrough the 1780s. He specialized in commerciallaw and-there being no regular divorce law until1857-actions for adultery, or what then wascalled "criminal conversation." In 1783, LordMansfield's influence ever behind him, he wasmade a King's Counsel, receiving the coveted silkgown at an unusually early age. In the same year,he was appointed Attorney Geperal to the Princeof Wales, a personal friend of his. By 1791, his annualincome had reached an incredible £10,000.He was the highest paid counsel in the history ofthe English bar. It is not, however, on these successesthat his claim to immortality rests.The French RevolutionThe French Revolution is an event too wellknown to need retelling. Everyone knows how itbegan with the fairest hopes, and slid into thefrenzied bloodbath of the Terror. Certainly, theOld Regime was radically bad, and, when its financialcollapse in 1788 showed the world exactlyhow bad, it was plain that only drastic reconstructionwould do. But, of all conceivable groups,what became the French political class was perhapsthe least suited to carry through any kind ofreconstruction. Its collective head was stuffedwith theories of absolute natural rights, applicablewithout regard to circumstances. As for practicalwisdom, there was none. No institution thathad existed before 1789 was left standing.The results perhaps were inevitable. An establishedorder, whatever its intrinsic merit, usuallycommands a certain respect. New ones have nosuch advantage. Approval depends on estimatesof personal benefit. If everyone approves, all is

276 THE FREEMAN • JULY 1989well and good. But anyone who disapproves hasno restraining sense of loyalty. Given enough disapproval,the seeds are there for civil war. So itwas in France. What consensus there was brokedown over reform of the Church. At the sametime, relations with the other European statesdrifted into war. This gave the extremists theirchance, and what they called saving the Revolutioninvolved butchering 370,000 French civilians.The effect of this outside of France was to killthe European Enlightenment stone dead. Fornearly half a century, it had been increasingly thefashion among the continental monarchies topreach, if not always to practice, a rather timidliberalism. After 1789, the mood changed. If as apractical doctrine the Rights of Man were a failure,their abstractness made them supremelyportable. Wherever there were intellectuals ableto read French, the revolutionary doctrines foundan audience-and there were governing classesready to take fright. Censorships were toughened,spies and informers encouraged, secret policeestablished or reformed.The intellectual tone of the old age had beenset, in large degree, by Voltaire and his followers.The intellectual tone of the new, when it finallyemerged, was set by the sonorous, if vapid,Chateaubriand, by the fanatical de Maistre, bythe various Germans. Unless we are to see themetric system as sufficient reward, the FrenchRevolution must be accounted an unmitigateddisaster for European civilization.The reaction in England, if less extreme thanelsewhere, was nevertheless considerable. Forsome 30 years there had been a movement withinthe British Dominions dedicated to making governmentmore responsive to the wishes of thegoverned. Its American branch had grown pow;.erful enough to bring about a successful war ofindependence.Efforts in England were concentrated on a reformof Parliament. The electoral system hadevolved over three or four centuries, and nowshowed no obvious rationality. Manchester andSheffield, towns fast growing wealthier and morepopulous than many foreign capitals, were unrepresented.Old Sarum, with seven electors, andGatten, with two, each returned two Members.Elections were usually an occasion for spectacularcorruption. In some places, candidates bidopenly against each other for votes. In others,seats were the virtual property of the wealthiestlocal family. The reform movement waswidespread. In 1785, the Prime Minister himself,the younger William Pitt, introduced a modestBill to redistribute seats. It failed, but the generalidea, before 1789, seemed to be on the practicalpolitical agenda.Events in France at first encouraged the reformmovement. Here, after all, was a peoplecasting off the chains of a thousand years, and advancingfurther toward liberty than the Englishhad moved in a century. In their enthusiasm, themore radical reformers not only began a habit offraternal correspondence with the French politicalclubs, but sometimes of following the newFrench habit of calling each other Citizen thisand Citizen that.This, however, was about the limit of approvalfor things French. Leaving aside an insignificantminority, the reformers knew that a revolution inEngland was neither necessary nor possible. Everythingthey wanted already was in the Constitution,only waiting until successful persuasioncould bring it out. But, French veneer or none,advocacy of reform was fast going out of fashion.Seeking Out"The Enemy Within"Open hostility was first articulated by EdmundBurke. He saw on what wretched foundations thenew order in France stood. In exposing them, he .created the first great masterpiece of Englishconservative thought. As his predictions of thecourse of French events came true, the possessingclasses took alarm. The reformers increasinglyfell under suspicion of plotting revolution. AfterFrance declared war on England early in 1793,alarm ripened into panic, and the cry went up forsuppression.Pitt's Tory government found all this highlyconvenient. Arguments over France and domesticreform already had split the Whig opposition.Giving in to public opinion would only consolidatethe Tory position. The radical reformers alreadywere harried and spied upon. Now, defeatof "the enemy within" became a priority.In the middle of 1794, the Governmentpounced. The reform leaders were arrested andtheir papers seized. The Habeas Corpus Act wassuspended. Charges were made of high treason.

THOMAS ERSKINE: ADVOCATE OF FREEDOM 277This was defined as having distributed the worksof Tom Paine and the other radical philosophers,of having corresponded with the French Assemblybefore the outbreak of war-and therefore ofbeing men of violent intention.Anywhere else in Europe, the accused nosooner would have come under suspicion thanbeen arrested and thrown without charge intoprison. Any trials would have been held in secret,and for no better purpose than gathering namesfor other arrests. Those arrested in Scotland, forexample, which had a legal system based on Romanlaw, and where juries were chosen from thebench, had the merest pretenses of trials.In England, however, the accused had full benefitof the law. They were allowed counsel. Packingjuries was difficult. Court proceedings werereported in the press. But, as some modern instap.cesbear witness, even the best safeguards ofjustice can be ineffective against a general panic.By 1794, the mob had turned "pa~riotic," and assaultedanyone so much as suspected of radicalintentions. There was perhaps only one man alivecapable of taking on the prosecutions for hightreason and defeating them.Erskine was a Whig by birth and by conviction,and the close friend of Whig leaders Charles Foxand Richard Brinsley Sheridan. He had enteredParliament in 1783. Strangely enough, he nevershone there. In court matchlessly eloquent, in theCommons, he was a wretched speaker-on oneoccasion even breaking down so badly that anotherhad to continue for him. But he contrivedto serve his ideals at the bar. In libel suits, he continuedto submit that the question of whether ornot a publication were libelous was for the juryand not the judge to decide. This led to the passingof Fox's Libel Act in 1792.In Defense ofTom PaineErskine had visited France in 1790, and returnedto England favorably impressed by theRevolution. His opinion of the Revolutionchanged over time, but his hatred of persecutionnever wavered. In 1792, he undertook the defenseof Tom Paine on a charge of seditious libel.The second part of Paine's Rights of Man hadcome out earlier that year. The first part was leftto circulate freely. But its sequel was alleged toinsult the Constitution and the Royal Family, andmoves were begun to suppress it. The trial beganin December, the Attorney General prosecuting.Erskine's speech for the defense had been amonth in preparation, and was the greatest hehad delivered so far. "[E]very man," he asserted,"not intending to mislead, but seeking to enlightenothers with what his own reason and conscience,however erroneously, have dictated tohim as truth, may address himself to the universalreason of a whole nation, either upon the subjectof governments in general, or upon that of ourown particular country."lFor all its magnificence, his speech was an utterfailure. He was heckled throughout by thejury. As soon as he sat down, the foreman roseand stopped the trial. The Attorney Generalcould reply if he wished, the foreman said contemptuously.But nothing more was required. Aguilty verdict was brought in immediately. For hispart in the proceedings, Erskine was dismissedfrom the Prince of Wales' service.He had no better success with his defense thenext year of John Frost, a lawyer who had utteredseditious words while drunk. Again, thejury convicted. If, in some other cases, he defeatedthe Crown, the balance was tilting steadilyagainst the defense in state trials. Erskine knew,when he agreed to defend the reform leaders,that this was a last stand. Ifhe should fail, and theaccused be convicted of high treason, the wholeprinciple of limited constitutional governmentwould come into doubt.The trials opened on October 28, 1794, at theOld Bailey, Lord Chief Justice Eyre presiding.First for hearing was the case against ThomasHardy. A shoemaker by occupation, Hardy was acomfortable, quiet man just entering middle age.Though not a great writer or speaker, he hadhelped found a group called the London CorrespondingSociety in 1791. Its end was parliamentaryreform. For this, he stood accused of compassingthe King's death.Sir John Scott, the previous year madeAttorney General, and subsequently known asLord Chancellor Eldon, prosecuted. He openedwith a tremendous speech nine hours long.Hardy's acts were examined in minute detail, andtreasonable intents deduced from them-a desireto import into England all the squalid horrors ofthe French Terror. Seized papers were read out,and the worst construction put on them. Scott

278 THE FREEMAN • JULY 1989then examined the Crown witnesses-Governmentspies, informers telling evidence as theywere paid. Set out over five days, the prosecutioncase had an obviously strong effect on the jury.Erskine opened for the defense in whatseemed an even weaker position than in Paine'scase two years before.His speech is beyond description. It must beread. He tore the Crown's case in pieces. Treason,he reminded the jury, was strictly to plotagainst the King's life, not simply to offend hisgovernment. Much had been said about Hardy's"further intentions" beyond reform, but a courtof law had to proceed on facts, not on probabilities."I am not vindicating anything that can promotedisorder in the country," Erskine said, "butI am maintaining that the worst possible disorderthat can fall upon a country is, when subjects aredeprived of the sanction of clear and positivelaws."2The seized papers, Erskine pointed out, indicateda desire to reform Parliament, not to overthrowit. As for the oral evidence, it was worthless.Erskine paid particular attention to thetestimony of George Lynam, a Government spy:"He professed to speak from notes, yet I observedhim frequently looking up to the ceiling. When Isaid to him, 'Are you now speaking from a note?Have you got any note of what you are now saying?'he answered, 'Oh no, this is from recollection.'Good God Almighty! Recollection mixingitself with notes in a case of high treason."3 Hespoke for seven hours, his voice finally dyingaway to a near whisper. He had done his absolutebest, and it was enough. All that remained of thetrial was secondary. The jury was out for threehours, but returned with an acquittal.The Government persevered. John HorneTooke was tried next. An elderly clergyman, hewas a friend and colleague of the Whig.leaders,and had been working for parliamentary reformfor 20 years. That he could have been a traitorwas absurd. The proceedings sank from high dramato farce. Erskine let Tooke largely conduct hisown defense. At one point, the Prime Ministerwas compelled to attend on a writ of subpoena.Had he and Tooke once collaborated in bringingforward a reform bill? Pitt twisted and equivocated.The public gallery rocked with laughter. Itwas a very sullen William Pitt who went back toDowning Street and the conduct of the waragainst France. The jury was out eight minutes,then returned another·acquittal.Still the Government persevered. John Thelwall,a young agitator, was the next to go on trial.He genuinely admired the French extremists.Had he been tried first, rather than Hardy, theprosecutions might have gone differently. But hecame after, and Erskine already had shattered allbelief in the Crown case. The Lord Chief Justiceis said to have slept through the prosecutionspeech. The jury acquitted nearly automatically.The other radicals were released, all chargesdropped. Certain of gaining convictions, the Governmenthad drawn up 800 arrest warrants, ofwhich 300 were signed. These were nowscrapped.Hardy's defense costs amounted to £25. In this,as in the other two cases, Erskine had given hisservices free of charge.He lived nearly another 30 years, but his latercareer was an anticlimax. He became Lord Chancellorin 1806, but, ignorant of equity law, failedin the post. Thereafter, he passed his time in oftenunhappy idleness. His total earnings from advocacyhad amounted to £150,000. His Chancellor'spension was £4,000 a year. But, ever carelessof money, Erskine invested much of his fortunein very bad American stock, and lost every penny.He was reduced first to embarrassment, thento actual poverty. He died in Scotland, on a visitto his elder brother, the eleventh Earl, and isburied in the family tomb at Uphall, Linlithgow.But whose life would not be an anticlimax afterthe glories of 1794? The Government remainedfirmly in power. It brought in new lawsagainst conspiracy and seditious libel. It did itsconsiderable best to suppress the reform movement.It had also learned that, whatever the situationabroad-or even in the other two kingdomsof the British Crown-power in England wasconfined within certain impassable limits. Panickedby the example of France, the Governmenthad opened the Pandora's box of proscription.Singlehandedly, Thomas Erskine slammed thatbox shut so tightly that it has never yet been reopened.The debt owed him by the English peopleis incalculable. 01. A Complete Collection of State Trials, various editors, London,1809-1826, vol. xxiii, col. 414-415.2. Ibid., vol. xxiv, col. 936.3. Ibid., col. 962.

279Racial Tensions: TheMarket Is the Solutionby David Bernstein,..'Relations between ordinary white. and black Chicagoans, measuredby the everyday small talk ofpeople crossing paths, seem, if anything, to havebecome more cordial in the years since this citybegan pitting white candidates against black candidates.But in local politics ... this city seemsclearly to be moving closer and closer to a twopartysystem. And it is not the Democrats againstthe Republicans."So concludes an article in The New YorkTimes Magazine (February 19, 1989) about theracial animosities stirred up by the mayoral racein Chicago, which pitted a white candidateagainst a black candidate in the Democratic primary.Similar troubles are expected this year in NewYork City, where Mayor Ed Koch, who is white,will face off against Manhattan Borough PresidentDavid Dinkins, who is black, in the Democraticprimary. Both cities' elections have beenfurther complicated by the fact that in each citythe black candidate needs the votes of liberalJews to win, yet in each city black-Jewish politicaltensions also are on the rise.There is no question that race relations haveimproved tremendously in the United States overthe past 20 years. Indeed, the Times article acknowledgesthat interpersonal race relationseven have improved in Chicago in recent years,despite the political tensions.So if race relations generally are on the mend,why is this trend not reflected in the politicalnews emanating from our major cities? The an-Mr. Bernstein is a student at Yale Law School.swer has to do with the coercive nature of politics.Politics is a zero-sum game. The winning sidegets the spoils, the losers get nothing. Of course,the typical voter actually gains little; indeed, heloses the tax money that goes to payoff thepoliticians' friends and supporters. Perception,however, is more important than reality when itcomes to voting. Voters believe that candidates oftheir own race will "take care of their own," sothey vote accordingly. Racial tensions thereforeare inflamed when an election pits a white candidateagainst a black candidate.It is important to contrast the divisive natureof politics with the integrating nature of free markets.In recent mayoral elections in Chicago, themajority of blacks voted for the black candidate,and most whites voted for the white candidate.But in their daily shopping, how many people patronizeonly members of their own race - or restrictthemselves to goods that were made by aparticular ethnic group? Any person who makessuch a choice will deprive himself of an opportunityto get better products or services from merchantsof another race.The integrating effects of markets can be observedevery Sunday and Tuesday during thesummer at Aqueduct Race Track near my homein Queens, New York. On those days, the parkinglot of the race track is host to a huge flea market.The track is located in a racially troubled area ofSouth Queens, 10 minutes from Howard Beach,site of a racial attack in December 1987.Yet, every Sunday and Tuesday, people gatherfrom all over the area to buy. a wide variety ofmerchandise. Customers and merchants repre-

280 THE FREEMAN • JULY 1989sent just about every racial, religious, and ethnicgroup, and are drawn from every social class. Immigrantsfrom India and Korea mix freely withnative blacks, Jews, Italians, and others. The merchantshaggle with the customers over prices, andthe exchanges sometimes get heated, but in themany years that I have been going to the fleamarket, I have never seen anything more thanharsh words exchanged, and security is minimal.The Mutal BenefitsofExchangeWhy are such diverse people able to get alongso well? Could it be that people who go to fleamarkets are drawn from a more tolerant groupthan the public at large? Of course not. The fleamarket brings together about as random a crosssection of the population as you can possibly find.I have no doubt that many of the people who frequentthe market harbor deep racial hatreds. Sowhy don't these tensions ever blow up? The answeris that the flea market, unlike the politicalarena, brings people together for their mutual interest.In a free market, exchanges are made onlywhen each side believes that the exchange is inhis best interest. The fact that everyone at theflea market, black and white, rich and poor, benefitsfrom being there is a powerful incentive forpeople to forget their differences and get along.In the process, racial tensions are reduced, as awide variety of people are able to observe eachother close up and see how foolish stereotypesand hatred are.Contrast the natural amity of the market to thenatural discord of politics. In politics, the sidewith majority support wins, and forces the unwillingminority to go along. This can't help butcause bitterness and resentment on the part ofthe minority towards the majority. Moreover, becausepoliticians have so much power over theeveryday lives of individuals, minor political incidentscan cause major upheaval.For example, Steve Cokely, a black resident ofChicago, publicly claimed that Jewish doctors areinfecting black babies with the AIDS virus. Normally,Mr. Cokely would be dismissed as a crank,and that would be the end of it. Unfortunately,Cokely was an aide to Acting Mayor EugeneSawyer, who is also black. Jewish spokesmen demandedCokely's dismissal. Segments of theblack community, wishing to express their defianceoff the "white power structure" urgedSawyer not to "give in." After some hesitancy,Cokely was fired, but not before black-Jewish relationswere soured, at least in the public sphere.Thus, Cokely's speech, which would have gainedlittle attention if he had been a private citizen,had grave consequences because of the divisivenature of power politics.It is unfortunate that most of the leading advocatesof improved race relations in the UnitedStates have been proponents of increasedgovernment intervention in the marketplace. Aswe have seen, free market forces naturally lead tointegration and color blindness, because individualsfind it in their self-interest to put aside theirprejudices. When it comes to politics, however,that same self-interest leads to racial tensions, aseach group tries to improve its standing at the expenseof other groups.Relations among individual members of diversegroups are steadily improving, as peoplesee the foolishness of discriminating in the privatesphere. But as the public sphere grows everlarger, those gains are limited by political tensions.The shrinkage of government in favor ofmarkets would do much to increase racial harmonyin American cities. If you don't believe it,come to the parking lot of the Aqueduct RaceTrack this Sunday.D

281Readers' ForumTo the Editors:Clint Bolick is warmly to be congratulatedon his exceptionally lucid review of EllenFrankel Paul's Equity and Gender, a mosttimely book (The Freeman, February 1989).He is also right to point out-as his sole reservationabout the book-that it fails to "claimthe moral high ground for adversaries of comparableworth." In one case, however, even theremedy he proposes concedes too much of thatground. I would like to address this point atthe risk of nit-picking with an otherwise exemplaryreview.Mr. Bolick suggests that "defenders of themarket must ... expose comparable worth as apaternalistic theory that assumes women areincapable of succeeding on the level playingfield guaranteed by the present anti-discriminationlaws." However, if you concede themoral legitimacy of "the present anti-discriminationlaws," I suggest that you have alreadysurrendered the high ground-and consequentlyundermined your case by acceptingthe opposition's premises. In reality, the present"anti-discrimination" laws should be repealedas well. It is completely indefensiblethat an employer who wishes to support theembattled traditional family by favoring marriedmen is now a criminal. Similarly, if an employerbelieves that women's well-being willbe facilitated by deliberately hiring more femaleemployees, he (or she) should be entirelyfree to do so.We forget too easily that modern economicswas born in the eighteenth century as an outgrowthof a belief in natural law, which led tothe conclusion that there are certain thingsbest left to natural processes, including economicdecisions. Employment decisions in afree society-as, except for state oppression ofblacks, the United States has always largelybeen-cumulatively reflect authentic individualchoices. Very simply, the crucial reason thatmen make considerably more (on average)than women is that-as, for instance, a 1982Harris Poll conducted for Virginia Slimsdemonstrated-approximately nine out of tenwomen (in contrast to men) do not desire fulltimeemployment outside the home.If those who believe that most women donot properly understand their own interestswould limit their efforts to persuasion, onecould simply address the plausibility of theirbelief. One could demonstrate its similaritywith the Marxist notion of "false conscious-

282 THE FREEMAN • JULY 1989ness," and note the contradiction that thoseholding this view often claim to represent themajority of women. However, when feministsadd to persuasion the pervasive coercion of"anti-discrimination" legislation-whether it iscalled "equal pay for equal work," "affirmativeaction," or "equal pay for work of equal value"-thateternal vigilance which is said to bethe price of liberty obliges liberty's defendersto take a stand, as both Clint Bolick and EllenFrankel Paul have so eloquently done. I wouldonly caution that this battle cannot be won ifone concedes one's opponents' premises-andin this case, there is no need whatever to do so,on the contrary, they should be called to account.NICHOLAS DAVIDSONNew York City(Note: Mr. Davidson is the editor of GenderSanity: The Case Against Feminism [UniversityPress of America, 1989].)Ellen Frankel Paul Replies:Both Clint Bolick and Nicholas Davidsonagree that I have somehow failed to "claim themoral high ground for adversaries of comparableworth." I really thought that I had, but apparentlymy statement in the Introduction that"justice and equity must triumph over efficiency"was too sketchy to convey my intent. WhatI meant was that even if the market is most efficient-whichnearly everyone concedes-thiswouldn't be enough, in the sense that if comparableworth carried the moral argument thatwould trump the efficiency case for the market.The final chapter of the book was writtento demonstrate that, indeed, comparable worthcannot carry the moral argument, and thereforeboth considerations of morality and efficiencyweigh in on the side of the market. Ihope this clarifies my intent, at least, and I willhave to leave it to others to judge whether Isucceeded in making the case.I must confess, though, that I am still puzzledby Mr. Bolick's criticism that I did not succeedin claiming the high ground, when in thevery next paragraph he outlines what I shouldhave argued to claim that ground, and thissketch turns out to mimic precisely the argumentsthat I did make in Equity and Gender,namely "expose comparable worth as a paternalistictheory," an "elitist concept, denigratingthe value of blue-collar jobs," and "raise theOrwellian specter of a commission of 'experts'determining wages in some mystical fashionand supplanting the will of individuals." PerhapsI'm losing my touch as a writer, but thenwhy did Mr. Bolick commend my "superb ability... to take complex issues and translatethem into English." It's undoubtedly petty ofme to carp about a highly favorable review, butI am genuinely mystified by this line of criticism.With Nicholas Davidson's point that Mr.Bolick, by implying that the present anti-discriminationlaws create a level playing field,has himself conceded the high ground, I am intotal agreement. In fact, I am in the process ofwriting a much more ambitious and comprehensivebook than Equity and Gender on preciselythis topic of the moral legitimacy of antidiscriminationlaws. I expect that Mr.Davidson will find this book much to his liking.ELLEN FRANKEL PAULBowling Green State UniversityWe will share with readers the most interestingand provocative letters we receiveregarding Freeman articles and theissues they raise. Address your letters to:To the Editors, The Freeman, The Foundationfor Economic Education, Irvington-on-Hudson,New York 10533.

283A REVIEWER'SNOTEBOOKThePoverty ofCommunismby John Chamberlainick Eberstadt calls his challenging book. The Poverty of Communism (NewN. Brunswick, N.J.: Transaction Books,315 pages, $29.95 cloth). For the most part hetrains his spotlight on China, Cuba, the SovietUnion, and the satellite countries of eastern Europe,all of which have been under Marxist­Leninist-Stalinist rule for decades. There are,however, plenty of references to countries such asPanama, Chile, Uruguay, Jamaica, and Guyanathat have been brushed by Marxist doctrine. Thisis a wide-ranging book that realizes ideologies gobeyond physical boundaries, and it is the betterfor it.But Eberstadt is confusing in the way he jumpsfrom eyewitness evidence of poverty in Communistnations to the statistical averages of mortalitytables. The eyewitness stuff, which takes us toSolzhenitsyn's Gulag, is dramatic and irrefutable.But the statistical evidence, to my mind, is unreliable.To do Eberstadt justice, he himself is careful toindicate his skepticism about reliance on officialnumbers. He says the official Soviet life expectancyfigure of 69 years would be lower thanthe most recent numbers quoted by the WorldBank. Moreover, the countries that Eberstadtconcentrates on are definitely not above playingpolitics with health and literacy figures. The Castroregime in Cuba is concerned with AIDS, theincurable disease that has jumped boundaries insub-Saharan Africa. Since some 300,000 to400,000 Cubans have been rotated throughAfrica between 1975 and 1985, there must havebeen considerable contact between Cubans andblacks in Ethiopia, Angola, and elsewhere. Eberstadtsays that for "reasons of state" the Castroregime "might well wish to downplay AIDS'source of contagion...."While Eberstadt is to be commended for hisdistrust of the Communist use of mortality statistics,there are ironies that he ignores. One ironyis posed by the arbitrary notion that fetuses arenot living human beings. This allows governmentsthat run their economic systems by topdownplanning to exclude abortions from theirfigures bearing on life expectancy. The Chinese,at the moment, have decreed that their womenmust be limited to one child per family. Forcedabortions are common, much to the dismay ofthe women. Dismaying or not, they enable thePeking government to make a good stab at controllingthe population.What population control of this drastic sortdoes is to make the life expectancy figures practicallymeaningless. If only one child per family isallowed to live, that child might easily have a favoredlife expectancy. He will get the best availablenutrition. If he hits 70 years it will be no surprise.The average of such favored lifeexpectancies would be high. But if the abortionsof unnumbered fetuses were to be included in theaverages, we would be dealing in negatives.Skipping to the Soviet Union, Eberstadt saysRussian women have an average of six to sevenabortions. If these were to be factored into thegeneral statistics, we would get minus-quantitylife expectancies.Despite the prevalence of epidemic diseases inCuba, the mortality statistics offered in Havanaseem to be in line with the general figures for theCaribbean region. But who should get the credit

284 THE FREEMAN • JULY 1989for this? As Eberstadt knows, the conquest ofyellow fever and malaria was a hard-earned byproductof the efforts to make it possible for theU.S. to build the Panama Canal. The French hadbeen defeated by yellow fever. But PresidentTheodore Roosevelt and George Goethals persistedin fighting the yellow fever and malariamosquitos as the French had been unable to do.Once the scientific knowledge of mosquito controlhad become common, it was easy for localHavana hospital authorities to move in. Actualcredit for finding the cause of malaria belongs toan English physician named Ronald Ross, whohad addressed the problem of mosquito controlin Secunderabad, India. The "poverty" of CastroiteCommunism would have been far greater ifBritish and North American capitalism hadn'tcleaned up the Canal Zone first.Eberstadt is chary of making foreign policyrecommendations beyond a broad caution thatthe West must stop "subsidizing the Sovietimperium." He is worried by the fact that"Japanese, European, and even American corporationsand government bodies make the Soviettask of controlling its allies far easier than itmight otherwise be by granting Moscow financialroom to maneuver."Eberstadt singles out Angola, where Sovietproxies are making "the jungles safe for ... 'socialism.'This is an expensive task: by some estimates,it costs as much as $3 million per day. TheU.S.S.R. has been spared the necessity of footingthis bill. Instead, Gulf Oil has stepped smartlyinto the breach, and is currently paying $5 milliona day in royalties to the Luanda government."Cuba, in short, has been allowed to spread itselfin Africa by a capitalist American concern.The Poverty of Communism is a combinationof essays written at different periods for publicationin a variety of magazines. While this gives adisjointed quality to the whole, the general tonaleffect is not unduly impaired. The inevitable repetitionsare acceptable in their various contexts.Overall, the book is reassuring to the West.The "poverty" of Communism, described in detailby Eberstadt when he gets away from analysisof statistics that he himself distrusts, is so obviousthat one can be sure that Gorbachev in theU.S.S.R. and Deng in China will continue withtheir cautions, meanwhile allowing capitalisticmotivations·and incentives to creep in. DTHE mEORY OF MARKET FAILUREEdited by Tyler CowenGeorge Mason University Press, 4400 University Drive, Fairfax,VA 22030. 1988. 384 pages. $21.75 clothReviewed by Jeffrey A. TuckerEconomists favoring government interventionoften base their views on "marketfailures." These alleged failures occurwhen the free market appears unable to overcomecertain barriers preventing goods or servicesfrom being satisfactorily provided throughvoluntary means. Some of these barriers are "externalities,""high transactions costs," or are inherent"public" qualities of the good or service.The theory of market failure, it seems, has alwaysbeen with us, but it wasn't until the 1950sthat Keynesian economist Paul A. Samuelson,along with other elaborators, defined and formalizedit. The argument they gave sounded compellingat the surface, but many scholars latershowed it to be, in many respects, fallacious."Externalities" are a key part of the theory.They occur when an economic exchange affectssomeone not party to the original exchange.These can be positive or negative effects. For example,factory pollution creates a "negative externality,"but when a neighbor improves his landand your property value goes up, you get a "positiveexternality."Not all externalities are cause for worry, however:only those that create a large "divergencebetween private and social cost" which diminishes,in some mechanistic sense, social welfare atlarge. The free market can't solve this divergency,some economists say, because the "transactionscosts" are too high. The factory, for example,cannot work out a satisfactory deal withevery person in a city to correct the negative externalitybecause of the costs involved in contracting,bargaining, and enforcing agreements.Government is therefore needed to correct theproblem.Similarly, the existence of transactions costsalso plays a part in creating what economists callpublic goods, that is, those goods (or services)that everyone wants, but that the market "fails"to provide, because of the good's "special characteristics."Some traditional examples are nation-

OTHER BOOKS 285al defense, fire departments, roads, and schools.The lighthouse is a common example of a goodthat supposedly embodies all the problems associatedwith public goods. The lighthouse servicecan't be restricted to paying customers sincewhen the beam is on, every ship in the harbor cansee it. This is the condition of "non-excludability";non-subscribing boaters receive the benefitsof the lighthouse (a "positive externality") courtesyof the subscribing boaters. If the service isprovided to one boat, it becomes useful to all.This creates what is called "non-rivalrous consumption,"which in turn leads to the problems ofshirking and free-riding.Why should some lighthouse customers pay,while others receive a light they are not payingfor, that is, when they can free-ride? And as longas there is the chance for free-riding, whyshouldn't everyone try to shirk in hopes thatsomeone else will pay for the service? Facedwith these problems, say some economists, themarket won't provide lighthouses. The only alternative,it appears, is to have the governmentprovide the lighthouse and charge everyoneequally for the service through taxation.Fortunately not all economists accepted thetheory of market failure at face value. The classicalliberals had long provided critiques of the logicunderlying market failure. But the newly formalizedneo-classical theory of market failurecalled forth a formal response. Starting in themid-1970s, and continuing to the present, a stringof brilliant scholars have taken the model apartpiece by piece. As a result, this once invinciblecase for government interference has severelymalfunctioned. Some say the theory now standson the verge of intellectual collapse.In The Theory ofMarket Failure, Tyler Cowenhas collected primary critiques of market-failuretheory, most of which appeared in economicsjournals during the last 30 years, and organizedthem into an accessible volume. He also includessome previously unpublished essays that are especiallynotable. Cowen's excellent introductiondetails the important points of each article, explainsthe contribution each makes to the literature,and makes suggestions for further research.Contributors include Robert Axelrod, James M.Buchanan, Earl R. Brubaker, Steven N. S. Cheung,Ronald H. Coase, Harold Demsetz, JeromeEllig, Kenneth D. Goldin, Jack High, Robert W.Poole, Jr., and Robert 1. Smith.As the contributors demonstrate, the markethas an array of ways to overcome its alleged failures.The "special characteristics" of publicgoods turn out to be not so special, as Goldinpoints out, since most if not all goods can be suppliedwith either "restrictive access" or "equal access,"which brings into question the inherent"publicness" of some goods over others. Demsetzshows that when "non-excludability" is notin question, as in a movie theater or park, entrepreneurscan charge consumers differentprices based on differing consumer values. Thisallows public goods to be supplied privately. Similarly,Buchanan explains in a now-classic articlehow private clubs and social groups can providepublic goods in ways never imagined by the market-failureeconomists.But what about cases where the service of thepublic good cannot be excluded from nonpayingconsumers? As a private solution, these goodscan be connected, through tie-in arrangements,to other goods that are excludable.For example, the lighthouse beam is not excludablebut space in the harbor is. Harbor ownerscan charge a fee to boats entering the privateport which can pay for the lighthouse. In fact,Coase shows that contrary to the assertions ofeconomists, prior to 1842 British lighthouse serviceswere provided privately through a port-entrycharge. Coase concludes that "economistswishing to point to a service which is best providedby the government should use an examplewhich has a more solid backing."Another example of market failure debunkedin these pages is that of the beekeepers and theapple-growers, whose services create externalitiesfor each other (bees both eat and fertilize the appies).Economists use this example to illustratehow taxation and subsidies are the only way tocorrect some externalities. Cheung, however,demonstrates that beekeepers and apple growershave been arranging private contracts with eachother for many years, with no apparent failures inthe market.The same is true for education, another allegedpublic good that government must provide. Highand Ellig show how before the advent of governmentschools, in both Britain and the U.S., privateenterprise did a fine job of providing education,even to the poor. Of special note, their

286 THE FREEMAN • JULY 1989article describes how the government used publicschools to crowd out competitive private ones.The contributions of Poole and Smith show howthe "market failures" of fire protection, publicparks, and nature conservation also have beenprivately provided.As a caveat, most of the contributors to thisvolume are neo-classical economists and thereforeassume the postulates of "perfect competition"and utility scales that are interpersonallymeasurable, both of which are untenable in aworld of action. For a more fundamental critiqueof market failure, one that takes into account theinsights of subjectivism, readers must look towardeconomists writing within the tradition ofAustrian economics.Cowen's volume is nonetheless an outstandingresearch tool. Many economists will continue attemptingto justify government intervention bypointing to "market failures." But this collectionputs them on the defensive. Their claims will notbe regarded as self-evidently true, as they wereonly a few years ago.DMr. Tucker is afellow ofthe Ludwig von Mises Institute.MONOPOLY MAIL: PRIVATIZINGTHE U. S. POSTAL SERVICEby Douglas K. AdieTransaction Publishers, Rutgers University, New Brunswick, NJ08903 • 1989 • 197 pages • $34.95 cloth, $19.95 paperReviewed by Melvin D. BargerOnce a venerated and honored governmentinstitution, the U.S. Postal Serviceis steadily losing public favor and support.With amazing speed, private competitorshave outgunned it for market share in packageand bulk mail, while the resourceful overnightservices have created a new industry out of timesensitiveletters. The Postal Service has a last bastionof defense in its legal monopoly of first-classmail, but even that position is now under sustainedattack. Either the Private Express Statutesthat protect this monopoly will be repealed, ornew electronic technologies may simply bypassthe USPS and leave it with a shriveled husk of itsformer empire.How did this come about? Monopoly Mail,sponsored by the Cato Institute, traces the majorcurrents of change that are converging on thePostal Service. Author Douglas K. Adie, an OhioUniversity economics professor who took hisdoctorate at the University of Chicago, leaves littledoubt that the current USPS is in great peril.And he insists that there's virtually no alternativebut to change the organizational structure of thePostal Service. The only really workable solutionis some form of privatization that will enable theservice to survive and compete.Professor Adie also offers convincing evidencethat the legal mail monopoly-a seeming advantage-hasbeen the Postal Service's Achilles'heel. The traditional justification for a governmentpostal monopoly was its "public service"status and the need to bind the country togetherwith effective communications. Whether this reasoningwas sound or not in earlier days, ProfessorAdie shows that it's certainly outmoded in thisday of multiple communications systems. He alsoshows that early private postal ventures werewidely patronized and had the healthy effect offorcing the government service to improve itspractices.Private postal companies eventually disappeared,however, with passage and strict interpretationof the Private Express Statutes. The postalmonopoly also prevailed because it had strongCongressional support that only began to wane inthe 1960s. With the Postal Reorganization Act,which became effective in 1971, an exasperatedCongress tried to shed its responsibility for theservice and to make it a self-supporting governmentcorporation.Though it resembles a private corporation inform, the new USPS has never functioned likeone. While losing ground in other classes of deliveries,the USPS still holds a monopoly on firstclassmail which enables it to shift a large part ofits costs to this group of users. Postal managersalso have been either unwilling or unable to innovate,and efforts to improve or speed mail handlingoften fail. The worst malady is soaring laborcosts which now comprise about 84 percent ofpostal expenses. The postal managers have beenineffective in opposing the demands of the powerfulpostal unions or were undercut later whenarbitrators granted liberal increases. As a result,according to Professor Adie, USPS employeesnow get about 35 percent more pay than they

OTHER BOOKS 287would receive in comparable private sector employment.While the postal unions are still powerfulenough to resist direct cuts and changes, theycannot prevail indefinitely. Professor Adie believes,for example, that the Reagan Administration'ssuccess in facing down the air traffic controllers'(PATCO) illegal strike set a new patternin Jabor relations for Federal employees. AnyPresident with enough backbone now has thepublic's support in resisting high pay discrepanciesand refusing to support useless institutions.There are also some excellent lessons for thePostal Service in the AT&T divestiture, in thederegulation of airlines, and in Canadian andBritish experiences with privatization and/orderegulation. Professor Adie shows how eachchange has been beneficial in its way.The use of the AT&T example for monopolydivestiture is a bit ironic, because some of us oncecited the Bell system as a standard while criticizingthe poor performance of the Postal Service.We know today, however, that AT&T lookedgood only in comparison with government communicationssystems around the world. Onceshed of its monopoly, AT&T could no longerforce one class of telephone users to subsidizeother classes. Market realities also force AT&Tand others to move more quickly with innovationsthat will cut costs and improve service.If the government finally elected to divest thePostal Service, how could it be done? ProfessorAdie does not propose selling the Postal Serviceas a single unit, because he feels its very sizewould make it too much of a competitive· threat(as others feared AT&T would be if deregulatedand left intact). He suggests spinning off its fiveregional divisions as independent Postal OperatingCompanies (Poes). This would precede therepeal of the Private Express Statutes, and mightgive the POCs breathing time to become competitivewith the new delivery systems and technologiesthat would arise to challenge them in themarket. Professor Adie goes on to suggest othermethods that might characterize the new POCsand their processes for working together. He alsoargues that a privatized Postal Service would offertremendous opportunities for profits. Thisprospect, of course, would tend to enhance theshare prices of the new POCs following initial offerings.What's most needed, however, is not a detailedplan for carrying out privatization, but simply adecision to do it. The postal unions and othervested interests still have some power to block adirect Congressional move to privatize the PostalService. What they don't have is the muscle toblock new technologies that are coming onstreamas alternatives to first-class mail deliveries.The USPS and its unions also are in deepeningtrouble with the public, which is tiring ofdisproportionate increases in first-class mailingrates. And now they face the reality of newbooks, like Professor Adie's, that deal with privatemailas an idea whose time has come. DMr. Barger was a business writer associated withLibbey-Owens-Ford Company and one of its subsidiaryfirms for nearly 33 years.THE AMERICAN JOB MACHINEby Richard B. McKenzieUniverse Books, 381 Park Avenue South, New York, NY 100161988 • 274 pages • $24.95 cloth, $12.95 paperbackReviewed by Robert W McGeeThe issue of "jobs" has become a sacred cow.Politicians, business and labor leaders all advocatecreating more of them, yet nobody dares advocatedestroying them. But this outlook is shortsighted,as Richard McKenzie points out.Creating jobs is easy-just outlaw farm machinery.If the health of an economy is measured bythe number of jobs its citizens have, then Chinashould have the strongest economy on earth. Yetit does not, partly because of an absence of farmmachinery.Economies grow stronger through what JosephSchumpeter called creative destruction. Somefirms go out of business while others are born. Bynot allowing some companies to fold, governmentprevents resources from being freed formore productive uses. This book points out someunrecognized advantages of job destruction. Thecentral message is that job creation and job destructiongo hand in hand.McKenzie destroys a number of myths aboutthe U.S. economy. The pace of economic changeis not accelerating, although increases in productiveefficiency have enabled more workers to gointo the service sector. Concern over the expansionof the service sector is mostly unwarranted

288 THE FREEMAN. JULY 1989and misplaced. We are not becoming a nation ofhamburger flippers.Part of the problem lies in how we classifygoods and services. Hamburgers are goods whenpurchased in a supermarket, but they are serviceswhen bought in a fast food restaurant. Computersare goods when they are purchased, but arepart of a service when leased. Truck drivers areclassified as manufacturing workers when theymove their company's goods from one site to another,but are service workers when they work asindependent contractors to transport the samegoods.America is not de-industrializing. Manufacturingoutput has varied between 20 and 24 percentof GNP rather consistently over the past 40 years.Yet manufacturing jobs, as a percentage of totalemployment, have been declining because companiescan produce more goods with fewer workers'and because businesses have been changingthe way they produce goods. For example, someaccounting, payroll, and data processing functionsthat formerly were done internally havebeen contracted out to independent providers.The result is that jobs in the "goods" sector havedeclined while jobs in the "service" sector haveincreased. Yet the same jobs are being performedfor the same companies. Furthermore, the relativedecline in goods-producing j\obs has notcaused a general downward shift in income.Government officials in recent years have statedthat the displaced worker problem is large andthat government should play a more active rolein reducing this problem. Yet an analysis of thestatistics shows that most displaced workers soonfind jobs. Attempts to alleviate the problem, suchas plant closing laws, may actually make mattersworse.The proliferation of low-income employmentis generally seen as bad. But McKenzie showsthat such a view is simplistic. One reason for theincrease in low-income jobs is that the babyboom generation has entered the work force, andthey had to start at the bottom, just like everybodyelse. Also, many students and housewiveshave entered the job market on a part-time basis,and older workers are cutting back to part-timework rather than retiring completely. The resultis often that family income has improved, althoughthe statistics show that more individualsare earning low pay.The trade deficit "problem" may not be aproblem at all. The trade deficit is measured bythe difference between imports and exports, so adecline in exports will increase the trade deficit ifimports remain constant. Yet exports may declinebecause an expanding internal economy has siphoneddomestically produced goods away fromworld markets. American producers are selling toother Americans rather than to foreigners. So atrade deficit can be caused by an expanding domesticeconomy-which is a sign of economichealth rather than sickness. McKenzie points outthat attempts by government to restrict importsalso have a tendency to hamper exports, so restrictionson trade tend to be self-defeating.Many jobs in the textile and apparel industrieshave disappeared in recent years. But few of thejob losses, especially in textiles, have been causedby imports. Mechanization and increased productivityhave caused most of the job losses, and increasedproductivity has come about partly becauseof worldwide competition. Reducing thepressure of foreign competition by imposingtrade restrictions will reduce the incentive to findadditional ways to be more productive. In short,imposing trade restrictions is counter-productive.In the final chapters, McKenzie exposes somefallacies in the popular thinking on minimumwage laws, government retraining, and mandatedfringe benefit programs. The common threadthat runs through each chapter is that governmentintervention and "tinkering" in the economyretard rather than expand employment. DProfessor McGee holds a law degree and teaches accountingat Seton Hall University.

IDEAS ON LIBERTY292 Gray Markets and Greased PigsJohn HoodGovernment fights a losing battle when it grapples with the discipline of themarket.294 Crime and ConsequencesII. The Criminal Justice SystemRobert James BidinottoIn the second of his three-part series, Mr. Bidinotto examines how the Excuse­Makers' support for bail, parole, and other rehabilitative measures caters tocriminals.CONTENTSAUGUST1989VOL. 39NO.8305 Private Property: In Need of Historic PreservationLee OwnbyA restaurant owner's private property rights take a back seat to aesthetic considerations.307 Private Preservation of Wtldlife:A Visit to the South African LowveldNancy Seijas and Frank Vorhies'Lessons in private sector management of public goods.313 A Tale of Two RevolutionsRobertA. PetersonThe success of 1776 and the failure of 1789.320 Should We Stop Selling Real Estate to Foreigners?C. Brandon CrockerForeign real estate investment poses no threat to American interests.321 Readers'ForulD323 A Reviewer's NotebookJohn ChamberlainA review of Jacob Viner's Religious Thought and Economic Society.325 Other BooksTime and Public Policy by T. Alexander Smith and Memoirs ofan UnregulatedEconomist by George J. Stigler.

THEFREEMANIDEAS ON LIBERTYPublished byThe Foundation for Economic EducationIrvington-on-Hudson, NY 10533President ofThe Board: Bruce M. EvansVice-President: Robert G. AndersonSenior Editors: Beth A. HoffmanBrian SummersContributing Editors: Bettina Bien GreavesCarl O. Helstrom, IIIEdmund A. OpitzPaul L. PoirotEditorial Intern: Jeffrey J. ZieglerThe Freeman is the monthly publication ofThe Foundation for Economic Education, Inc.,Irvington-on-Hudson, NY 10533 (914) 591­7230. FEE, founded in 1946 by Leonard E.Read, is a nonpolitical educational championof private property, the free market, and limitedgovernment. FEE is classified as a 26 USC501 (c) (3) tax-exempt organization. Other officersof FEE's Board of Trustees are: ThomasC. Stevens, chairman; Ridgway K. Foley, Jr.,vice-chairman; Paul L. Poirot, secretary; H.ELangenberg, treasurer.The costs of Foundation projects and servicesare met through donations. Donations are invitedin any amount. Subscriptions to TheFreeman are available to any interested personin the United States for the asking. Additionalsingle copies $1.00; 10 or more, 50 cents each.For foreign delivery, a donation of $15.00 ayear is required to cover direct mailing costs.Copyright © 1989 by the Foundation for EconomicEducation, Inc. Printed in the U.S.A.Permission is granted to reprint any article inthis issue, except "Crime and Consequences,"provided appropriate credit is given and twocopies of the reprinted material are sent to TheFoundation.Bound volumes of The Freeman are availablefrom The Foundation for calendar years 1969to date. Earlier volumes as well as current issuesare available on microfilm from UniversityMicrofilms, 300 North Zeeb Road, Ann Arbor,MI 48106.The Freeman considers unsolited editorial submissions,but they must be accompanied by astamped, self-addressed envelope. Our author'sguide is available on request.FAX: (914) 591-8910PERSPECTIVEThe Johnstown FloodThis year marks the 100th anniversary of thegreat flood that inundated Johnstown, Pennsylvania,on May 31, 1889, killing 2,209 people. DonaldDale Jackson, writing in the May 1989 issueof Smithsonian, describes the relief efforts:"At a time when federal disaster relief didn'texist, Johnstown's recovery was achievedthrough one of the greatest private charity campaignsever mounted. The American Red Cross,only recently founded, won renown as a nationaldisaster relief agency for its work in Johnstown...."By . . . June 2, railroad crews had repairedthe tracks connecting Johnstown to Pittsburgh, 55miles west. By then the press and the initial detachmentof relief workers were in town, Americanswere starting the read the first shrill. dispatchesfrom Johnstown and a cavalcade of helpwas on the way. . . ."The exhaustive press coverage stimulated arush of private benevolence that eventuallythreatened to overwhelm Flood City. Food, clothing,medicine and other provisions began arrivingimmediately. Morticians came-Johnstown's firstcall for help requested coffins and undertakers.Demolition expert 'Dynamite Bill' Flinn and his900-man crew cleared the wreckage at the stonebridge. At its peak the army of relief workers totaledabout 7,000. They carted off debris, distributedfood, erected temporary housing and occasionallymade a heartening discovery-a parrotnamed Bob was found alive in the wreck of onehouse, complaining that it had had 'a devil of atime.' "On SpeculatorsManias such as the Tulipmania, the South SeaBubble, the Mississippi Bubble, the Gold Panicof 1866, the stock market crashes, and violentswings in the value of the dollar are frequentlycited as examples of· occasions when speculatorscontributed to instability and imbalance. Butwho could do the job better?Selected government officials might want tosee a different outcome. But their track recordof setting prices is invariably one of famines, end-

less shortages of what people want, and gluts ofdull, low-quality products. The bureaucrats havelittle incentive to improve or innovate.When speculators are wrong, however, theyare punished severely for their mistakes by losses.Over time, the large speculators would tendto be those who were most prescient in their calculations.Through competition, the energies andtalents of numerous speculators - all inspired bytheir selfish desire to profit - are channeled intothe public good.- VICfOR NIEDERHOFFERControl or Economic Law?Shortly before he died, the noted Austrianeconomist, Eugen von Boehm-Bawerk (1851­1914), wrote a brilliant article, "Control or EconomicLaw?" He carefully dissected market operations,analyzing the effect of coercive outsideinterferences. Government intervention doesn'tsuspend the Law of Price, he concluded; it merelyalters the conditions under which it operates.By changing the available alternatives, governmentcoercion affects individual choices. Productionplans musfbe revised, and purchasing decisionshave to be altered. Nevertheless, the Lawof Price continues to prevail: The price of everygood traded still falls somewhere between the topprice a potential buyer is willing to pay and thebottom price at which a potential seller is willingto sell.Today's market prices are affected by countlessgovernment regulations, taxes, and subsidies. Yetwhen trades take place in spite of these interventions,the prices agreed upon by seller and buyerstill comply with the Law of Price; they still reflectthe respective values of buyer and seller.In Brazil, where inflation is rampant and controlshave been placed on the prices of manyitems, eggs, among other products, have disappearedfrom the shops. But enterprising streetpeddlers now offer eggs at about twice the controlledprice, $2 per dozen. Although illegal andPERSPECTIVEexorbitant in the eyes of the Brazilian price controllers,this price serves consumers and conformswith the Law of Price. It is above the peddlers'minimum acceptable price and below the maximumprice the buyers are willing to pay.When our government started requiring seatbelts and pollution control devices on automobiles,the manufacturers' asking prices rose. Ofcourse, potential buyers weren't pleased by theincrease. Some dropped out of the market, settledfor used cars, or turned to other means oftransportation. But the Law of Price still prevailed.Although fewer cars were sold at thehigher prices, and fewer consumers were served,those higher prices were still below the top pricesthe actual buyers were willing to pay.In India, government approval and licenses areneeded to operate most sizeable businesses.Large manufacturers must spend a great deal oftime lobbying in New Delhi, which increases theircosts and compels them to raise their askingprices. These higher asking prices, in turn, causesome potential buyers to drop out of the market.However, one Indian soap manufacturer hasavoided the need for licensing and has benefitedfrom tax breaks available to small firms. Hemanufactures on a small scale with hand labor atseveral locations and economizes on packaging.His price falls below the maximum price thatmany potential buyers on the Indian market arewilling to pay, and he has become India's largestdetergent maker.There is no denying that government interventionsaffect market prices. If coercion raisescosts, producers must ask higher prices. Feweritems will be sold, and fewer consumers will beserved. Yet although today's mongrel prices areblends of market forces and government coercion,they do nothing to refute the Law of Price.The prices at which goods and services are exchangedare always above the bottom prices ofthe sellers and below the top prices of the buyers.Economic law prevails.- BETIINA BIEN GREAVES

292THEFREEMANIDEAS ON LIBERTYGray Markets andGreased Pigsby John HoodHailing a taxi in Boston can be tricky. Ithelps to be pushy, even rude. Tightcity regulation of taxicabs has kepttheir number at 1,525 since 1934. Because governmenthas prevented supply from rising tomeet growing demand, there's an artificial taxishortage.But the story doesn't end there. Businesstravelers and tourists can still find transportationin Boston. Hotels, such as the BostonianHotel downtown, have begun operating theirown limousines to take guests to airports,eateries, or other destinations around town. "Icould not in good conscience sit there in thehotel watching guests stand on the street for 30minutes to get to an airport that is five minutesaway," Tim Kirwan, manager of the Bostonian,told The Washington Post.Markets are resilient. Try as they might, governmentand the special interests they protect(in this case, the cab companies) can't completelysuppress the forces of competition. Bylimiting one particular choice, they only directenterprising people toward others. The resultis either a black market, in which completely illegaltransactions occur, or what might becalled a "gray" market, in which firms substitutelegal options for banned ones-either withthe tacit acceptance of authorities or withouttheir knowledge-thus defeating the intent ofregulation.John Hood is a reporter/researcher at The New Republic.Gray markets exist in many areas, such aszoning regulation (where business- or residential-onlylabels are routinely circumvented),but are perhaps most visible in the transportationfield. In New York, for example, about15,000 "gypsy cabs" operate in poor, minoritycommunities, mainly in Queens, Brooklyn, andthe Bronx. Strict regulation for half a centuryhas limited the number of cabs in New York to11,787. Consequently, over 600 "black car" liverycompanies have sprung up to bridge thegap between demand and legal supply.Such companies are supposed to cater onlyto phoned-in customers, but many drivers takeoff their livery license plates (designed to helptaxi commission inspectors spot them) andcruise the streets as "gypsies." These cabs dobusiness not only because of the general taxiscarcity throughout the city, but also becausesome yellow cabs won't venture into unsafe areasto pick up minority customers.Phone-in livery services are becoming acompetitive force in many cities that regulatethe number of taxicabs, such as Chicago andAtlanta. While not really illegal, they do circumventthe intent of regulations by givingtaxis a run for their money.Another form of competition-jitneys-hassprung up in Pittsburgh and Los Angeles. Ajitney is a station wagon or small van thatmakes better use of miles traveled by carryingmore than one passenger at a time. They wereprevalent across the country in the early 1900s,

293but threatened transit and cab companies succeededin outlawing them in most cities.Their illegal status doesn't hinder them much.In Pittsburgh, for instance, jitneys dominate thetransport market: if the jitneys cut prices, the legaltaxis do, too. And like New York's gypsycabs, jitneys provide service to neighborhoodsshunned by the regular taxi fleets.Of course, though governments may not beable to eliminate certain products or servicesfrom a market, they can make them more expensive.A "gypsy" ride in New York cansometimes cost two or three times what thesame trip would cost in a yellow cab. Cab ownersin Atlanta were even able to get a pricefloor codified in law: $50 a trip for limousinesand $40 a trip for corporate cars,.about threetimes what each would cost in a free market.(Jitneys, though, can sometimes offer lowerprices than taxis, because they can carry morethan one passenger at a time.)Like alcohol and drug prices during times ofprohibition, prices for illegal services rise becauseof increased risks to providers and lackof consumer information. Established interestscount on the higher prices to reduce their competition,if they can't get outright bans enactedand enforced. Even so, services that circumventregulations -like New York's gypsy cabs- flourish. Consumers are willing to pay moreto get the services regulated monopolies won'tprovide.The artificially higher prices, though, domean a loss of efficiency in the market. Consumersstill buy more in goods and servicesfrom regulated industries, like the taxi companies,than they would if competition were freer.Black and gray markets may seem a bit unseemlyand corrupting, but they actuallymake up a large and crucial segment of ourmixed economy. In some Third World countriesthey produce most of the goods and services,including food and other essentials. Insuch countries, government power is employednot only excessively but arbitrarily tofavor political cronies. Enemies are taxed intobankruptcy, while valuable assets and capitalare seized for "the good of the state." Thiscreates so much uncertainty that businesseseither leave (if possible) or go underground.It may appear that the state, able to drive abusiness underground with its power to taxand regulate, exerts great control over thecountry's economic life. But that misses thepoint-that there is always an underground,even in totalitarian societies like the SovietUnion, to which embattled businesses mayflee.A Losing BattleGovernment is fighting a losing battle whenit grapples with the discipline of the market.There's no real mystery about why this is so.Free enterprise is not some fragile, delicate experimentin constant need of protection. Itdoes not have to be imposed or fostered. It is,in short, the natural order of things.Coercive government, on the other hand,needs constant attention and tinkering. Considerhow difficult it is for government to maximizeits revenues. As supply-siders haveshown, hiking tax rates won't always increaserevenues because, among other factors, higherincometaxpayers lose their incentive to workand invest. Any increase in tax rates, in fact,sets off a market reaction that can actually reducetax revenues. Witness, for example, thecurrent controversy over capital gains taxes.The same principle applies to regulation.There is no shortage of ways to compete with aregulated monopoly, but there's only a limitednumber of ways government can restrict competition.Insulate an industry from competition,and the resulting price increases anddrops in service encourage consumers to substituteother products or services. And rest assured-firmswill pop up to provide them.Frustrated regulators must feel like they'rechasing a greased pig.Government action can't eliminate marketforces; it can only distort them. Sure, government'sattempt to tax or regulate producers outof existence has disastrous side effects. Butthey are, indeed, only side effects. Thegoal-to drive "illegal" competition out of themarketplace-is rarely achieved. Governmentjust can't catch the pig.D

294Crime and Consequencesby Robert James BidinottoSummary ofPart I: The exploding crime rate ofrecent decades coincided, ironically, with (1) massivegrowth in government programs, intended to eradicate alleged "causes" of crime, and (2)sweeping changes in the criminal justice and corrections systems, intended to supplant punishmentwith inmate "rehabilitation." These supposed "reforms" actually increased incentives for criminalirresponsibility. The result: more crimes than ever go unpunished.The reforms were implemented by an "Excuse-Making Industry" ofsocial scientists. Their deterministictheories "explained" criminality by blaming it on social, psychological, and biological forcesthat they claimed were outside the criminal's control. It was shown that criminal acts are based onfree- will choices ofindividuals: the criminal is both morally and legally responsible. But this is not thepremise upon which today's criminal justice system operates.Part II: The Criminal Justice SystemThe criminal justice system's failure toprovide justice was inevitable, giventhe deterministic premises· of its modernarchitects. Criminologists Wilson andHerrnstein explained, "The modern liberal positionon criminal justice is rehabilitative, notretributive, because the offender is believed tohave been driven to his crimes, rather than tohave committed them freely and intentionally...."1Some "reformers" have even made their antipathytoward traditional conceptions of justiceexplicit. Here, two of them express acutediscomfort with the classical symbol, Justitia-the familiar courtroom figure, robed andblindfolded, holding her scales and sword:"Though excellently symbolizing impartial,even-handed, and effective justice generally,Justitia is ill-equipped to meet our current de-Copyright 1989 by Robert James Bidinotto. Mr.Bidinotto, who has written several articles for The Freeman,is a full-time writer and lecturer specializing inpolitical and cultural topics.mands from penal sentences.... From her lefthand she should drop the scales and put in itsplace the case history, the symbol of the fullpsychological, sociological, and criminologicalinvestigation of the individual criminal. Herright hand will find very little use for a swordin the modern penal system.... Around herknees she would be well advised to gather theadolescent social sciences. . . . Finally, it is essentialthat she remove that anachronistic bandagefrom her eyes and look about at the developmentsin society generally. . . ."2 A newkind of justice -"social justice" or "distributivejustice"-was to replace the "anachronistic,"Justitian sort. Since men were helplessplaythings of circumstances, and since circumstancesimpinged upon men unequally, it wasthe moral duty of government to intervene andredress the resulting "injustices." Government,according to Excuse-Makers such as JohnRawls, was not to be society's impartial umpire,but rather its meddling therapist.This outlook, largely a legacy of Rousseau's

295view of human nature, 3 spawned the redistributionistwelfare state. "If you are bright, accomplished,famous, well-off, virtuous-you're just lucky, you had nothing to do withit, you didn't deserve any of it. Likewise, if youare stupid, lazy, corrupt, poor, mediocre, evencriminal-you can't help that, either. Therefore,'distributive justice' requires that the governmentlevel the playing field."4It also led logically to "a culture of instinctive'sympathy for the devil,' " as one historianput it, "a feeling that criminals in this societyare as much victims as victimizers, as muchsinned against as sinners-if not more so."5Hence the Excuse-Maker's curious doublestandard toward crime: "sympathy for the devil,"and simultaneous indifference towardcrime victims. If no one can help being what heis, then the (usually) "lucky" and "privileged"middle-class crime victim merits only marginalconcern. However, the "unlucky" and "underprivileged"criminal is a chronic victim of circumstance,and deserves our full sympathy andcompassion. The logic of determinism, then,requires an inversion of traditional justice.This has produced several major social consequences,all mutually reinforcing.The criminal justice system began supplantingpunishment with leniency and "rehabilitation."As early as 1949, the U.S. SupremeCourt stated that retribution was "no longerthe dominant objective of the criminal law,"and was to be replaced by "reformation andrehabilitation."6 Soon, police were also handcuffedby new court rulings favoring criminalsuspects who, even if convicted, were quicklyrecycled into society. Meanwhile, redistributionistsocial spending programs abounded,punishing productivity, thrift, honesty,·independence,responsibility-while rewardingidleness, profligacy, chiseling, parasitism, irresponsibility.?To make matters worse, such programsalso diverted badly needed funds fromthe criminal justice system.Today's justice system is an afterthought ingovernmental spending priorities. Accordingto the American Bar Association, "The entirecriminal justice system is starved for resources.Less than 3% of all government spending inthe United States went to support all civil andcriminal justice activities in fiscal 1985. Thiscompares with 20.80/0 for social insurance payments,18.3% for national defense and internationalrelations, and 10.90/0 for interest ondebt. Less than 1% of all government spendingwent into operation of the Nation's correctionalsystem (inclUding jails, prisons, probation,and parole)."8Thanks chiefly to the Excuse-Making Industry,police are underfunded and undermannedto face the ever-mounting crime wave; courtdockets are flooded with impossible caseloads;jails and prisons are filled to overflowing. Thisputs pressure on the entire system to incarcerateas few criminals as possible, and to releasethem as quickly as possible. Thus, the Excuse­Making Industry has undermined the systemboth morally and practically.Subverting theQuest for TruthSince the premise of the Excuse-Makers isthat "the criminal is a social victim," they seeConstitutional rights not as a shield to protectthe innocent from predators, but as a bufferbetween a "victimized" criminal class and the"injustice" of punishment. Byzantine proceduralformalities, purportedly to guarantee the"rights" of the accused, now take precedenceover the quest for simple truth and justice.Confessions:The Miranda Decision 9On June 13, 1966, by a 5-4 decision, theUnited States Supreme Court rendered itsnow-famous Miranda v. Arizona decision. Supposedlybased on the Fifth Amendment to theU.S. Constitution, which states that "No person... shall be compelled in any criminal caseto be a witness against himself," Miranda twistedthese simple words beyond recognition.The Court held that even voluntary, uncoercedconfessions by a suspect in police custodywould no longer be admissible as evidence,unless the police first warned him that(1) he had the right to remain silent, (2) anythinghe said might be used against him incourt, (3) he had the immediate right to alawyer, and (4) he could get a free lawyer if hecouldn't afford one. The suspect then had to

296 THE FREEMAN • AUGUST 1989expressly waive those rights before any questioningcould proceed. Should police make theslightest omission or error in this ritual, any evidencethey get can be thrown out, and the suspectcan "walk."In this single decision, four veteran criminals'convicted after voluntarily confessing toseparate crimes, had their convictions overturned.The first was a three-time convict whoadmitted to a robbery after being identified bytwo victims. The second forged stolen checksfrom a purse-snatching in which the victim waskilled. The third, a veteran bank robber, confessedafter being told of his rights, but didn'texplicitly waive them first. The fourth, arrestedfor kidnapping and rape, was identified by hisvictim, and later confessed "with full knowledgeof my legal rights, understanding that anystatement I make may be used against me." Hehadn't, however, been formally advised of hisright to have a lawyer present.Even though these confessions weren't "involuntaryin traditional terms," wrote ChiefJustice Earl Warren for the majority, "in noneof these cases did the officers undertake to affordthe appropriate safeguards ... to insurethat the statements were truly the product of afree choice."By what convoluted reasoning could suchvoluntary admissions be construed to be coerced?According to the Court's majority opinion,"In each of the cases, the defendant wasthrust into an unfamiliar atmosphere and runthrough menacing police interrogation procedures.The potentiality for compulsion is forcefullyapparent, for example. . . where the indigentMexican defendant was a seriouslydisturbed individual with pronounced sexualfantasies [author's note: the man had beenjudged mentally competent to stand trial], and[where] the defendant was an indigent LosAngeles Negro who had dropped out of schoolin the sixth grade." [Emphasis added]This is the deterministic language of the Excuse-Maker,brimming with thinly veiled editorialsabout poverty and racism, regarding evena confessed criminal as a helpless pawn of socialpressures. (By contrast, the rape victimwas coldly described as "the complaining witness.")As for the remark about "menacing policeinterrogation procedures," the Court admittedthat, "To be sure, the records do not evinceovert physical coercion or patent psychologicalploys." So, what was coercive? Dissenting JusticeByron White angrily noted, " ... in theCourt's view in-custody interrogation is inherentlycoercive.... " [Emphasis added] Observethe deterministic premise: we must assumethat the suspect had little or no free will, andthat his confession was thus involuntary, unlesspolice somehow proved otherwise.Often a suspect, feeling guilty or anxious,wants to unburden himself. Thanks to Miranda,at that point police are obliged to buck uphis flagging courage and nagging consciencewith repeated reassurances about his right notto cooperate. Justice John Harlan, anotherMiranda dissenter, protested that "the thrust ofthe new rules is to negate all pressures, to reinforcethe nervous or ignorant suspect, and ultimatelyto discourage any confession at all. Theaim, in short, is toward 'voluntariness' in autopian sense. . . . One is entitled to feel astonishedthat the Constitution can be read toproduce this result."Furthermore-as the Court noted in subsequentcases-Miranda not only prohibited directquestioning without the suspect's priorpermission, but also banned even indirect commentsbetween police officers in his presencewhich were "reasonably likely to elicit an incriminatingresponse." Any oblique police"appeal to ... 'decency and honor' " in thesuspect, charged Justice Thurgood Marshall,was "a classic interrogation technique." This isa perfectly logical outgrowth of the deterministpremise. Since the suspect is presumed to bepowerless in the face of his emotions, any appealto these omnipotent emotions is itself "coercive."Thus, the Excuse-Makers construe theConstitution as protecting a criminal evenfrom his own guilty conscience.Miranda dissenter Justice White warned atthe time, "In some unknown number of cases,the Court's rule will return a killer, a rapist orother criminal to the streets . . . to repeat hiscrime whenever it pleases him." That, ofcourse, is precisely what has happened.In late 1968, the suspected murderer of amissing ten-year-old girl was warned five separatetimes of his Miranda rights, and remained

CRIME AND CONSEQUENCES 297silent. Later, on a drive with the police, one officerremarked that the girl's parents would berelieved if they could find her body, and giveher a "good Christian burial." The suspect,feeling guilty, then offered to lead them to thechild's body, and was later convicted of murder.But the Supreme Court-again by a slim5-4 vote-ruled that the policeman's statementamounted to unwanted interrogation, and thatthe case had to be retried. (Thanks to this ruling,the case was not resolved for over 15years.)l0In California, a man beat a college co-ed todeath. Read his Miranda rights, including hisright to have a lawyer present, he waived themall and confessed. Yet a California appealscourt threw out his conviction, because whenarrested he hadn't been allowed to consult hismother)1In Pennsylvania, a man who admitted clubbingto death his mother, sister, and grandmotherwas set free, because the arresting officertold him that anything he said could beused "for or against» him. The court ruled thatthe word "for" made the confession inadmissible,12In Texas, a girl was shot dead after agreeingto testify in a drug case. The suspect refused alawyer, but was assigned one anyway. Read hisMiranda rights, he again refused a lawyer. Hechose to plea bargain, signed a detailed confession,and took police to the murder site.Despite this, a judge, citing Supreme Courtdecisions, threw out his confession-becauseno lawyer had been present)3The cost of such procedural utopianism isincalculable: it lies not just in convictions dismissedand overturned, but in confessions nevermade. Forty percent of murder convictionsdepend upon voluntary confessions by the perpetrator,14It is crucial, then, that police be allowedto ask questions without first beggingthe suspect's permission and encouraging hisresistance. Yet Miranda equates "questions"with "coercion."A reconstituted Supreme Court returnedpartly to its senses in 1984. Its Quarles decisionexempted police from having to give Mirandawarnings in situations where there was an immediatedanger to the public, and found thatconfessions obtained under such circumstancescould stand in court,1S But Miranda itself remains,an infamous legal legacy of the Excuse­Making Industry, and a major impediment tothe pursuit of truth.Evidence: Exclusionary RulesNot only may confessions be excluded fromcriminal proceedings: so may any other sort ofevidence.The Fourth Amendment requires that onlyon "probable cause" may search warrants beissued, specifying the place to be searched, andthe evidence sought. However, until 1914, evenevidence illegally seized could be used in acriminal trial. That year, the Supreme Courtruled otherwise, and in 1961 (Mapp v. Ohio)extended the Federal exclusionary rule to thestates)6The consequences have been appalling. TheBureau of Justice Statistics and National Instituteof Justice estimated in 1983 that up to55,000 serious criminal cases are dropped annually,thanks to the exclusionary rule. Thesereleased criminals are free to prey on innocentsagain: half of those set loose on exclusionary-rulegrounds have been rearrestedwithin two years.1 ?In 1964, a 14-year-old girl was brutally murderedin New Hampshire. Finding the bullethad come from a rifle of the prime suspect,police went to the state attorney general who,under then-existing law, was authorized to issuesearch warrants. With this warrant, theyfound further incriminating evidence, and thesuspect was tried and convicted. Seven yearslater, however, the U.S. Supreme Court reversedhis conviction, on grounds that the attorneygeneral, as a prosecutor, was not a neutraljudicial party. Since his search warrant wasinvalid, the incriminating evidence from thesearch had to be thrown out, too. Here, police"erred" due to good-faith obedience to existinglaw; but-as Supreme Court Justice BenjaminCardozo had once noted-"The criminalis to go free because the constable hasblundered."18As in the case of Miranda confessions, theSupreme Court, in 1984, finally allowed some"good-faith" exceptions to search-and-seizureexclusionary rules. But that did not prevent it

298 THE FREEMAN • AUGUST 1989from allowing the guilty to escape in other cases.A bullet fired through the floor of a squalidPhoenix apartment struck a man below. Enteringthe suspect's apartment, investigating officersfound three weapons, a stocking mask,and two sets of expensive stereo equipment.Common sense warranted suspicion, and anofficer lifted a turntable to get the serial number.Routine checking confirmed that thesewere, indeed, stolen items, and they wereseized as evidence.However, Arizona courts ruled that, thoughpolice had the right to enter when respondingto the shooting, they did not have the right toseize the stereos, since these were unrelated tothe gunfire. Had their serial numbers been inplain view, the evidence would have been admissible;but touching them violated the suspect'sFourth Amendment rights. In 1987, theSupreme Court upheld this decision by a 6-3vote.l 9Justice Hugo Black once wrote that such decisionsseemed "calculated to make many goodpeople believe our Court actually enjoys frustratingjustice by unnecessarily turning professionalcriminals loose to prey upon societywith impunity." He had a point. 20 After all, thepurpose of the courts is to determine truth andadminister justice. That can't happen if facts-however obtained-are selectively excludedfrom fact-finding proceedings. Yet because theExcuse-Making Industry regards those "driven"to crime as victims, matters of truth andjustice are subordinated to a complex proceduraletiquette whose alleged purpose is to "levelthe playing field." The substantive ends of thejustice system must be sacrificed to new proceduralmeans -means to a new egalitarian end.In this light, exclusionary rules and the Mirandadecision may be viewed as having thesame purpose as "affirmative action" rules: totip the balance scales of "social justice" on behalfof a class of presumed social victims. And,if the facts of a given case interfere with thatagenda, every effort must be made to excludethem from the courtroom.Subverting the Questfor JusticeBail and Release onRecognizanceAt his arrest or his initial appearance oncharges, a suspect may be released on his ownrecognizance or on bail (assuming chargesaren't dismissed outright). In many jurisdictions,a judge can deny bail if a suspect has acriminal record, or seems to pose a danger tothe community. In the rest, he can hold the suspectwithout bail only if there is substantialdoubt he'll return for trial. But due to overcrowdedcells-and the protests of Excuse­Making "civil liberties" attorneys-many

CRIME AND CONSEQUENCES 299judges try to minimize the number of criminalsheld for trial in jail. This often means absurdlydangerous leniency.Consider a typical case, that of career criminalPhilip J. DiCarlo. Wanted on numerousfelony warrants in Massachusetts, he was arrestedon separate charges in Florida, but freedon only $2,626 bail. He finally surrendered toMassachusetts authorities. In exchange for aguilty plea, DiCarlo bargained 15 felony burglarycharges down to only 8 counts, and got asentence allowing parole eligibility after onlytwo years. Despite being warned of the man's20-year adult criminal record, the judge thenpostponed the imposition of the sentence, andfreed DiCarlo on his own recognizance so thathe could be with his family for the holidays.Showing more common sense than the judge,DiCarlo promptly skipped town. 21Other bail incidents are no laughing matter.Despite convictions for two murders, twoarmed robberies, and an assault, Jerold Greenof Philadelphia was nonetheless released onbail while appealing the second homicide verdict.After losing his appeal, Green didn'tbother reporting to prison. Instead, while beinghunted, he committed a third murder. 22Or take the case of Steven Judy, imprisonedafter three violent crimes involving kidnappingand stabbing during the 1970s. Paroled, hesoon committed another robbery-yet was stillgranted bail. While free, he murdered an Indianawoman and her three children. 23Such incidents aren't rare. The U.S. JusticeDepartment reports thirty-five percent ofthose with serious criminal records, and whoare freed on bail, either violate their releaseconditions, fail to reappear for trial, or are arrestedfor new crimes during the bail period.And -this statistic includes only known violations.24Excuse-Making "civil libertarians" arguethat the rights of suspects to be freed on bailmay be denied based only on "speculation"about their criminal tendencies. 25 But as theexamples and statistics show, the danger of releasingcareer criminals is no matter of merespeculation. Career felons should never be releasedon recognizance, or bail. Bail is not afundamental human right, or an end in itself:it's a means to an end. Like the right to vote,it's only a contextual, procedural right, whosepurpose is to secure the substantive rights oflife, liberty, and property.Everything said about excluding evidenceand confessions applies equally here. To defendbail for proven predators as some fundamentalright is to subordinate the system'sends to its means. Judging a man by his pastrecord is both wise and just; and a chroniccriminal can claim no "right" to be judged otherwise.This point, however, is lost on thosewho hold the deterministic, "criminal-as-victim"premise.Plea BargainingIn Nevada, a man killed his girlfriend byforcing a large quantity of bourbon down herthroat. A good case could have been made forpremeditated murder, or at least second-degreehomicide. But, in a plea bargain deal, thecourt allowed the defendant to plead guilty toa reduced charge of involuntary manslaughter.In exchange, he received a mere three-yearsentence, and was released after only 22months. 26In a 1981 courtroom deal, a Massachusettsman pled guilty to a charge of raping a femalejogger. In return, he was sentenced to 10 yearsat Concord Reformatory, a sentence whichmeant a minimum of only one year to be actuallyserved. But by the terms of his plea bargainarrangement, he spent only three days injail before being transferred to a halfwayhouse. That surely taught him an encouraginglesson about the justice system. In 1984, he wasarrested for burglary and another rape-andbecame the prime suspect in seven other attackson women. 27Or consider the young Wisconsin man whoconfessed to three armed robberies of savingsand loan companies. A plea bargain dealplaced this dangerous, repeat felon on probationfor his full sentence, sending him insteadto a "work release" program at the MilwaukeeHouse of Correction. While serving this "sentence,"he was driven around town by socialworkers, allegedly to find a job. Instead, hebrazenly robbed two more savings and loanbranches. Four days after being released fromthe program, he robbed yet another. 28

300 THE FREEMAN • AUGUST 1989These are but a few examples of the thousandsof sentencing outrages occurring dailythroughout the nation. If a criminal is finallyarrested after a string of offenses, and if theprosecutor decides to accept the case, and ifpolice evidence isn't thrown out on "exclusionaryrule" grounds-then the criminal's nextway to evade justice is to "cop a plea." Today,80 to 90 percent of all convictions stem frompre-trial guilty pleas, invariably to reducedcharges, negotiated between prosecutors anddefense attorneys, and rubber-stamped byjudges. 29Such cynical maneuvers allow criminals toevade the full penalties of their crimes by receivingreduced punishment or probation; permitlazy prosecutors to enhance their politicalcareers by boasting of high "conviction rates";let defense attorneys quickly handle a largenumber of clients (and collect a large numberof fees) without ever having to prepare for trial;and (allegedly) help harried judges quicklyclear clogged court calendars and jammed jails.It's the triumph of expediency over justice. Everyoneleaves the courtroom smiling-exceptfor the crime victims, who, ignored in the proceedings,look on in shocked disbelief andrage, realizing that they have just been muggedagain.30As Wisconsin Circuit Court Judge RalphAdam Fine observes, plea bargaining is essentiallya bribe to the defendant, a "payoff for aguilty plea,"31 to entice him not to bother everyonewith a trial. As a reward, a rape chargemay be reduced (usually without the victim'sknowledge or consent) to mere "assault andbattery"; and multiple crimes (say, breakingand-entering,assault, and robbery) may becombined into a single charge (e.g.,"assault").Once the deceit starts, there's no end to it-asin the routine courtroom trick called "swallowingthe gun," Le., reducing an armed-robberycharge to unarmed robbery, by simply ignoringthe use of a gun in the crime.32 Finally,even the sentences meted out for the remainingreduced charges are usually softened. Multiplesentences often are allowed to be servedconcurrently, rather than consecutively, lettingthe criminal pay only once for several offenses;or, with the complicity of a prosecutor, a "firstoffender" (Le., one whose carefully editedrecord is presented to seem innocuous) may"walk" on a suspended sentence and probation.The flip side is that the defendant is oftenmade to understand that, should he plead innocentand lose in court, the prosecutor andjudge will punish him with harsher sentencesthan he would have gotten if he had "gonealong." In this way, even innocent people aresometimes bullied into a guilty plea, and aredenied their day in court.Plea bargaining falsifies the defendant's truecriminal record. In the case of the innocent defendant,it gives him the taint of a convictionhe doesn't deserve. In the (far more usual) caseof a guilty defendant, it makes him look lessmenacing than he really is, and more worthy offurther "breaks" from the next judge he sees.This, of course, is a clear incentive tocriminality. "Should we be surprised," askedformer Chief Justice Warren E. Burger, "if theword gets around ... that you can commit twoor three crimes for the price of only one?"33The U.S. National Advisory Commission onCriminal Justice Standards and Goals concludedin 1973 that "plea bargaining results in leniencythat reduces the deterrent impact of thelaw." Today, it's also a ruse by which judgesand lawyers skirt the tough sentencing requirementsof new mandatory sentencing laws forrepeat offenders. Prosecutors don't bothertelling the judge about a repeat offender's priorrecord, and the judge doesn't ask. Or,charges are simply reduced in advance, to compensatefor the harsher penalties mandated bythe actual offense.34In 1971, the u.s. Supreme Court put its imprimaturon this cynical practice, calling pleabargaining "an essential component of the administrationof justice.... If every criminalcharge were subjected to a full-scale trial, theStates and the Federal Government wouldneed to multiply by many times the number ofjudges and court facilities." The practice,echoes the American Bar Association, "savestime and conserves resources which can be appliedto other pending cases."35But that is nonsense. In 1975, the state ofAlaska's attorney general ordered an end to allplea bargaining. Other jurisdictions, such asNew Orleans and Pontiac, Michigan, have also

CRIME AND CONSEQUENCES 301rejected it. They all found that there was nosudden tidal wave of "not guilty" pleas, requiringa trial and swamping the system. In fact, asthe National Institute of Justice discovered in a1980 investigation of the Alaska experiment,"Guilty pleas continued to flow in at nearlyundiminished rates. Most defendants pledguilty even when the state offered them nothingin exchange for their cooperation." Contraryto expectations, cases were actually processedmore rapidly in each major jurisdiction,and sentences were more severe. As one prosecutorput it, "I was spending probably onethird of my time arguing with defense attorneys.Now we have a smarter use of ourtime."36The key was for prosecutors to screen casescarefully before defendants were charged.Faced with air-tight cases against them, guiltydefendants simply threw in the towel and p~edguilty, anyway. In addition, ending plea bargainingput responsibility back into every levelof the system: police did better investigating;prosecutors and lawyers began preparing theircases better; lazy judges were compelled tospend more time in court and control their calendarsmore efficiently. Most importantly, justicewas served-and criminals began to realizethat they could not continue their arrogant manipulationof a paper-tiger court system.Tough prosecution and sentencing does notclog the court system: it deters crime from occurringin the first place. Since repeat offenderscommit most of the crime, careful case screeningand "no-deals" prosecution tend to incapacitatea greater percentage of this group forlonger periods-and thus actually reducecaseloads in the long run.That's the practical side. But more basic isthe moral issue: Should the victims of thesecriminals expect anything less from our systemof justice? And should the Excuse-Making Industrybe allowed to thwart justice by corruptingthe system?Competency Hearings andInsanity DefensesThe hijacker of a New Orleans bus wasfound incompetent to stand trial, thanks topsychiatric testimony. Instead of incarceration,he was released. Fifteen months later, he wasback in court-for dismembering his roommate.A former Connecticut policeman killed hiswife, but, due to "expert" psychiatric testimony,was acquitted of murder charges on theground of insanity. He spent only three monthsunder psychiatric treatment. Five years later,he was arrested once more-for killing his secondwife}?But for irony worthy of Hitchcock, the taleof serial killer Edward Kemper can't betopped. After shooting both his grandparentsas a teenager, Kemper spent the next fouryears in a mental hospital. In 1969, he was returnedto the California Youth Authority,whose "experts" disputed the court psychiatrist'sdiagnosis and paroled him to his mother.Later, Kemper was examined by two parolepsychiatrists, who recommended that his juvenilerecords be sealed to let him live a "normal"adult life. One of them wrote: "I see nopsychiatric reason to consider him to be a dangerto himself or any other member of society."Yet at that very moment, out in their parkinglot, in the trunk of Kemper's car, was thecorpse of his third female murder victim thatyear.Due to their "expertise," there would soonbe five more. 38These cases graphically demonstrate thatpsychiatry cannot really judge the sanity ofcriminal defendants, let alone predict their futuredanger to society. Yet psychiatrists playamajor role in the criminal justice system. Theytestify concerning a defendant's "state ofmind" at the time of his crime; judge whetherhe can grasp the charges against him and assistin his own legal defense; decide (if he's committedto a mental hospital) when he's "cured"and "safe" to return to society. By their "expert"testimony in competency hearings, andin "insanity" and "diminished capacity" defenses,they frequently help dangerous criminalsescape the wheels of justice.Criminals found "insane" spend, on average,far less time in custody than do those sent toprison for the same offenses. In New Yorkfrom 1965-1976, those acquitted of murder byreason of insanity, and subsequently releasedfrom mental hospitals, spent an average of less

302 THE FREEMAN • AUGUST 1989than a year and a half in custody. (One murdererspent just one day in a hospital.) Similarly,New Jersey murderers found insane werereleased, on average, in just two years. InFlorida, those released from mental hospitalsfollowing first-degree murder acquittals spentfewer than three years in psychiatric custody;by contrast, those convicted and sent to prisonspent nearly ten years in confinement. Meanwhile,other studies have found that over athird of released criminal patients are rearrested.39Stories of how clever criminals manipulatepsychiatrists are legendary. In Two of a Kind-a brilliant, harrowing account of the "HillsideStrangler" case-author Darcy O'Brienshows how cold-blooded serial killer KenBianchi fooled three prominent psychiatristsby feigning a "multiple personality" disorder.Had he been successful, he would have beensent to a mental hospital instead of prison,staged a miraculous "recovery," and soon havebeen released to prey again on young women.But even after a hypnosis expert proved thatBianchi had faked his hypnosis sessions andmultiple personalities, the psychiatrists(though not the judge) remained stubbornlyconvinced that their "insanity" diagnoses hadbeen correct.40Perhaps the most egregious case is that ofThomas Yanda. In 1971, he murdered a 15­year-old girl, but was found "not guilty by reasonof insanity" and sent to a mental institution.Released only nine months later, Yandawas soon arrested for the stabbing death of a25-year-old woman. While in custody, he wroteanother jailed murder suspect, advising himhow to fake insanity. Yanda told him to offerbizarre interpretations of the famousRorschach "inkblot test," to feign "hearingvoices" that "told you to do your crime," andto "act crazy in front of the staff." A Chicagopsychiatrist had already judged Yanda legallyinsane for the second murder. Shown Yanda'sletter, he still insisted he had no cause to alterhis finding.41After psychiatrist Stanton Samenow and anassociate studied dozens of people acquittedunder the insanity defense, they concludedthat most of them "aren't crazy at all.... Theywere rational, purposeful and deliberate inwhat they did. But they were very astute atconning the system, the courts, the psychiatristsand the hospital into believing that theywere mentally ill, thereby beating thecharge."42Samenow, who has spent years studyingcriminals first-hand, also dismisses the ideathat even the perpetrators of ghastly crimesoperate under an "irresistible impulse" orcompulsion. "What is habitual is not necessarilycompulsive and beyond one's control," hewarns. "Behind the appearance of uncontrollableimpulse lies the stark reality of the offender'scalculating and proficient method ofoperating.... From my clinical observations, Ihave concluded that 'kleptomaniacs' and 'pyromaniacs'are simply people who enjoy stealingor setting fires." (As another observer Rutit, a crime may be sickening, but not necessarily"sick.")43Samenow also cites the example of "Son ofSam" serial killer David Berkowitz. After capture,Berkowitz claimed that demons weretalking to him through a dog, and had orderedhim to kill. Later, he acknowledged he'd beenfaking insanity. "There were no real demons,no talking dogs, no satanic henchmen. I madeit all up via my wild imagination so as to findsome form of justification for my criminal actsagainst society."44Several courtroom outrages, however, haveprompted a new look at the validity of psychiatricinvolvement in the legal system. One wasthe infamous diminished capacity, "Twinkie"defense of Dan White, who shot San Francisco'smayor and a city superintendent in 1978.Despite abundant evidence of premeditation,45the jury accepted psychiatric testimonythat (among other excuses) White's mentalcontrol was impaired because of eating junkfood. They found him guilty only of involuntarymanslaughter. The other major outragewas the murder acquittal of would-be presidentialassassin John Hinckley "by reason ofinsanity." This led to a reform of Federal law.Before then, prosecutors had to prove the defendantsane; now, the defense must prove himinsane.But even this doesn't get to the heart of thematter. Psychiatrist Lee Coleman warns that"psychiatrists do not have the tools that society

CRIME AND CONSEQUENCES 303thinks they have. They have no special way ofpredicting who will commit a criminal act or ofdetermining when a criminal is cured of antisocialtendencies. They have no tests to determinea person's innermost thoughts, eventhough the courts assume they do." He arguesthat "psychiatry should be stripped of its stategivenpowers," by banning psychiatric testimonyin legal proceedings, as well as abolishingthe "insanity" and "diminished capacity" defenses.46This does not mean that judges and jurieswould be spared the legal task of determiningcriminal intent; only that "in determining what,if any, criminal intent was present, and in decidingpunishment, [they] need no help frompsychiatrists.... A decision on intent shouldbe based on the factual evidence surroundingthe crime." A defense attorney would still befree to argue that the defendant was in an impairedmental state during his crime. But evidencewould be limited to fact-based testimonyof witnesses, citing the defendant's bizarre orirrational statements and behavior. 47 It wouldnot include fanciful theoretical speculations byExcuse-Making "experts," using ink blots andword-association "tests" to decipher the allegedimpact of junk food or an over-possessivemother on the defendant's presumed mentalstate.This is a common-sense approach to puttingobjectivity and responsibility back into criminalproceedings.Probation and ParoleParole is the release of a convict, under periodicsupervision, after he has served only aportion of his sentence. Probation is theconditional release of an individual foundguilty of a crime, as an alternative to incarceration,also usually under periodic supervision.Both are used routinely, and both are progenyof the Excuse-Making Industry.As one criminology text puts it: "Parole canbe considered as an extension of the rehabilitative(and now, reintegrative) program of theprison. ... If prisons are, in fact, to be concernedwith modifying criminal behavior sothat the offender can eventually be reintegratedinto society, parole is also supposed to pro-vide the supervision and assistance that makessuccessful reintegration possible." [Emphasisin original]48A measure of that "success" lies in the dismallyhigh rates of inmate recidivism (i.e., percentagesof inmates who commit subsequentcrimes after release). A Rand Corporationstudy found that about half of those sentencedto probation in California were convicted ofanother crime within three years. 49 And "successrates for probation," concede its backers,"are generally considerably higher than for parole."50 The Bureau of Justice Statistics releaseda 1985 study showing that 42 percent ofinmates arriving at state prisons were on paroleor probation for an earlier conviction attheir time of arrival. Twenty-eight percent ofthese would still have been in prison for theearlier offense, had they served out the maximumterm to which they were sentenced. 51This means, of course, that thousands of peoplewere needlessly subjected to robbery, assault,even murder, through the early paroleand probation releases of convicted felons.One example symbolizes them all. LarryGene Bell had been involved in abnormal sexualincidents since he was a child. In 1975, atage 26, he tried to force a young housewifeinto his car at knifepoint. Bell plea bargained adeal to avoid prison by undergoing psychiatrictreatment. He quit after two visits. Fivemonths later, Bell tried to force a co-ed into hiscar at gunpoint. A psychiatrist recommendedmental hospitalization, but Bell got a five-yearprison sentence instead. However, after just 21months, Bell was released on parole.Later, on probation, he terrorized a little girland her mother with obscene phone calls. Result:another plea bargain, and more probation,with orders to see a psychiatrist. He againstopped treatment after a short time. The climaxcame in 1985, when Bell kidnapped, sexuallyassaulted, then murdered two young girls.He's now linked to the case of another missingwoman, and suspected in the deaths of threemore. 52Here we see many tools of the Excuse-MakingIndustry in action: plea bargaining, psychiatricdefenses, early parole, suspended sentences,and probation. And we see the terribleprice such policies regularly exact.53

304 THE FREEMAN • AUGUST 1989The ideological origins of parole and probationare obvious. There are also pragmatic,cynical considerations motivating their proponents.Probation is the routine sentence for anyfirst offender, often regardless of the severityof the crime. As in the example above, it's frequently"imposed" even in subsequent offenses.The reason? To free up overcrowded jailand prison cells. In 1985, for example, therewere 503,300 state prison inmates and 255,000Federal prisoners. In the same year, there were277,400 people out on parole, and a whopping1,870,100 on probation. 54There is an equally cynical reason for parole-namely,control of inmates. Parole is thehandmaiden of "indeterminate sentencing"-sentences of indefinite length, with only themaximum specified. As the previously citedcriminology text notes, the main reason underlyingthe development of parole in Americawas "shortened imprisonment as a reward forgood conduct."55 By holding out the carrot ofan early release, and poising the stick of a fullsentence over the inmate's head, prison authoritiessuppress inmate violence. In short,rather than risk the safety of the guards (andthe warden's job) in prison uprisings, theprison bureaucrats prefer to risk the lives andproperty of the public with early releases.Neither parole nor probation are justifiable,practically or morally. They are a demonstrablefailure in reducing inmate recidivism. Theyundermine the deterrent impact of the law oncriminals, while demoralizing crime victimswith their outrageous leniency. Most important,they jeopardize public safety. Like the"inmate reintegration" programs to be discussedin the next installment, ~hey amount toplaying Russian Roulette with innocent humanlives.D1. James Q. Wilson and Richard J. Herrnstein, Crime andHuman Nature (New York: Simon & Schuster, 1985), p. 505.2. Norval Morris and Gordon Hawkins, The Honest Politician'sGuide to Crime Control (Chicago: University ofChicagoPress, 1970), p. 138.3. Wilson and Herrnstein, pp. 518-522.4. Owen Gallagher, "The Only Real Crime is PunishingCriminals," Conservative Digest, October 1988, p. 19.5. Arthur Eckstein, "Revenge of the Nerd," Chronicles,March 1988, p. 31.6. Ralph Adam Fine, Escape ofthe Guilty (New York: Dodd,Mead & Co., 1986), p. 247.7. Robert James Bidinotto, "Paying People Not to Grow,"The Freeman, October 1986.8. American Bar Association, Criminal Justice in Crisis,November 1988, p. 5.9. This section draws heavily from Fine, pp. 119-130.10. Fine, pp. 126-130.11. "Why the Justice System Fails," Time, March 23, 1981, p.23.12. Patrick J. Buchanan, "Children of the Warren Court,"Washington Inquirer, November 5, 1982, p. 4.13. Eugene H. Methvin, "The Case of Common Sense vs.Miranda," Reader's Digest, August 1987, p. 96.14. Fine, p. 144.15. Ibid., p. 148.16. Ibid., pp. 149-154.17. Edwin Meese III, "A Rule Excluding Justice," NewYork Times, April 15, 1983.18. Fine, pp. 154-155.19. James J. Kirkpatrick column, Washington Post, March24,1987.20. Fine, p. 155.21. Middlesex (Ma.) News, January 30,1985, p. 1.22. "Our Losing Battle Against Crime," U.S. News & WorldReport, October 12, 1981, p. 39.23. Ibid., p. 40.24. Boston Herald and Boston Globe, January 28, 1985.25. "Impact of Uncle Sam's New Crime Law," U.S. News &World Report, October 22, 1984, p. 50.26. Edmund Newton, "Criminals Have All the Rights,"Ladies' Home Journal, September 1986.27. Boston Herald, December 6, 1984, p. 5.28. Fine, p. 42.29. Criminal Justice in Crisis, p. 38; "Why the Justice SystemFails," Time, March 23,1981, p. 22; Fine, p. 3.30. Fine offers an excellent summary of the plea bargaining"charade" in chapters 2-5.31. Ibid., p. 34.32. Time, March 23, 1981, p. 22.33. U.S. News & World Report, October 12, 1981, p. 41.34. Fine, pp. 17,47-49.35. Criminal Justice in Crisis, pp. 40-41; p. 67, note 80.36. Fine, pp. 103-111.37. Preceding examples from "Turned Loose Too Soon?"U.S. News & World Report, June 27,1983, p. 52.38. Elliott Leyton, Hunting Humans (New York: PocketBooks, 1986), chapter 2, especially pp. 31 and 57.39. Lee Coleman, The Reign of Error (Boston: BeaconPress, 1984), pp. 55-56. See also U.S. News & World Report,June 27,1983, pp. 53-54; and Fine, p. 218.40. Darcy O'Brien, Two ofa Kind (New York: New AmericanLibrary, 1985), pp. 229-280, 350-353.41. Coleman, pp. 55-56.42. Quoted in People, May 14, 1984, p. 79.43. Stanton E. Samenow, Inside the Criminal Mind (NewYork: Times Books, 1984), pp. 124-125.44. Ibid., p. 130.45. For details see Coleman, pp. 65-70.46. Ibid., p. x; chapters 3-5.47. Ibid., p. 62.48. Robert D. Pursley, Introduction to Criminal Justice (NewYork: MacMillan, 1980), pp. 435-436.49."Punishment Outside Prisons," Newsweek, June 9, 1986,p.82.50. Morris and Hawkins, p. 135.51. New York Times, March 4, 1985.52. Eugene H. Methvin, "Beauty and the Beast," Reader'sDigest, February 1989, pp. 132-138.53. For other examples of horror stories specifically concerningparole and probation releases, see: MacLean's, July 18,1988, esp. pp. 42-43; Time, March 5,1984, p. 50; Redbook, April1988, pp. 128, 162; U.S. News & World Report, June 27, 1983, p.52.54. Bureau of the Census, Statistical Abstract of the UnitedStates (1988), p. 176, Table 308.55. Pursley, p. 435.

305Private Property:In Need ofRistoricPreservationby Lee OwnbyAlmost everyone is saddened by the demolitionof an old, historic building.But sometimes an old structure becomesthe focus of a heated conflict betweenpreservationists and those who wish to exercisetheir property rights. What is frightening insuch a case is that many people fail to appreciatethe importance of private property. Thiswas clearly evident in my community whenvarious groups were galvanized toward savingthe Baker-Peters House, an antebellum homethat had served as a popular restaurant.The restaurant owners possessed a leaseholdinterest in the real estate coupled with an optionto buy. They were under financial pressureto sell their interest rather than continue operatinga restaurant in that location. Their realtorsnegotiated a deal with a national oil companyto buy them out and construct a gasstation-requiring the demolition of the oldhouse and removal of two trees believed to be200 years old. The major historical event thatwarranted the preservation of the oldhouse-outside of its pre-Civil War architecture-wasthat it was where its owner, a doctor,had been killed by Union soldiers.When the prospective sale was discovered,Mr. Ownby is an attorney in Knoxville, Tennessee.the public outcry was immediate; both therestaurant owners and the oil company werecastigated for proposing a use contrary to thepublic will. Outraged citizens asked: Whywasn't there a municipal department chargedwith alerting the public any time a dwellingsuch as this was endangered? How could ourpublic officials have failed to protect this importantlandmark from corporate greed? Lettersto the editor, television interviews, and editorialswere overwhelmingly uniform in theirvirulent condemnation of the consummation ofa private contract. Very few spoke in defenseof the property owners' right to dispose oftheir interest under terms acceptable to them.Several proposals were put forward topreserve the landmark. The oil company coulddonate the house and land in its natural stateand register it as an historic site. The companycould rearrange its construction plans so as toavoid destroying the house and the trees. Athird idea was to relocate the house on thesame land or an adjoining tract, with the oilcompany providing most of the money for themove. Other suggestions included legislationrestricting the property as an historical zone,and/or having the owners renounce their propertyinterest and capital investment for the

W6THEFREEMAN·AUGUSTl~9The Baker-Peters Housepublic benefit. Finally, the city passed an ordinancerequiring a permit prior to the destructionof any old trees within 150 feet of an antebellumhome.Many sincere people believed that the variousproposals offered rational courses of action.They denounced the desire to make aprofit or suggested that any action other thanpreservation was a. submission to the vice ofgreed. Most, however, saw no inconsistency intheir hope to earn a profit when they sold theirown homes.The efforts to stop the demolition of the oldhouse are a symptom of a growingproblem-cultural or historical illiteracy. Thegoal of preserving historic landmarks is admirable,but the preservation shouldn't be atthe expense of values which permitted the creationof an historic site in the first place.The actions taken and suggested in this instanceresembled those of a lynch mob fromour not-too-distant past-ordinarily associatedwith the rather immediate denial of someone'sLEE OWNBYcivil rights without due process of law. TheFifth Amendment prohibits the taking of privateproperty for public use without compensation.A disturbing aspect of this affair wasthe complete absence of this concept from anypublic discussion of the event. Many suggestionsfocused on what the oil company and/orthe property owners could contribute for thepublic benefit. People just couldn't seem tograsp the idea of paying a market price to enjoyan aesthetic benefit.It is ironic that this landmark-built in anera when most economic liberties were defendedby law-today was defended by thosewho don't seem to recognize the importance ofsuch liberties. In today's cultural environment,the elevation to virtue or the devolution to vicebecame synonymous with being for or againstpreservation of the house. That the issue wasconsidered on these terms suggests that someof the values embodied in our Constitutionhave suffered serious erosion and are in desperateneed ofhistorical restoration. 0

Private Preservation ofWildlife: A Visit to theSouth African Lowveldby Nancy Seijas and Frank Vorhies307It is their three-inch eyelashes that give giraffestheir sleepy, serene look. Giraffesblink slowly, their lashes sweeping gracefullydown, and then gently back up. Outin thebush of South Africa, this is a common sight.In an area called the lowveld, giraffes strollright across the road, with a languid, swayingstride that seems utterly relaxed.Watching the giraffes go by in South Africa,it is dangerously easy to forget about apartheidand the ongoing struggle South Africa faces.Only for a moment, that is. The reality ofapartheid cannot be ignored, but there are otheraspects of this turbulent country. And thereare valuable lessons to be learned.South Africa's conservation of wildlifeteaches one of these lessons. In South Africa,conservation is treated more or less as abusiness, in which government and the privatesector compete. Kruger National Park, a gamereserve the size of New Jersey, is owned andrun by the South African government. Righton its border is a consortium of 20 smallergame parks, all privately owned. They receiveno government funding, and are subject to nospecific wildlife regulations.South Africa is a country, one must remember,where the sphere of central government iseven more vast than it is in the United States.Such broad political control has been thesource of violent conflict for decades. In theNancy Seijas is a member ofthe staffof the Free MarketFoundation of Southern Africa, Johannesburg,South Africa.Frank Vorhies teaches in the Department ofBusinessEconomics at the University of the Witwatersrand inSouth Africa.case of wildlife conservation, depoliticization isclearly the solution for South Africa. Privatelyowned game reserves in South Africa are amodel for private sector management of publicgoods.These 20 private reserves in the lowveld arepart of South Africa's eastern Transvaal region.Together, they comprise what is known asthe SabiSand Wildtuin ("tuin" means "park"in Afrikaans). Among the individual owners,there is competition and sometimes animosity.But there is also order and respect. The parksare separate, but together; they are unified bythe rules of their voluntary consortium, and bytheir reverence for the bush, the patchy foliatedland of the lowveld. The bush may be theowners' livelihood, but it is also their love.Back in the 1920s, big game like lion, rhino,and elephant roamed freely across the cattleranches of the Transvaal Consolidated Lands,another ranch next door called Toulon, and anopen stretch of land which was the originalSabi Game Reserve. At that point, the reservewas unoccupied. The Sabi and Sand Rivers ranthrough it, as did a train line called the SelatiRailway. In 1927, a big-game hunter namedW. A. Campbell bought several farms near theSand River. For hunters like Campbell, buyingup game-filled land was the only way to securetheir sport. If they did not take the land, theyknew that sooner or later the governmentwould, for agriculture or for preservation.More and more hunters began to follow suit,and hunting and cattle ranching became theprincipal occupations in this part of the easternTransvaal. But by 1934, cattle ranching had

308 THE FREEMAN • AUGUST 1989fallen into decline; the manager of TransvaalConsolidated Lands died in 1932, and Toulonhad closed down. The trend in the area wasmoving closer and closer toward wildlifepreservation, but the big-game hunters stillowned a great deal of the land.The TransvaalLand Owners' AssociationBy the late 1930s, the hunters were lookingfor some way to cooperate formally, and tokeep an eye on the unoccupied land in thearea. To this end, they formed the TransvaalLand Owners' Association. When the TLOAstarted, there were eight member-owners, includingthe old Transvaal Consolidated Lands.They elected a ranger to preside over the association,and paid membership dues. Thosedues financed projects like fences and effortsto combat disease among the animals.When South African Railways fenced in theSelati line in the 1930s, animals began to getcaught in the wire and break through. Consequently,the TLOA removed the fence. Whenhoof-and-mouth disease broke out in the areaa little later on, the association cooperatedagain to eradicate it. At one point, the TLOAhad to shoot 1,100 cattle in a single day.In 1950, the landowners made their last steptoward a completely private ownershipscheme. They liquidated the TLOA, and createdthe SabiSand Wildtuin, or SSWT. Campbellbecame its first president, and served for 12years until he died in 1962.Campbell's death marked the end of an era.The image of the "great white hunter" is a caricaturein South Africa now, a stereotype thatmany owners at SabiSand dislike and mock.Some hunting still goes on, but it is very limited.Its primary purpose is to finance the maintenanceof the parks, through the sale of selectedbig game and the meat from more commonspecies. The rules of the day have changed,from hunting wild animals to protecting them.Here is the paradox of the SabiSand Wildtuin:it was born of the self-interest ofhunters-white men who killed wild animalsfor sport and who had the money to buy aplace to do so. Self-interest is still the motivatingforce behind the game parks today, but thenature of that interest has changed. Today, theSabiSand park owners want to provide a safeenvironment for the animals that roam there,and to make money by doing it. Now, it is protectionof the animals that serves the owners'interests.In the past, protecting those interests meantopenly opposing apartheid. In 1940, the SouthAfrican government placed two of the farms inthe area under the Bantu Trust Act, the legislationthat created homelands for South Africanblacks. By the 1960s, about one-third of theSSWT was considered "released area" underBantu Act legislation. This meant that the centralgovernment could seize the land at its discretionto create "reserves" for black people.In 1963, the SSWT Executive Committee secureda verbal agreement from the Minister ofBantu Administration that their land wouldnot be confiscated.Now, the SSWT is relatively free from centralgovernment controls. There is a 75-milefence separating the consortium from KrugerPark, so the SSWT cannot "benefit" from animalsthat would migrate across the borders ofKruger. There are no internal fences betweenthe individual reserves. The wildebeest,warthog, impala, waterbuck, and kudu roamfreely over 265 square miles of open land.Notten's Bush CampWithin this vast tract of land, individualshave separate homesteads. One of thosehomesteads is Notten's Bush Camp. It isowned by Dedrick and Gillian Notten-"Bambi"and Gilly to those who visit the camp. Visitorscome to Notten's to experience life in thebush, for a price, of course. The Nottens'2,OOO-acre "backyard" is their business.The Nottens' land has been in Bambi's familyfor 20 years. A little over two years ago,Bambi left his job as a builder in Johannesburg,and the Nottens moved to the lowveldpermanently. Their two sons are now in boardingschools, and visit the bush every otherweekend.Missing her boys is Gilly's only complaintabout the move. She would love to have themlive at home, but there is no school to whichthey could commute. And with a full-time fam-

PRIVATE PRESERVATION OF WILDLIFE 309Offon a run at Notten's Bush Camp.ily, Bambi and Gilly couldn't run Notten'sBush Camp in the way they do.The Nottens' guests do not just visit a gamereserve. They enter Bambi and Gilly's home;they get to know the Nottens and their life.They watch their hosts experience the samewonder·and joy at the wild animals of the bush,as if the Nottens themselves were first-time visitors.When Gilly tells stories of Johannesburgon the veranda, glancing over her shoulder atthe land stretching out behind her, she justsmiles. "The bush," she says, and pauses.That's her full answer to why she moved to thelowveld. "The simple life of the bush."A typical day in that life starts at about 5A.M., with tea and coffee in the "boma." Theboma is a tall, maybe eight-foot circular wall,made of tied bamboo and reeds. It encloses asmall area where the Nottens cook for theirvisitors, with a shallow pit in the center for hotembers, and a stone-and-mortar barbecue offto one side. There is no electricity at the camp,and only a small kitchen, so the boma sees alot of use. Gilly and Bambi have a small bomaof their own, attached to their private cottage.After tea, Bambi takes the guests out for a"game run." Not only do the Nottens run theirbusiness out of their home, but Bambi drivestheir guests around the reserve in his car. It is abig green open-air Land-Rover, which Bambioccasionally takes on the highway to Johannesburg.It seats eight-that is all the Nottens willaccommodate at their camp at one time. Theyare unique in this respect. The neighboringparks, like MalaMala and Londolozi, are muchmore "booming" businesses, with lavish hotelaccommodations, fleets of Land-Rovers, andhigher per-day prices.A game run with Bambi is simply a drivethrough the bush, occasionally on the dirtroads and paths through the Nottens' land.Much of the time, Bambi just drives throughthe wilderness. With no fences, there is nothing"protecting" the visitors but their particularlyhuman sound, look, and smell. However, thatis no protection from a lion, an elephant, orespecially-ahippopotamus. If the lion is kingof the jungle, the hippo is the grouch; it has anasty disposition, and tourists have much moreto fear from a disgruntled hippo than any otheranimal in the bush, lion included.On all game runs, Bambi carries two things:a gun and a golf putter. The former, for protection;the latter, he says, just for walking. Onesuspects, however, that it is the other wayaround. To hear Bambi talk of the animals ofthe bush, and to see him identify the tiniestbird in the farthest tree, it is difficult to imag-

310 THE FREEMAN • AUGUST 1989ine that reaching for his gun would be his reflexreaction to danger. Of course, Bambiwould shoot an oncoming hippo, or lion, orrhinoceros if he were sure it was endangeringthe lives of his visitors. But after spending justa day or so with Bambi, one can't help thinkinghe just might reach for the putter first, and thegun second.The Nottens are a unique couple. Bambi isnot at all what his nickname would imply toAmericans. He is a tall, burly man, with shaggydark hair and a booming voice. Golf putter inhand, he strides through the bush, describingin detail the plants, the sounds, and the smell~.One night, he spent 20 minutes studying a spiderensnaring a moth in her web, and givingblow-by-blow commentary to the visitors.Gilly is equally fascinated with the bush. Shewill drive into the bush by herself, for peaceand serenity among wild animals. Gillian Nottenis the only woman in all the 20 private reserveswho will venture into the bush alone,and take guests out herself.Occasionally on the game runs, the Nottenswill run into other Land-Rovers from neighboringreserves. The larger reserves in the consortiumsend out rovers to spot a pride of lionsor family of cheetahs, and then radio backtheir location to the camp. If there are cheetahsin the area, MalaMala and Londolozi aresure to know.According to Bambi, it is not often thatthree or four Land-Rovers pull up to the samespot, as quietly as four Land-Rovers can, tostare at a family of leopards or a herd of zebra.But when they do, it is a little disconcerting toa foreigner. All the drivers and passengers inthe rovers are white, and there is always oneblack man riding on the hood or sitting in ahigh back seat. That man is the "tracker." Inmost cases, he comes from the easternTransvaal, from the homeland Gazankulu orthe area of Bushbok Ridge. He knows thebush, and can navigate through it easily andswiftly. He knows the marks different animalsleave in the foliage, and he can spot tiny pinpointsof red or green light-the eyes of acivet, an impala, or a mongoose-in the pitchdark of night.The relationship between Bambi and JosephMatebula, the Nottens' tracker, is one of employer-and-employee,and of white-and-blackfriendsin an apartheid state. Joseph speaks littieEnglish, and Bambi does not speakShangaan, Joseph's native language. Theycommunicate in a language called Fana Ka Lo.FanaKaLoFana Ka Lo is a source of controversy formany black South Africans. It is the mininglanguage-the language invented so that whitemine owners could communicate with blackworkers. Joseph worked in the mines for onemonth. Bambi translates when Joseph talks ofthe mines, or what he calls, in English, "thehole." The stories Joseph has from just onemonth are frightening, and he tells them withloathing in his eyes, and in the tone of his FanaKaLo.For him and for Bambi, though, Fana Ka Lodoes not seem to be the "language of oppression,"as it is deemed in much of South Africa.They are friends. One morning, Bambi waslooking for lion, discussing the tracks in thesand with Joseph, and asking what he thoughtwere the chances of a sighting. SuddenlyJoseph hopped off the rover and Bambi droveaway. The visitors were stunned; surely, hecouldn't have left Joseph to be preyed upon bylion . . . or could he? One of the guestsraised a timid question, and Bambi glancedover his huge, broad shoulder and bellowed,"Ah, I've had enough of him. Leave him!" Hestepped on the gas. Silence from the guests.Suddenly, Bambi burst out laughing. Josephknows exactly what he is doing in the bush,Bambi explained. They were closer to thecamp than anyone in the back of the rovercould tell, and Joseph strolled in a minute or soafter Bambi parked.That was the end of a morning game run.Typically, then, activity grinds to a halt. As theheat begins to blaze in the eastern Transvaal,the animals in the bush head for shade, andmost tourists begin to wilt. Another game runbegins at about 4:30, and Bambi and Gilly loadup a cooler to take along. Bambi's favorite ruleis "first mammal, first beer." He'll bend it forthose who prefer wine.There are rules, however, that Bambi andGilly cannot and will not bend. Those are the

PRIVATE PRESERVATION OF WILDLIFE 311intricate system of property rights that haveevolved throughout the 20 private reserves. IfLondolozi radios that there are cheetahs onthe Nottens' land, only those who have negotiateddriving rights with Bambi and Gilly maydrive over to see. Owners of adjacent landshave made individual agreements as to whomay drive where and when. Some borders areopen, and some are not; MalaMala, for example,tends to keep to itself. It all depends onthe preference of the owner, and those preferencesare respected.Who Owns the Animals?Animal rights are a different story. Whoowns the animals? Bambi replies with a question:"Well, who owns us?" The answer is thatno one actually owns the inhabitants of thebush. There is a type of property right to biggame: at any given time, owners have a propertyright to whatever animals happen to be ontheir land at that moment. They can sell ortrade animals they "own" in this fashion, tozoos, perhaps, or other parks. Bambi tradedone rhino, for example, for 20 tsessabe (a tsessabe,pronounced "chessabee," is a species oflarge buck, with curving, ridged horns).It is not in an owner's interest to sell off animalsextensively. The animals are the owner'slivelihood, but only if they are healthy andthriving in a natural environment. That is whattourists want to see for themselves, and that iswhat people like Bambi and Gilly want to seefor the animals. Ideally for each owner, thebest natural environment falls within his or herown borders.Once an animal crosses a border, someoneelse has a property right to it. More important,people will go to that reserve to see it. When afamily of cheetah moved onto the Nottens'land, Bambi's guests wanted to go see them onfoot. Surprisingly, animals are more frightenedof human footsteps than the sound of a landrover. An engine makes a regular, low din,which animals get used to and "block out."Footsteps are irregular, easily recognizable,and much more menacing to hear. Bambiknew that footsteps might scare away the cheetah,and move them off his land. He anguishedfor a moment, then said, "All right. Let's go."The result of this private property system iscompetition in creating the best habitat for thegame. Periodically, Bambi and Gilly clear outpatches of bush, or create a new water hole.They regulate the environment to suit the animalsthey want to attract. Yet, it is absolutelyforbidden for owners to feed the animals, oreven to set up salt licks. "Unfair" competitionbetween owners is not the problem. Setting upsalt licks and putting out extra food is "artificial,"unnatural. It is unfair to the animals.The feeding rule can be broken only if theowners agree that it is in the best interest ofthe animals involved. A few years ago, for example,a female cheetah severely wounded herfoot in a poacher's trap. She was a mother offive cubs, who could not fend for themselveswere she to die. The world would lose sixmembers of an endangered species, and theSSWT would lose six of its main attractions.The owners decided to shoot reedbuck for themother to eat. Bambi shot one, and the ownersat Londolozi shot a few more. As soon as themother was able to hunt again for herself, theystopped.Are there any disadvantages to this systemof private ownership? Of course, there are.The first is the ever-present possibility of"cheating" on the consortium arrangement. Individualowners can transgress driving rights.However, they are out driving in the bush everyday, sometimes all day. They can "catch"each other easily. Owners also can shoot anyanimal they choose, even an endangeredspecies, way out in the deep bush where noone can hear. According to Bambi, Americantourists pay up to $10,000 to shoot rhinos. "Itmakes me sick, honestly, it makes me reallysick," Gilly says.There is simply no way to guarantee this willnot happen in the SSWT. But, it doesn't happenvery often. The kinds of people who gointo this "business," on the whole, are peoplelike Bambi and Gilly who love the bush, andrespect the animals as their "neighbors."The owners do engage, however, in a practicecalled "culling," which"means cuttingdown the size of a herd that is overcrowdingthe bush. An overpopulated species endangersthe ecological system the owners strive to balance.Only three species are culled: impala,

312 THE FREEMAN • AUGUST 1989rhinoceros, and cape buffalo. All of them are"grazers," Bambi explains. They feed on thefoliage of the land. The SSWT Executive Committeegives each owner a number to cull overthe period of a year. They either keep the meatfor themselves, or sell it at a reasonable rate toGazankulu, or butchers in Bushbok Ridge.The whole idea of culling gives Bambi notrouble, for he feels it is in the best interest ofall. According to Gilly, the only problems startwhen the number of animals they are told tocull seems exceptionally high. The SSWT canaccommodate 150 rhino, but there are roughly120 in the area now. Last year they culled 10,but this year the number was 15. The numberto cull is decided by the SSWT group, so ifBambi and Gilly disapprove, they must garnersupport from other members to influence theCommittee's decision.The other disadvantage of this private gamereserve system is that it is more expensive tovisit than Kruger Park, which is run by thestate. There are all levels of hotel and campingaccommodations at Kruger which add to itsbasic price, but the simple entry fee for a car isabout $7.50. In Kruger, tourists drive their owncars along paved roads through the bush. Passengersmay not get out of their vehicles, andthey must exit the game area by sundown. Atparks like MalaMala and Londolozi, the feeper day is $300 and above. At Nottens it is only$50 per person per night, including accommodationsand Gilly's excellent cooking. Thereare four one-room cottages at Notten's BushCamp, and they are immaculate. The lack ofelectricity is hardly noticeable, at least whileone is sitting by the light of the fire in theboma sipping wine, and then gazing at theSouthern Cross for a few minutes before goingto bed.All the cooking and cleaning is done for theguests by Bambi, Gilly, and their small staff.Guests must bring their own alcohol if they sochoose, but the Nottens serve champagne andorange juice at breakfast. A three-day weekendof this-and of riding and walking in thebush among zebra, lion, cheetah, andkudu-will cost roughly $150.Those who want a trip to the bush at thelowest cost possible go to Kruger Park for aday. Accommodations and meals are optionsand cost extra. The entry fee alone is whatcosts so little. At the private parks, visitorsmust take the "package deal" of all the servicesand accommodations that go with the initialprice. The Nottens do charge a lower priceif their guests choose to bring and cook theirown food, but they may discontinue that option.Gilly finds it is more work for her whenguests try to use her kitchen and cookware,than to do it all herself.At Notten's Bush Camp, though, one can getclose enough to a cheetah to hear her purr, andto see a bramble caught in the silky fur of hercub's underbelly. Guests may walk through thebush, or ride in an open Land-Rover at allhours of the day or night. One cannot do thatat Kruger; the night curfew is a strict rule, andat no time may anyone get out of his or her car.At Notten's Bush Camp, there are no pavementand no fence. The environment for theanimals is more natural. Bambi's family haspreserved it for 20 years, when they could havesold it for a massive profit.Very few people expect that private individualswould be socially responsible enough toconserve wildlife voluntarily, especially withthe loving care of people like Gilly and BambiNotten. In the bush, the line between the Nottens'social responsibility and personal, self-interesteddesire is blurred. After getting toknow the Nottens a little, which guests invariablydo in the intimate, friendly setting theyprovide, it seems as if no such line exists.Deep in the bush in the eastern Transvaal,far away from the turmoil emanating from Pretoria,politics seems immaterial. To be sure,there is conflict. There is also cooperation. Theprivate game reserves have problems, but theyalso have solutions. So unlike the rest of thecountry, it almost feels as if there is no centralgovernment. The people and the wild animalsin the bush don't seem to need one. D

313A Tale ofTwoRevolutionsby Robert A. PetersonThe year 1989 marks the 200th anniver­. sary of the French Revolution. To celebrate,the French government isthrowing its biggest party in at least 100 years,to last all year. In the United States, an AmericanCommittee on the French Revolution hasbeen set up to coordinate programs on thisside of the Atlantic, emphasizing the theme,"France and America: Partners in Liberty."But were the French and American Revolutionsreally similar? On the surface, there wereparallels. Yet over the past two centuries, manyobservers have likened the American Revolutionto the bloodless Glorious Revolution of1688, while the French Revolution has beenconsidered the forerunner of the many modernviolent revolutions that have ended in totalitarianism.As the Russian naturalist, author,and soldier Prince Petr Kropotkin put it,"What we learn from the study of the Great[French] Revolution is that it was the source ofall the present communist, anarchist, and socialistconceptions."lIt is because the French Revolution endedso violently that many Frenchmen are troubledabout celebrating its 200th anniversary. Frenchauthor Leon Daudet has written: "Commemoratethe French Revolution? That's like celebratingthe day you got scarlet fever." AnAnti-89 Movement has even begun to sell mementosreminding today's Frenchmen of theexcesses of the RevolutIon, including Royalistblack armbands and calendars that mock thesacred dates of the French Revolution.Mr. Peterson is headmaster of The Pilgrim Academy inEgg Harbor City, New Jersey.The French should indeed be uneasy abouttheir Revolution, for whereas the AmericanRevolution brought forth a relatively freeeconomy and limited government, the FrenchRevolution brought forth first anarchy, thendictatorship.Eighteenth-century France was the largestand most populous country in western Europe.Blessed with rich soil, natural resources, and along and varied coastline, France was Europe'sgreatest power and the dominant culture onthe continent. Unfortunately, like all the othercountries of 18th-century Europe, France wassaddled with the economic philosophy of mercantilism.By discouraging free trade with othercountries, mercantilism kept the economiesof the European nation-states in the doldrums,and their people in poverty.Nevertheless, in 1774, King Louis XVI madea decision that could have prevented theFrench Revolution by breathing new life intothe French economy: he appointed PhysiocratRobert Turgot as Controller General of Finance.The Physiocrats were a small band offollowers of the French physician Fran~oisQuesnay, whose economic prescriptions includedreduced taxes, less regulation, the eliminationof government-granted monopoliesand internal tolls and tariffs-ideas that foundtheir rallying cry in the famous slogan, "laissezfaire,laissez-passer."The Physiocrats exerted a profound influenceon Adam Smith, who had spent time inFrance in the 1760s and whose classic TheWealth of Nations embodied the Physiocraticattack on mercantilism and argued that nations

314 THE FREEMAN • AUGUST 1989get rich by practicing free trade. 2 Of Smith,Turgot, and the Physiocrats, the great Frenchstatesman and author Frederic Bastiat (1801­1850) wrote: "The basis of their whole eco- 'nomic system may be truly said to lie in theprinciple of self-interest.... The only functionof government according to this doctrine is toprotect life, liberty, and property."3Embracing the principle of free trade notjust as a temporary expedient, but as a philosophy,Turgot got the king to sign an edict in January1776 that abolished the monopolies andspecial privileges of the guilds, corporations,and trading companies. He also abolished theforced labor of the peasants on the roads, thehated corvee. He then dedicated himself tobreaking down the internal tariffs withinFrance. By limiting government expense, hewas able to cut the budget by 60 million livresand reduce the interest on the national debtfrom 8.7 million livres to 3 million livres.Had Turgot been allowed to pursue his policiesof free trade and less government intervention,France might very well have becomeEurope's first "common market" and avoidedviolent revolution. A rising tide would havelifted all ships. Unfortunately for France andthe cause of freedom, resistance from theCourt and special interests proved too powerful,and Turgot was removed from office in1776. "The dismissal of this great man," wroteVoltaire, "crushes me.... Since that fatal day, Ihave not followed anything ... and am waitingpatiently for someone to cut our throats."4Turgot's successors, following a mercantilistpolicy of government intervention, only madethe French economy worse. In a desperatemove to find money in the face of an uproaracross the country and to re-establish harmony,Louis XVI agreed to convene the Estates­General for May 1789. Meanwhile, the king'snew finance minister, Jacques Necker, a Swissfinancial expert, delayed the effects of mercantilismby importing large amounts of grain.On May 5, the Estates-General convened atVersailles. By June 17, the Third Estate hadproclaimed itself the National Assembly.Three days later, the delegates took the famousTennis Court Oath, vowing not to disbanduntil France had a new constitution.But the real French Revolution began not atVersailles but on the streets of Paris. On July14, a Parisian mob attacked the old fortressknown as the Bastille, liberating, as one punditput it, "two fools, four forgers and a debaucher."The Bastille was no longer being used as apolitical prison, and Louis XVI had even madeplans to destroy it. That made little differenceto the mob, who were actually looking forweapons.Promising the guards safe conduct if theysurrendered, the leaders of the mob broketheir word and hacked them to death. It wouldbe the first of many broken promises. Soon theheads, torsos, and hands of the Bastille's formerguardians were bobbing along the streeton pikes. "In all," as historian Otto Scott put it,"a glorious victory of unarmed citizens overthe forces of tyranny, or so the newspapers andhistory later said."5 The French Revolutionhad begun.Despite the bloodshed at the Bastille andthe riots in Paris, there was some clear-headedthinking. Mirabeau wanted to keep the Crownbut restrain it. "We need a government likeEngland's," he said. 6 But the French not onlyhated things English, they even began to despisetheir own cultural heritage-the good as~ell as the bad. On October 5, the Assemblyadopted the Declaration of the Rights of Manand the Citizen-a good document all right,but only if it were followed.Twenty-eight days later, the Assemblyshowed they had no intention of doing so: allchurch property in France was confiscated bythe government. It was the wrong way to goabout creating a free society. Certainly theChurch was responsible for some abuses, butseeking to build a free society by underminingproperty rights is like cutting down trees togrow a forest. Such confiscation only sets aprecedent for further violation of propertyrights, which in turn violates individualrights-the very rights of man and the citizenthe new government was so loudly proclaiming.By confiscating church property-no matterhow justified-France's Revolutionaryleaders showed that they weren't interested ina true free society, only in one created in theimage of their own philosophers. As Bastiatlater pointed out, they were among the modemworld's first social engineers.

A TALE OF TWO REVOLUTIONS 315Soon France began to descend into an abyssin which it would remain for the next 25 years.In towns where royalist mayors were still popular,bands of men invaded town halls andkilled city magistrates. Thousands of peoplesold their homes and fled the country, takingwith them precious skills and human capital.Fran~ois Babeuf, the first modern communist,created a Society of Equals dedicated to theabolition of private property and the destructionof all those who held property. The king'sguards were eventually captured and killed.The Marquis de Sade, from whom we get theterm sadism, was released from prison. TheParis Commune took over control of Paris.Fiat Money InflationThe actions of the government were evenmore radical than those of the people at large.In order to meet the continuing economic crisis,the Assembly resorted to papermoney-the infamous assignats, backed ostensiblyby the confiscated church property. Althoughmost of the delegates were aware ofthe dangers of paper money, it was thoughtthat if the government issued only a smallamount-and that backed up by the confiscatedproperty-the assignats would not createthe kind of economic disaster that had accompaniedthe use of paper money in the past.But as had happened again and againthrough history, the government proved unableto discipline itself. As Andrew DicksonWhite put it in his Fiat Money Inflation inFrance: "New issues of paper were then clamoredfor as more drams are demanded by adrunkard. New issues only increased the evil;capitalists were all the more reluctant to embarktheir money on such a sea of doubt.Workmen of all sorts were more and morethrown out of employment. Issue after issue ofcurrency came; but no relief resulted save amomentary stimulus which aggravated the disease."?Writing from England in 1790, long beforethe French inflation had done its worst, EdmundBurke saw the danger of fiat currency.According to Burke, issuing assignats was thegovernment's pat answer to any problem: "Isthere a de~t which presses them? Issue assig-nats. Are compensations to be made or amaintenance decreed to those whom they haverobbed of their free-hold in their office, or expelledfrom their profession? Assignats. Is afleet to be fitted out? Assignats. . . . Are theold assignats depreciated at market? What isthe remedy? Issue new assignats." The leadersof France, said Burke, were like quack doctorswho urged the same remedy for every illness.Burke saw in the French Revolution not adecrease in the power of the state, but an increasein it: "The establishment of a system ofliberty would of course be supposed to give it[France's currency] new strength; and so itwould actually have done if a system of libertyhad been established." As for the confiscationof property-first that of the Catholic Churchthen that of anyone accused of being an enemyof the Revolution-Burke said: "Never did astate, in any case, enrich itself by the confiscationof the citizens."8But the issuing of assignats was only the beginning.In the spring of 1792, the first Committeeof Public Safety was established,charged with judging and punishing traitors.Soon the streets of Paris began to run withblood, as thousands of people were killed bythe guillotine. The following fall, the Frenchgovernment announced that it was prepared tohelp subject peoples everywhere win theirfreedom. Thus, instead of peacefully exportingFrench products and French ideas on liberty,the French began exporting war and revolution... hence the saying, "When Francesneezes, the whole world catches cold."As more soldiers were needed to "liberate"the rest of Europe, France instituted history'sfirst universal levy-the ultimate in state controlover the lives of its citizens. Meanwhile,for opposing the Revolution, most of the cityof Lyons was destroyed. And Lafayette, who atfirst had embraced the Revolution, was arrestedas a traitor.Stifling ControlsSoon a progressive income tax was passed,prices on grain were fixed, and the deathpenalty was meted out to those who refused tosell at the government's prices. Every citizenwas required to carry an identity card issued by

316 THE FREEMAN • AUGUST 1989his local commune, called, in an Orwelliantwist of language, Certificates of Good Citizenship.Every house had to post an outside listingof its legal occupants; the Revolutionary Communeshad committees that watched everyonein the neighborhood; and special passes wereneeded to travel from one city to another. Thejails were soon filled with more people thanthey had been under Louis XVI. Eventually,there flooded forth such a torrent of laws thatvirtually every citizen was technically guilty ofcrimes against the state. The desire for absoluteequality resulted in everyone's being addressedas "citizen," much as the modern-dayCommunist is referred to as "comrade."Education was centralized and bureaucratized.The old traditions, dialects, and local allegiancesthat helped prevent centralizationandthus tyranny-were swept away as the Assemblyplaced a mathematical grid of departments,cantons, and municipalities on an unsuspectingFrance. Each department was to berun exactly as its neighbor. Since "differences"were aristocratic, plans were made to erase individualcultures, dialects, and customs. In orderto accomplish this, teachers-paid by thestate-began to teach a uniform language.Curriculum was controlled totally by the centralgovernment. Summing up this program,Saint-Just said, "Children belong to the State,"and advocated taking boys from their familiesat the age of five. 9So much of modern statism-with all of itshorror and disregard for individualism-beganwith the French Revolution. The "purge," the"commune," the color red as a symbol ofstatism, even the political terms Left, Right,and Center came to us from this period. Theonly thing that ended the carnage-insideFrance, at least-was "a man on horseback,"Napoleon Bonaparte. The French Revolutionhad brought forth first anarchy, then statism,and finally, dictatorship. Had it not been forthe indomitable spirit of the average Frenchmanand France's position as the largest countryin Western Europe, France might neverhave recovered.Now contrast all of this with the AmericanRevolution-more correctly called the War forIndependence. The American Revolution wasdifferent because, as Irving Kristol has pointedout, it was "a mild and relatively bloodless revolution.A war was fought to be sure, and soldiersdied in that war. But ... there was noneof the butchery which we have come to acceptas a natural concomitant of revolutionary warfare....There was no 'revolutionary justice';there was no reign of terror; there were nobloodthirsty proclamations by the ContinentalCongress."10A "Conservative Revolution"The American Revolution was essentially a"conservative" movement, fought to conservethe freedoms America had painstakingly developedsince the 1620s during the period ofBritish "salutary neglect" - in reality, a periodof laissez-faire government as far as thecolonies were concerned. Samuel Eliot Morisonhas pointed out: "[T]he American Revolutionwas not fought to obtain freedom, but topreserve the liberties that Americans alreadyhad as colonials. Independence was no consciousgoal, secretly nurtured in cellar or jungleby bearded conspirators, but a reluctant lastresort, to preserve 'life, liberty, and the pursuitof happiness.' "11A sense of restraint pervaded this whole period.In the Boston Tea Party, no one was hurtand no property was damaged save for the tea.One patriot even returned the next day to replacea lock on a sea chest that had been accidentallybroken. 12 This was not the work of anarchistswho wanted to destroy everything intheir way, but of Englishmen who simply wanteda redress of grievances.After the Boston Massacre, when the Britishsoldiers who had fired upon the crowd werebrought to trial, they were defended by Americanlawyers James Otis and John Adams. Inany other "revolution," these men would havebeen calling for the deaths of the offending soldiers.Instead, they were defending them incourt.When the war finally began, it took over ayear for the colonists to declare their independence.During that year, officers in the ContinentalArmy still drank to "God save theKing." When independence was finally declared,it was more out of desperation thancareful planning, as the colonists sought help

A TALE OF TWO REVOLUTIONS 317from foreign nations, particularly the French.In the end, it was the French monarchy-notthe Revolutionists, as they had not yet come topower-that helped America win its independence.Through the seven years of the Americanwar, there were no mass executions, no "reignsof terror," no rivers of blood flowing in thestreets of America's cities. When a Congressmansuggested to George Washington that heraid the countryside around Valley Forge tofeed his starving troops, he flatly refused, sayingthat such an action would put him on thesame level as the invaders.Most revolutions consume those who startthem; in France, Marat, Robespierre, andDanton all met violent deaths. But whenWashington was offered a virtual dictatorshipby some of his officers at Newburgh, NewYork, he resisted his natural impulse to takecommand and urged them to support the republicanlegislative process. Professor AndrewC. McLaughlin has pointed out: "To teach ouryouth and persuade ourselves that the heroesof the controversy were only those taking partin tea-parties and various acts of violence is toinculcate the belief that liberty and justice restin the main upon lawless force. And yet as amatter of plain fact, the self-restraint of thecolonists is the striking theme; and their successin actually establishing institutions underwhich we still live was a remarkable achievement.No one telling the truth about the Revolutionwill attempt to conceal the fact thatthere was disorder.... [yet] we find it markedon the whole by constructive political capacity."13No Assault on Freedomof ReligionIn America, unlike France, where religiousdissenters were put to death, there was nowholesale assault on freedom of religion. Atthe Constitutional Convention in 1787, therewere devout Congregationalists, Episcopalians,Dutch Reformed, Lutherans, Quakers,Presbyterians, Methodists, and RomanCatholics. Deist Ben Franklin asked for prayerduring the Convention, while several monthslater George Washington spoke at a syna-gogue. During the Revolution, many membersof the Continental Congress attended sermonspreached by Presbyterian John Witherspoon,and while Thomas Jefferson worked to separatechurch and state in Virginia, he personallyraised money to help pay the salaries of Anglicanministers who would lose their tax-supportedpaychecks. In matters of religion, theleaders of America's Revolution agreed to disagree.Finally, unlike the French Revolution, theAmerican Revolution brought forth whatwould become one of the world's freest societies.There were, of course, difficulties. Duringthe "critical period" of American history,from 1783 to 1787, the 13 states acted as 13separate nations, each levying import duties asit pleased. As far as New York was concerned,tariffs could be placed on New Jersey cider,produced across the river, as easily as on WestIndian rum. The war had been won, but dailybattles in the marketplace were being lost.The U.S. Constitution changed all that byforbidding states to levy tariffs against one another.The result was, as John Chamberlain putit in his history of American business, "thegreatest 'common market' in history."14 TheConstitution also sought to protect propertyrights, including rights to ideas (patents andcopyrights) and beliefs (the First Amendment).For Madison, this was indeed the solepurpose of civil government. In 1792 he wrote:"Government is instituted to protect propertyof every sort.... This being the end of government,that alone is a just government whichimpartially secures to every man whatever ishis own."15 Alexander Hamilton, the first Secretaryof the Treasury, helped restore faith inthe public credit with his economic program. Itwas at his urging that the U.S. dollar was definedin terms of hard money-silver and gold.(At the Constitutional Convention, the delegateswere so opposed to fiat paper money thatLuther Martin of Maryland complained thatthey were "filled with paper money dread.")Hamilton's centralizing tendencies wouldhave been inappropriate at any other time inAmerican history; but in the 1790s, his programhelped 13 nations combine to form oneUnited States. Had succeeding Treasury Secretariescontinued Hamilton's course of strength-

(/Jw >:EC,,)a:~...J~Zo~ z~~ ::::>o()318 THE FREEMAN • AUGUST 1989Albert Gallatin (1761-1849)ening the federal government, at the expenseof the states, America's economic expansionwould have been stillborn.Fortunately, when Jefferson came to power,he brought with him the Swiss financier andeconomist Albert Gallatin, who served Jeffersonfor two terms and Madison for one. Unlikehis fellow countryman Necker, whose mercantilistpolicies only hastened the coming of theFrench Revolution, Gallatin was committed tolimited government and free market economicpolicies. Setting the tone for his Administration,Jefferson said in his first inaugural address:"Still one thing more, fellow citizens-awise and frugal government, which shall restrainmen from injuring one another, shallleave them otherwise free to regulate theirown pursuits of industry and improvement,and shall not take from the mouth of labor thebread it has earned."For the next eight years, Jefferson and Gallatinworked to reduce the nation's debt as wellas its taxes. The national debt was cut from $83million to $57 million, and the number of Federalemployees was reduced. Despite the restrictionson trade caused by Napoleon's Berlinand Milan decrees, and the British blockade ofEurope, American businessmen continued todevelop connections around the world. By theend of Jefferson's first term, he was able to ask,"What farmer, what mechanic, what laborerever sees a tax gatherer in the United States?"16By 1810, America was well on its way to becomingthe world's greatest·economic power.France, meanwhile, still languished under theheavy hand of Napoleon.In his Report to the House of Representativesthat same year, Gallatin summed up thereasons for America's prosperity: "No cause...has perhaps more promoted in every respectthe general prosperity of the United Statesthan the absence of those systems of internalrestrictions and monopoly which continue todisfigure the state of society in other countries.No law exists here directly or indirectly confiningman to a particular occupation or place, orexcluding any citizen from any branch he mayat any time think proper to pursue. Industry isin every respect perfectly free and unfettered;every species of trade, commerce, art, profession,and manufacture being equally opened toall without requiring any previous regular apprenticeship,admission, or license."17 TheAmerican Revolution was followed by 200years of economic growth under the same government.By contrast, the French Revolutionwas followed by political instability, includingthree revolutions, a directorate, a Reign ofTerror, a dictatorship, a restoration of theBourbon Monarchy, another monarchy, andfive republics. Today, socialism has a greaterhold in France than it does in America-althoughAmerica is not far behind. Eventhough they were close in time, it was theFrench Revolution that set the pattern for theRussian Revolution and other modern revolutions,not the American.Bastiat's OpinionFrederic Bastiat clearly saw the differencebetween the two. The French Revolution, heargued, was based on the idea of Rousseauthat society is contrary to nature, and thereforemust be radically changed. Because, accordingto Rousseau, the "social contract" had been violatedearly in man's history, it allowed all par-

A TALE OF TWO REVOLUTIONS 319ties to that contract to return to a state of "naturalliberty." In essence, what Rousseau wassaying was, "Sweep aside all the restraints ofproperty and society, destroy the existing system.Then you will be free, free to lose yourselfin .the collective good of mankind, under mycare."18The social architects who emerged out of thechaos of the French Revolution includedRobespierre and Napoleon. In his analysis ofRobespierre, Bastiat said: "Note that whenRobespierre demands a dictatorship, it is ... tomake his own moral principles prevail bymeans of terror.... Oh, you wretches! ... Youwant to reform everything! Reform yourselvesfirst! This will be enough of a task for yoU."19In Bastiat's opinion, the French Revolutionfailed because it repudiated the very principlesupon which a free society is based: self-government,property rights, free markets, and limitedcivil government. The American Revolution,however, brought forth the world's freestsociety: "Look at the United States," wroteBastiat. "There is no country in the worldwhere the law confines itself more rigorouslyto its proper role, which is to guarantee everyone'sliberty and property. Accordingly, thereis no country in which the social order seemsto rest on a more stable foundation.... This ishow they understand freedom and democracyin the United States. There each citizen is vigilantwith a jealous care to remain his own master.It is by virtue of such freedom that thepoor hope to emerge from poverty, and thatthe rich hope to preserve their wealth. And, infact, as we see, in a very short time this systemhas brought the Americans to a degree of enterprise,security, wealth, and equality of whichthe annals of the human race offer no other example....[In America] each person can in fullconfidence dedicate his capital and his labor toproduction. He does not have to fear that hisplans and calculations will be upset from oneinstant to another by the legislature."20Bastiat did see two inconsistencies in theAmerican Republic: slavery ("a violation ofthe rights of a person") and tariffs ("a violationofthe right to property"). According to Bastiat,.these were the two issues that would divideAmerica if they were not dealt with speedily.What was the answer for America as well asFrance? "Be responsible for ourselves," saidBastiat. "Look to the State for nothing beyondlaw and order. Count on it for no wealth, noenlightenment. No more holding it responsiblefor our faults, our negligence, our improvidence.Count only on ourselves for our subsistence,our physical, intellectual, and moralprogress! "21On the 200th anniversary of the French Revolution,Frenchmen and Americans can trulybecome partners in liberty by working towardthe principles advocated by Bastiat, America'sFounding Fathers, and others: limited government,private property, free markets, and freemen.D1. Petr Kropotkin, The Great French Revolution (New York:Putnam's Sons, 1909), Introduction.2. So strong were the connections between the Physiocratsand Adam Smith that, according to the French economistsCharles Gide and Charles Rist, "But for the death of Quesnayin 1774-two years before the publication of The Wealth ofNations-Smithwould have dedicated his masterpiece to him."Later, Frederic Bastiat lumped Smith, Quesnay, and Turgot togetheras "my guides and masters." Dean Russell, FredericBastiat: Ideas and Influence (Irvington-on-Hudson, N.Y.: TheFoundation for Economic Education, 1969), pp. 58, 19.3. Russell, p. 20.4. Peter Gay and R. K. Webb, Modern Europe to 1815 (NewYork: Harper and Row, 1973), p. 462.5. Otto J. Scott, Robespierre: The Voice ofVirtue (New York:Mason and Lipscomb Publishers, 1974), pp. 59-61.6. Ibid., p. 54.7. Andrew Dickson White, Fiat Money Inflation in France(Irvington-on-Hudson, New York: The Foundation for EconomicEducation, 1959), p. 107.8. Edmund Burke, Reflections on the Revolution in France(Indianapolis: The Bobbs-Merrill Co., 1955, originally publishedin 1790), pp. 275-276, 280.9. Scott, pp. 223-224.10. Benjamin Hart, Faith and Freedom (Dallas: Lewis andStanley, 1988), p. 301.11. Samuel Eliot Morison, The Oxford History ofthe AmericanPeople (New York: Oxford University Press, 1965), p. 182.12. Gene Fisher and Glen Chambers, The Revolution Myth(Greenville, S.c.: Bob Jones University Press, 1981), p. 18.13. Andrew C. McLaughlin, The Foundations ofAmericanConstitutionalism (New York: Fawcett, 1932, 1961), pp. 88-89.14. John Chamberlain, The Enterprising Americans: A BusinessHistory of the United States (New York: Harper and RowPublishers, 1974, 1981), p. 37.15. Letters and Other Writings ofJames Madison, Vol. IV(New York: R. Worthington, 1884), p. 478.16. James Richardson, ed., A Compilation of the Messagesand Papers ofthe Presidents, Vol. 1 (New York: Bureau of NationalLiterature, 1897), p. 367.17. John M. Blum, et aI., The National Experience, Part I(New York: Harcourt Brace Jovanovich, 1963, 1981), p. 213.18. George Charles Roche, Frederic Bastiat: A Man Alone(New Rochelle, N.Y.: Arlington House, 1971), pp. 146-147.19. Ibid., p.148.20. Ibid., pp. 205-206, 244.21. Ibid., p.l64.

320Should We Stop SellingReal Estate toForeigners?by C. Brandon CrockerAmerican real estate is being boughtby foreigners, and this worries a lotof people. Michael Dukakis made acampaign issue out of the large commercialreal estate holdings of the Japanese in Los Angelesand other major V.S. cities. The fearsgenerated by this foreign buying appear to betwofold: first is the concern that our nationalsecurity and sovereignty are somehow compromisedwhen foreigners own our real estate;second is the belief that foreign ownership ofV.S. real estate is harmful to our economy.These qualms, however, are based on misconceptionsof what is happening in the real estatemarket.The concern over national security andsovereignty is understandable given the natureof real estate. When foreigners own land, peoplenaturally fear that they might gain dangerouscontrol over the production and distributionof resources such as grain, oil, andindustrial metals. The cost of amassing enoughland to have even a small impact on the supplyof such resources, however, is too prohibitiveto be practicable for any individual or groupacting as an agent of a hostile foreign power.And such ownership wouldn't have an impacton supplies coming in from international markets.Furthermore, all V.S. territory, regardlessMr. Crocker is assistant vice-president for a real estatedevelopment and management corporation in SanDiego.of the owner's nationality, comes under the fulljurisdiction of V.S. law.If foreign real estate investment isn't compromisingour national security, is it hurting useconomically? The market for real estate inthe Vnited States is relatively free. Therefore,as is true of all free markets, no one is forcedto sell something to another party. Transactionsare consummated only when all partiesfeel that it is in their best interest to do so.This means that when a foreigner buysAmerican commercial real estate, he does sobecause he believes that the risk-adjusted return(and perhaps some prestige value) isworth the investment. At the same time, theAmerican seller believes that the transactionwill make him better off. If, as is usually thecase, the seller is an on-going business, thismeans that the owner believes he can get abetter return by putting the sale proceeds intoanother investment than he can get by holdingthe particular piece of real estate.The proceeds from real estate sales do notdisappear in some mysterious way. The foreignbuyer gains a tangible asset, but the compensationreceived by the seller goes into creatingother assets which the seller believes will havea higher risk-adjusted rate of return. Manufacturingcorporations selling off real estate canput the proceeds into research and developmentor new machinery. Real estate developmentcompanies can put the money into new

321projects. Forbidding such transactions on thegrounds that the buyer is foreign, therefore,would not merely just keep existing real estatein American hands, but would also prevent thecreation of other assets in this country.When foreigners buy American properties,Americans are fully compensated. In fact, contraryto the belief that foreigners are "buyingAmerica on the cheap," the prices paid by foreigners(especially the Japanese) for Americanreal estate over the past few years in many caseshave been well above the traditional marketvalues, as foreigners have been willing to accepta lower return on their investments thanhave many Americans.There is no basis for the fear that foreignreal estate holdings threaten our sovereignty.And given that we have a free market in realestate, the charge that foreign purchases harmus economically also has no basis. We cannotbe harmed if we freely exchange one asset foranother which we view as having a better riskadjustedrate of return. This simple fact of economics-thatdeals take place in a free marketonly when all parties involved believe them tobe beneficial-applies to real estate just as itapplies to all other assets. 0Readers' ForumTo the Editors:Nick Elliott, in his fascinating article on theLevelers (May 1989), tells us that their fightagainst the 17th-century Stuart state was an outgrowthof English individualism, which in turnled to liberalism, which he finds inextricablylinked to the- Rerormation. This is the customaryaccount.However, as Lord Acton-the great Englishliberal historian-pointed out, this view obscuresthe pre-Reformation growth of liberty in England.Writing in 1859, Acton argued that:"[In England], as elsewhere, the progress ofthe constitution, which it was the work of theCatholic Ages to build up ... was interrupted bythe attraction which the growth of absolutismabroad excited, and by the Reformation's transferringthe ecclesiastical power to the Crown."(Selected Writings, Vol. III, p. 33) Acton furthernoted in 1861: "The Catholic Church had bestowedon the English the great elements of theirpolitical prosperity-the charter of their liberties,the fusion of the races, and the abolition ofvilleinage-that is, personal and general freedom,and national unity. Hence the people wereso thoroughly impregnated with Catholicism thatthe Reformation was imposed on them by foreigntroops in spite of an armed resistance; andthe imported manufacture of Geneva remainedso strange and foreign to them, that no Englishdivine of the sixteenth century enriched it with asingle original idea." (Ibid., p. 91)For too long, it has been the received view inEngland and America that the Reformationequaled liberty. But in Acton's view, by unitingchurch and state and freeing rulers from painfullyconstructed Catholic restraints, Protestantismmade possible an absolutism that derailed thelong progress that liberty made during the MiddleAges. As further evidence, consider that theRenaissance-a Catholic Counter-Reformationthat Luther and Calvin warned about-restartedthe progress that ultimately culminated in liberalism.Nick Elliott Replies:JEFFREY A. TUCKERFairfax, VirginiaThe Reformation did not "equal liberty"-farfrom it. What it did was provide an ideology, as aflag of convenience for those princes and dukeswho wanted to challenge the authority of theCatholic empire. It was an unintended consequencethat this led to religious anarchy and amore general challenge to authority. Without theReformation, the Netherlands would probably

322 THE FREEMAN • AUGUST 1989not have fought a war of independence, to becomethe most liberal state in Europe. Nor wouldEngland have been touched by the radical liberalideas of groups such as the Levelers.It was no accident that many of the principalEnglish liberals have come from a background ofProtestant nonconformism: John Lilburne, JohnBright, and Herbert Spencer, to name but three.The radical ideas that were to emerge from theReformation also implied a political code. AsJohn Bright said of the Quakers, "We have nothirty-seven articles to declare that it is lawful forChristian men, at the command of the civil magistrate,to wear weapons and serve in wars."The most important principle, politically, toemerge from the Reformation was that the individualcould communicate with God by himself,subjectively interpreting the Bible for himself,and without the need for a church hierarchy. Thisprinciple led in England to popular agitation forfreedom of worship, and made the Levelers intoa movement with mass support.The gains for liberty made before the EnglishReformation hardly compare to the momentousgains made after the Civil War, as the direct resultof radical Reformation ideas. The GloriousRevolution of 1688 enshrined religious tolerationin law, and established the principle that monarchsmust be accountable to parliaments. The Reformationin England led to the rejection of thedivine right of kings, by which kings had previouslyjustified their excesses.The immediate response of the CatholicChurch to the Reformation was the inquisitionand index-religious purification by burning, anda clampdown on dangerous books. These wereretrograde steps for liberalism and liberty. Anylink between the Renaissance and liberalism isfar from clear, far less clear than that with the Reformation.NICK ELLIOTILondon, England-time in the history of Poland, capitalism now hasa political representation. In the June 1989 election,the Union for Realpolitik (of which I am arepresentative), led by Janusz Korwin-Mikke,promoted free enterprise, privatization, self-responsibility,and individual rights. The Union forRealpolitik openly advocates capitalism-unlikeany other organization in Poland.Furthermore, industrial societies organized invarious cities (the most famous being the KrakowIndustrial Society, Warsaw Industrial Society, andOld Polish Industrial Society in Kielce) teach entrepreneurshipand organize meetings of businessmenand pro-free market intellectuals. Ishould add that the Krakow Industrial Society, ofwhich I am a member, is not a libertarian organization,as Mrs. Sall wrote, but rather a group ofclassical liberal intellectuals, mostly readers ofLudwig von Mises. It is led by Miroslaw Dzielski,a very important figure in the Polish pro-capitalistmovement, who seek contacts with successfulPolish entrepreneurs, mostly through banquetsand discussions. Recently the Krakow IndustrialSociety became more politically active, proposinga free enterprise zone in Krakow, and having Mr.Dzielski participate in a meeting of oppositionleaders with Margaret Thatcher during her visitin Poland.As I mentioned, the heavy hand of the state isstill present. The Union for Realpolitik is refuseda paper quota (distribution of paper is rationedby the Polish government) and is not allowed tocampaign on television. Interestingly enough,Polish pro-capitalists are ignored in the West,most notably by Western media, even though thesocialistic Solidarity opposition receives widecoverage. But that is a phenomenon which requiresa separate analysis.KRZYSZTOF OSTASZEWSKIUniversity of LouisvilleTo the Editors:I enjoyed Barbara Sall's "Private Enterprise inPoland" in the May 1989 Freeman.Let me stress, however, that the situation is notas uncertain and tragic as it might appear fromMrs. Sall's presentation. The heavy hand of thestate is present everywhere, but it is losing itsweight. Most important, however, for the firstWe will share with readers the most interestingand provocative letters we receiveregarding Freeman articles and the issuesthey raise. Address your letters to: To theEditors, The Freeman, The Foundation forEconomic Education, Irvington-on-Hudson,New York 10533.

323A REVIEWER'SNOTEBOOKReligious Thought andEconomic Societyby John ChamberlainWhen Jacob Viner of the Universityof Chicago and Princeton Universitydied, he left four chapters of anunfinished work called Religious Thought andEconomic Society. Two scholars, JacquesMelitz and Donald Winch, have pieced togetherthe Viner work for publication by the DukeUniversity Press of Durham, North Carolina(211 pages, $21.95).What strikes one at once in reading the Vinertext is the essential worldliness of the earlychurch fathers. Though they often counseledperfection, they had no illusions about the averageman's capacity for martyrdom. Saint Augustinehad been a sinner himself. Besides,there was a paradox involved. It was all verywell for an occasional individual to sell all hehad to feed the poor, but what if everybodywere to do the same? Production would cease,and there would soon be nothing to give away.The poor would really be reduced to scratchingto keep alive.So the early Christian fathers, being practicalmen, counseled sharing. They did not seekto make the sharing compulsory-that woulddry up incentives, and there would be less toshare. What they wanted was a system thatwould yield a maximum of voluntary alms.This naturally opened the doors to capitalistthinkers, though the word "capitalism" was notused. The rich merchant was to be encouragedas the best possible source of alms. In the Renaissancethe rich merchant came into his own.The patricians of the Renaissance paid tributeto the excellence of man instead of stressingthe degradation resulting from original sin.Says Viner, the merchant class "maintainedthat the life of virtue was within the reach ofthe ordinary run of mankind and was a pleasurableone ... virtue was to be pursued for itsown sake or for its benefit to others, independentlyof its contribution to religious salvationor for its obligatoriness as a religious duty."Material things, sacred and profane art, finecraftsmanship, the embellishment of palaces,churches, and cities were more to be admiredthan the ascetic life of "passive contemplationor pious resignation."Thomas Aquinas was against usury, but it isone thing to frown upon charging interest oncash loans and another to condemn selling forcredit at a higher price. Since most buyers areunable to pay cash, if wholesalers were torefuse to sell at credit their sales would shrink.Soon there would be no business at all.Viner devotes many pages to the quarrels inFrance between "rigorists" and "laxists." Butjust who were the rigorists and who were thelaxists is not always clear. The Jansenists professedto believe in a strict condemnation ofusury; the Jesuits did not. But the two opposingschools of thought were equally casuisticabout loans to merchants to help them do business.Since Viner was obviously convinced thatcapitalist practices were fairly well definedeven in the Middle Ages, he tangles with thetheory promulgated by Max Weber and R. H.Tawney that it was Calvinism that set the spiritof capitalism going. When Venetians andGenoans began adventuring on the Mediterraneanafter the Saracen enemies of Christiani-

324 THE FREEMAN • AUGUST 1989ty had been pushed back, the spirit of tradequickly moved over the passes from Italy toSouth Germany. Banking was elaborated inSouth Germany. All of this happened beforethe time of the Protestant Reformation.To believe that the "geist" of capitalism originatedin Calvin's Geneva or John Knox's Scotlandignores some palpable geographic facts.As Viner says:the prosperity of Holland in the seventeenthcentury aroused the interest of writers inother countries, and various explanationswere offered. Sir William Temple singled outfor emphasis the industry and thrift of theDutch, but attributed most "national customs"to "unseen, or unobserved naturalcauses or necessities." The only characteristicsof this kind which he identified in theDutch case were poverty in natural resourcesand density of population. He makesno mention of a religious factor. Some timebefore 1618, Sir Walter Raleigh singled outHolland, together with the Hanse towns andDenmark, as countries which surpassedEngland in commerce. He does not mentionthat all these countries were Protestant ....Sir Josiah Child attributed the superiority ofthe Dutch in trade to a wide range of customs,institutions, and patterns of economicbehavior and laws. His only reference to areligious factor is his inclusion of "tolerationof different opinions in matters of religion"as contributing to Dutch prosperity by attractingto Holland industrious and rich dissentersfrom other countries.There is only an incidental reason to connectreligion with the rise of capitalism in anythingSir William Temple and Sir Walter Raleigh orJosiah Child noticed in Holland. What standsout is the fact that the Dutch government waswilling to leave people alone. In short, laissezfaire.A better title to the incomplete Viner bookwould have been Human Nature and EconomicSociety. The church fathers and scholasticsquoted by Viner were reasonable men whoknew that alms would be forthcoming out of aplenty that would still allow scope for individualpleasure. We are less generous in our understandingof human nature today than was thePETER BRUEGEL, THE ELDERcase before we began to legislate welfare bycompulsion. No compulsion was necessary toprovide education in Britain or America in theeighteenth and nineteenth centuries. Schoolswere built and maintained by churches and privateassociations. More hospitals were built inEngland before the days of compulsory healthservices.After the common sense of Viner's earlychapters about the church fathers, I hadlooked forward to reading the fourth chapteron Max Weber and the thesis that capitalismhad been particularly fostered by the "Puritanethic." But the chapter is so clogged with unfamiliarnames (Bishop Herbert Thorndike, SirPeter Pett, Robert Robinson, Charles Davenant,C. Weiss, Israel Worsley, to cite a few)that it is almost impossible to follow the tangentialarguments. One has to hold fast to theproposition that Weber's thesis applies only to"the ascetic types of Protestantism." Weber's"silent" omission of Geneva (Calvin's city) andScotland (John Knox's territory) from the listof the "ascetics" was, says Viner, "not inadvertent."The spirit of capitalism was not equallypresent in all Calvinist. countries. Contrariwise,it was often present in Catholic countries.Things depended on human nature acting onlocal traditions. Neither Weber in Germanynor R. H. Tawney in England had a "lock" onany all-inclusive law.D

OTHER BOOKS 325TIME AND PUBLIC POLICYby T. Alexander SmithUniversity ofTennessee Press, P.O. Box 250, Ithaca, NY 148501988.299 pages. $29.95 clothReviewed by Israel M. Kirzner. Alexander Smith, a professor of politicalscience at the University of Ten-T.• nessee, has written an impressivebook. It is a book that ranges across several socialscience disciplines, particularly economics,sociology, and politics-but also involves psychology,philosophy, and history. This review iswritten from the narrow perspective of an"Austrian" economist (whose objectivity is, itmust be confessed, perhaps compromised inthe book's favor by its author's embrace of theAustrian tradition in economics, and by hisgeneral endorsement of free market policies.)The major thesis of the book can be statedsimply. Modern societies, partly as a result ofvarious sociological forces, partly as a result ofwelfare-state policies and majoritarian"promissory politics," are systematically biasedtoward the short run: "Our time horizons havechanged radically in the modern era." Thisbias, the author claims, poses a serious dangerfor society's long run health and viability.Where we ought to be pursuing courses of actionthat recognize the long run benefits ofbourgeois values, frugality, thrift, and self-restraint,there in fact are powerful political andsocial forces that lead us, as voters and aspoliticians, to place greater emphasis on shortrun, fleeting, and ephemeral benefits. What isrequired, Smith maintains, is a pattern of institutionalreform that will encourage long rangeplanning, and the willingness to forgo instantgratification for the sake of future goals.This thesis is developed in eight chapters ofwell-written prose enriched by a scholarly apparatusmodestly concealed in the endnotes,reflecting an extraordinarily wide range ofreading and study. Although this reviewer hasseveral quibbles to express as an economist, asa citizen he finds the overall thrust of thebook-especially in its development of themesin sociology and politics-highly persuasiveand important. Although at least some economicaspects of Smith's argument have beendeveloped before (for example, Henry Hazlitt'sclassic Economics in One Lesson critiqueof interventionism is based on the idea that the"art of economics consists in looking not merelyat the immediate but at the longer effects ofany act or policy ...."), the book's reinforcementof its economic insights by reference tosociology, and to political institutions, adds upto an innovative and powerful case for the freemarket and the rule of law.My quibbles will at first seem minor ones,yet on reflection they turn out to be quite disturbingto the economist. The economist whoappreciates the social usefulness of free markets,and also understands the importance ofthe time profiles of production and consumption,will argue that a key virtue of the marketeconomy is that it stimulates economic growthto reflect, with reasonable faithfulness, thewishes ofthe individual market participants. Inother words, the market generates volumesand rates of capital accumulation and depreciationwhich reflect the time preferences of thecitizens in their capacities of consumers andpotential investors. Smith's position seems, if Iread him correctly, to argue for the free marketeconomy because it is likely to generate a timeprofile of savings, capital-using production,and consumption which is faithful to what (inSmith's judgment) is the "correct" allocationbetween present and future. Smith sees theeconomy as sliding into a miasma of instantgratification-at a time when it ought to beplanning prudently for capital replacement andlong term growth.One would like to think that Smith's view ofthe "correct" allocation over time expresseswhat he believes to be the true wishes of thepublic. Yet certain parts of the book-notablychapter two, where the author notes and deploresthe modern abandonment of bourgeoisvalues-suggest that he really does hope for aset of institutions which will not permit citizensto exercise their unhealthily high time preferences.This way of thinking may be eminentlydefensible from a variety of perspectives, butthe economist (who sees the virtue of marketsto lie in their respect for citizens' preferences,no matter how degenerate and "wrong" they

326 THE FREEMAN • AUGUST 1989may be) feels uncomfortable with it.This discomfort is only deepened by ournoticing that Smith, throughout the book, deploresthe sacrifice of the future for the present-neverrecognizing, it would appear, thatbeyond some point, surely, additional provisionfor the future may be entirely too costly for apresent generation. Surely Smith does not wishus to postpone all present consumption to thefuture? Which future? Next year, next century,next millennium? Granted that our present institutionshave biased us so strongly in the directionof instant gratification that our immediatesocial and political agenda may beusefully focused upon urging greater attentionto the future. Nonetheless, one would have expectedsome mention of the free market's capacityto avoid, not only a time profile tiltedtoo much toward the present, but also one tiltedtoo much toward the future. What the Austrianemphasis on time allocation depends onis not so much any admiration for the bourgeoisvirtues of frugality and thrift per se, as anunderstanding of the need for thrift in order toachieve preferred future consumption goals.This aspect of Austrian understanding doesnot emerge unobscured in Smith's book.Related to this complaint must be a certainunease which an Austrian economist feels atSmith's lengthy (and generally sound) discussionof Say's Law in chapter seven. One comesaway from this chapter with the impressionthat Smith wishes us to see Say's Law as teachingthe primacy of production over consumption,of supply over demand. But our appreciationfor the profoundly valid insights embodiedin Say's Law should surely not (at any rate notfor Austrian economists!) take us in that direction.To recognize that general overproductionis, in the proper sense, impossible, does not requireus to say that "supply is the driving forcebehind 'demand"'-for Austrians the reverse,properly interpreted, is closer to the truth.Keynes' error was, for Austrians, not his emphasison demand, but his belief that "aggregatedemand" can be deficient in equilibrium.For Austrians an appreciation for the need tosave is not based on any virtue of abstinence,but on the desire to consume, more extensively,in the future.Several further related quibbles: Smith haslearnt his Austrian economics well, and with agreat deal of depth. Yet he appears not to seethat much of his thesis does not really dependon Austrian insights. To be sure, his superbthird chapter represents classic Austrian andRothbardian deployment of a Crusoe exampleto illustrate the meaning and importance of thetime profile of production and consumptionactivities. But one does not have to be an Austrianto appreciate the importance of planningand saving for the future. Certainly one doesnot have to have a sophisticated Misesian appreciationfor the a priori quality of positivetime preference to accept Smith's thesis. Byover-emphasizing the Austrian route by whichhe apparently arrived at his understanding ofthe importance of the time dimension, Smithmay have unnecessarily limited its potentialsignificance for economists following differentapproaches. (This Austrian economist mentionsthis point somewhat diffidently: it mustseem loutish to sniff at Smith's appreciation forAustrian economics-so frequently ignored!)Nor, one may respectfully submit, is theAustrian economist's appreciation for the subtletiesand complexities of time quite capturedby Smith's treatment of it. Although Smithmakes occasional mention of the·problems ofuncertainty and knowledge introduced by thecircumstance that human action occurs in irreversibletime, the overall thrust of his bookemphasizes only the one dimension: the needto allocate scarce resources between the presentand the future. Primordially importantthough this dimension certainly is, it is a littleunfortunate that the book somehow conveysthe impression that, by developing its centralthesis, the place of time in economic policy hasbeen fully and completely dealt with. For Austrians,surely, far more needs to be discussedand explained, including especially the role ofcompetitive processes, the role of entrepreneurialdiscovery, and the complicationsthese introduce into propositions concerningthe effectiveness of markets.But these are mere economist's quibbles.The larger picture presented by the book reliesheavily on insights concerning sociology andpolitics which impressed this lay reader greatly.Smith has undoubtedly put his finger on a centralweakness of modern political systems.

OTHER BOOKS 327There can be no question that the future economicand political well-being of society dependssignificantly on our being able to disentangleourselves from the web of forces which,as Smith brilliantly shows, distort our focus,mistakenly and tragically, toward the presentand immediate future. Smith's book deserves awide readership and careful thought and discussion.DDr. Kirzner is a professor of economics at New YorkUniversity.MEMOIRS OF AN UNREGULATEDECONOMISTby George J. StiglerBasic Books, 10 E. 53rd Street, New York, NY 10022 • 1988228 pages • $17.95 cloth.Reviewed by Richard M. EbelingBest-selling novels and popular moviesnever seem to have an economist as thehero. An archaeologist or an architect,an over-the-hill newspaper man, an inebriateddetective-all seem to fit the bill. Even the bookversio~ of Death Wish has an accountant as theprotagonist. But an economist? What can be exciting~bout supply and demand, the quantitytheory ~f money, or the intricacies of public utilityregulation? A work of fiction, at least, can exaggeratethe truth. But what can one look forwardto from an economist's autobiography?Economists are boring, right? Wrong!George Stigler is a leading member of theChicago school of economics and the 1982 recipientof the Nobel Memorial Prize in EconomicScience. His intellectual autobiography, Memoirsof an Unregulated Economist, proves thatthere is life after Econ 101 and that economics isfar from being a dismal science.In telling his own story, Professor Stigler doesa masterful job of weaving in the history of 20thcenturyAmerican economics. In the late 1940s,many economists and most intellectuals wereconvinced that large d.ses of social planning andgovernment intervention were both desirable andthe inevitable waves of the future-the onlythings that would save America from falling backinto the abyss of the Great Depression of the1930s. Forty years later it is socialism and inter-ventionism that are on the defensive, with themarket economy and individual liberty onceagain the rising ideals. To a great extent the radicalshift in ideological direction has been due tothe Chicago School, and this is the real story inStigler's book.Stigler did his graduate work in economics atthe University of Chicago in the 1930s. He studiedwith such leading figures as Frank Knight, JacobViner, and Henry Simons. Though they werefar from being radical advocates of laissez-faire,in the collectivist environment of the New Dealin America and Fascism and Communism in Europe,these economists instilled in their studentsan appreciation of the price system and a competitivemarket order. And they warned of whatcollectivism could mean for the loss of politicaland civil liberties. Their teaching left its mark onStigler and others like Milton Friedman. In the1950s, these influences gelled into the "ChIcagoSchool."Stigler's contributions have been in the area ofmicro-economics, I.e., the theory of markets andprices. He devoted his energy to the economics ofinformation, the theory of monopoly, and thetheory of government regulation. Economistshave long worked with an economic model of"perfect competition" in which agents are assumedto possess full and perfect knowledge, andmarkets are assumed to adjust immediately toany and all changes. This model has been an easytarget for critics of capitalism. Stigler demonstratedhow markets enable individuals with less thanperfect knowledge to search for informationabout the qualities of goods and the prices atwhich they may be obtained; he further showedhow competitive forces tend to bring suppliesand demands into balance through this information-searchprocess.He also challenged the long-held assumptionamong many economists that when markets areless than "perfect," monopolistic forces tend toexist all over the economy, with consumer interestssacrificed for the benefit of a few, big, highlyconcentrated firms and industries. In a series oftheoretical and empirical studies, Stigler was ableto prove that as long as government doesn't bestowprivileges guaranteeing producers protectionfrom competition, the market economy is aninherently rivalrous arena, and one that is veryresponsive to changing consumer demands.

328 THE FREEMAN • AUGUST 1989Finally, Stigler pioneered research in the fieldof government regulatory policy. The standardview, again, was that certain industries are inherentlyuncompetitive; therefore, it was believednecessary for government to regulate their pricingand production policies for the public good.Stigler argued that rather than serving the publicgood, regulatory agencies invariably came underthe control of the industries they were to regulate.All the economic incentives were for theregulated companies to devote time and resourcesto "capture" the agencies, and then usethem to limit entry into their market and to setprices favorable to themselves. Stigler demonstratedthat when left free from governmentoversight, these sectors of the economy were usuallyas open and competitive as any other.The drama of the tale is in Stigler's telling. Heexplains the different views and schools ofthought; he introduces the reader to the competingpersonalities and their conflicts over a 50-yearperiod; and most important, he escapes from theabstract language and arguments of the rarefiedeconomics journals. Thus, the general reader canfollow the intellectual odyssey in terms that fleshout the theoretical and policy debates of the pastseveral decades. Stigler doesn't limit himself todevelopments in his own fields of interest. Healso describes the evolution of the ChicagoSchool monetary tradition, beginning in the1930s, through the writings of Milton Friedman,right up to the current theory of Rational Expectations.And he explains the Chicago School's extensionof the logic of economics to new areassuch as the economics of crime, the family, andrace relations.As a member of a rival school in economicstheAustrian School-the present reviewer istempted to raise a number of questions and objectionsto the approach of the Chicago School.While the Chicago economists have emphasizedthe vigor of competitive forces, they have failedto analyze to any real extent the focal point ofthat competitive process-the entrepreneur.While they have tried to develop a theory of informationalsearch in the market, they havefailed to grapple with the real problem of imperfectknowledge, Le., how do market agents formexpectational judgments when the uncertaintythey face cannot be reduced to simple statisticalprobabilities? And finally, Stigler says that economicscan be applied to a wide array of areasand problems because "Economics is the study ofpurposive behavior involving choice." Yet, thefrequent tendency by Chicago economists to reduceall economic phenomena to a purely quantitativedimension often has resulted in many essentialhuman elements of "purposive behavior"being excluded from their analysis.But these may be considered family squabblesamong free market economists. George Stigler,and the Chicago School he has helped to createand nurture, have changed the shape of economicsin the United States and increasinglyaround the world. The economic planners and interventionistsare losing the intellectual battle everywhere,and a major portion of the credit belongsto the set of ideas so eloquently describedin this book. Ted Thrner may not buy the rightsto turn it into a cable movie special, but it certainlyis a story in which the economist is thehero.DProfessor Ebeling holds the Ludwig von Mises Chair inEconomics at Hillsdale College.Freeman Study Guide Pilot ProjectIf you are a secondary school teacher, college or university professor, oradult discussion group leader, we invite you to take part in a pilot projectinvolving study guides for three issues of The Freeman, 1989-90. Homeschoolers are also encouraged to participate. Please contact FEE by August31, attention Janette Brown, Pilot Project.

IDEAS ON LIBERTY332 Crackdown in ChinaPujie ZhengA Chinese student's account of recent political unrest in his homeland.336 The Rise and Fall ofthe EdselAnthony YoungA reminder that the car-buying consumer determines the success or failure of anautomobile.CONTENTSSEPTEMBER1989VOL. 39NO.9340 Crime and Consequencesm. "... To Insure Domestic Tranquility •••"Robert James BidinottoIn the conclusion of his three-part series, Mr. Bidinotto examines the failures ofour correctional system - and offers some suggestions for improvement.352 Social Consciousness and Individual FreedomDavid BeersExploring the confusing notion of "society's moral duty."355 What Is a Doctor's Relative Worth?Jane M. OrientA "fair" solution to the problem of maldistribution of income among variousmedical specialties.359 Privatization in Northern Ireland ­Making Politics NormalNick ElliottSeeking ways to reduce the importance of sectarian politics.361 Israel: The Road from SocialismMacabee DeanIsrael seeks buyers for many of its state-owned companies.367 Sports in AmericaTibor R. MachanEnjoying the freedom to pursue individual goals.369 Readers' Forum370 Book ReviewsJohn Chamberlain reviews Paul Johnson's Intellectuals. Other books: UnfairCompetition: The Profits ofNonprofits by James T. Bennett and Thomas J.DiLorenzo, The High Cost ofFarm Welfare by Clifton B. Luttrell, and A TheoryofSocialism and Capitalism: Economics, Politics, and Ethics by Hans­Hermann Hoppe.

THEFREEMANIDEAS ON LIBERTYPERSPECTIVEPublished byThe Foundation for Economic EducationIrvington-on-Hudson, NY 10533President ofThe Board:Vice-President:Senior Editors:Contributing Editors:Editorial Intern:Bruce M. EvansRobert G. AndersonBeth A. HoffmanBrian SummersBettina Bien GreavesCarl O. Helstrom, IIIEdmund A. OpitzPaul L. PoirotJeffrey J. ZieglerThe Freeman is the monthly publication ofThe Foundation for Economic Education, Inc.,Irvington-on-Hudson, NY 10533 (914) 591­7230. FEE, founded in 1946 by Leonard E.Read, is a nonpolitical educational championof private property, the free market, and limitedgovernment. FEE is classified as a 26 USC501 (c) (3) tax-exempt organization. Other officersof FEE's Board of Trustees are: ThomasC. Stevens, chairman; Ridgway K. Foley, Jr.,vice-chairman; Paul L. Poirot, secretary; H.P.Langenberg, treasurer.The costs of Foundation projects and servicesare met through donations. Donations are invitedin any amount. Subscriptions to TheFreeman are available to any interested personin the United States for the asking. Additionalsingle copies $1.00; 10 or more, 50 cents each.For foreign delivery, a donation of $15.00 ayear is required to cover direct mailing costs.Copyright © 1989 by the Foundation for EconomicEducation, Inc. Printed in the U.S.A.Permission is granted to reprint any article inthis issue, except "Crime and Consequences"and "Sports in America," provided appropriatecredit is given and two copies of the reprintedmaterial are sent to The Foundation.Bound volumes of The Freeman are availablefrom The Foundation for calendar years 1969to date. Earlier volumes as well as current issuesare available on microfilm from U niversityMicrofilms, 300 North Zeeb Road, Ann Arbor,MI 48106.The Freeman considers unsolicited editorialsubmissions, but they must be accompanied bya stamped, self-addressed envelope. Our author'sguide is available on request.Phone: (914) 591·7230FAX: (914) 591-8910Judge George Revecomb and Lynne Cheney, chairman of theNational Endowment for the Humanities, present the BenjaminFranklin Award to Roger Pilon (right).Pilon Article Honored byNational Press FoundationDr. Roger Pilon, Freeman author and a seniorfellow at the Cato Institute, was one offour winners of the 1988 Benjamin Franklinawards for excellence in writing on the U.S.Constitution. The awards are sponsored by theNational Press Foundation in partnership withthe Commission on the Bicentennial of theUnited States Constitution.Dr. Pilon's winning article "On the Foundationsof Economic Liberty" appeared in theSeptember 1988 issue of The Freeman. It discussesthe natural connection between economicand political liberties and the role of thejudiciary in restoring and maintaining theserights.Dr. Pilon received his award in April at aluncheon co-hosted by former Chief Justice ofthe United States Warren E. Burger. The NationalPress Foundation is a nonprofit educationalfoundation dedicated to excellence inAmerican journalism.Message from MoscowWhat's the matter with our present pricingsystem? For one thing, prices are set centrally,from above, and that's faulty in principle.Wholesale prices are based on costs plus aminimum planned profit. The producer adds

up all his costs of production, adds on hisplanned profit, and presents this figure to theState Committee on Prices for confirmation.Costs are pushed up since the producer wantsto get a higher price, and the guidelines forprofitability ~re strained to the limit since theproducer needs to make a profit. The higherthe costs and the margin of profit, the higherthe prices and the better off the producer. Butthe consumer suffers-retail prices rise. Theproducer is in the driver's seat.Chaos is averted only by administrative fiat:the·planning bodies and the State Committeeon Prices try to moderate the greed of the producers.But how? Arbitrarily, by the seat oftheir pants. How else can one explain the factthat the profit margin established for the Ministerof Instrument Making, AutomationEquipment, and Control Systems is one-thirdgreater than that established for his colleaguesin the machine-building conglomerate? Is thissensible? In addition to these problems, pricesand profits depend less on the efficiency ofproduction or on supply and demand than onthe skill of the producer in inflating his costsand justifying his expenses and on the manager'senergy and his contacts. The system encouragesthe enterprise to produce less, toraise prices, and to hoard supplies. . . .The market will successfully replace the "irreplaceable"apparatus of central administration-allthe committees, departments, andministries. That's why the administrators don'tlike the market. When they manage less, thingsgo better-that's what insults our officials. Letthem be insulted; we will change to a marketsystem no matter what they say.But how are prices set in a market system?By supply and demand. I won't buy meat in cooperativestores for five rubles a kilo or in statestores for two rubles when I can buy it fromthe Arkhangelsk peasant for one ruble. Andyou'll probably do the same. What will happen?Prices will immediately drop in the cooperativeand state stores. And wholesale pricesPERSPECTIVEwill fall as well. If producers find this unprofitable,they will have to make adjustments andimprove their efficiency-learning from theArkhangelsk peasant-or else shift to producingsomething else.Unlike the State Committee on Prices, themarket will not support excess expenses andpoor work. Those who know how to work willearn real money, and those who can't will eitherlearn or they won't have any way to supportthemselves. Society has no obligation topay for poor work, but it will willingly pay forefficient labor satisfying public demand, andthereby encourage and stimulate the conscientiousand competent workman. This gives yousome idea of how the market works to controlsocially necessary expenditures, to stimulate efficiency,and to set costs and prices.-ALEXEI MYASNIKOV,writing in Glasnost, a dissident publicationfounded in Moscow in 1987. Translation providedby the Center for Democracy in theU.S.S.R., 358 W. 30th Street, Suite i-A, NewYork, NY 10001.The Triumph of CapitalismLess than 75 years after it officially began,the contest between capitalism and socialism isover: capitalism has won. The Soviet Union,China, and Eastern Europe have given us theclearest possible proof that capitalism organizesthe material affairs of humankind moresatisfactorily than socialism. . . . Indeed, it isdifficult to observe the changes taking place inthe world today and not conclude that the noseof the capitalist camel has been pushed so farunder the socialist tent that the great questionnow seems how rapid will be the transformationof socialism into capitalism, and not theother way around, as things looked only a halfcentury ago.-ROBERT HEILBRONER,a leading socialist economist, writing in theJanuary 23,1989, issue of The New Yorker.

332THEFREEMANIDEAS ON LIBERTYCrackdown in Chinaby Pujie ZhengRecent events in China have stunned theworld. Since mid-April, the courage ofthe Chinese students who put their liveson the line to campaign for democracy, the selfrestraintof the million Beijing citizens whostaged a completely nonviolent demonstration,and the cruelty of the government that usedtanks and machine guns against unarmed peacefuldemonstrators have amazed and shocked peoplearound the globe.Background to CrisisFor the students, it is a political movement.But the common people went to the streets foreconomic reasons-they were disappointed withthe government's inability to carry out the 10­year-old economic reform.After the death of Mao Zedong in 1976, HuaGuofeng, Mao's designated successor, arrestedthe so-called "Gang of Four" and took over thegovernment. According to the people's wishes,Hua Guofeng invited Deng Xiaoping to work inthe government in 1978 to help him with the reform.But Deng wanted the reform to go much furtherthan Hua anticipated. For example, Hua insistedthat whatever Mao Zedong had saidshould be kept as the Communist Party's policy.Deng was against that. With the support of thepeople, Deng Xiaoping prevailed over HuaPujie Zheng graduated from Qinghua University, Beijing,China, in 1985. Currently a graduate student inphysics at the University ofVirginia, he visited China atthe height ofthe student unrest and military crackdownin May and June.Guofeng in 1979 and took over control of thecountry.Deng first changed the Party's priorities.Against Mao Zedong's thought, Deng said thatthe class struggle was no longer the Party's toppriority. The most urgent problem was the designof the socialist system. Deng's slogan-"No matterwhether the cat is white or black, as long as itcatches rats, it is a good one"-hinted at hisadoption of some capitalist principles.Deng understood that he needed foreign helpin his economic reform. Under Deng, the Sino­Japanese Friendship Treaty was signed and diplomaticrelations with the United States were solidified.China started to encourage foreignbusinessmen to invest, which was symbolized byseveral special economic zones around Chinathat suffered less from government red tape andattracted a lot of foreign capital. China also welcomedforeign scholars.Inside China, Deng Xiaoping resumed the collegeentrance exam. Anyone who passed theexam could go to college free of charge. After there-establishment of the exam, students across thenation began to put their time and energy intostudying.Deng allowed college students to have accessto a wide variety of Western materials. When Iwas studying in Qinghua University in Beijing, Iwas permitted to read The New York Times,Time, Newsweek, and many other foreign publications.Deng also allowed Chinese television tocarry international news produced by foreign stations.After the reform started, Deng found that theParty's bureaucracy was his biggest enemy. The

333AuthorPujie Zheng in Sichuan Province, China.officials were too old and were experts only in"class struggle." They didn't have the experienceor the knowledge to make their bureaus productive.Deng forced all middle and low level governmentofficials over 60 years old to retire, andreplaced them with younger and better educatedpeople. He promoted Hu Yaobang and ZhaoZiyang to the central government to be his chiefaides in the reform. He spent much of his timemaking sure that the military wouldn't causetrouble for him.Deng was unable to remove the senior highlevelofficials who were against his reform andwere known as "old guard." All he did was to putthose old guards aside by giving them ceremonialpositions in the government.After these preparations, Deng Xiaoping startedhis economic reform. He accepted the idea ofusing the market as a feedback to stimulate economicproductivity. (Note: There were no independentcompanies in China at that time. Thegovernment owned everything.) In this way, productivefactories which made needed goodswould have more money to pay their workersand, in theory, would find it easier to get loansfrom the Construction Bank that was in charge ofinvestment. Deng's reform changed the country'seconomic structure to the greatest extent sinceMao's death. But there was one thing Deng Xiaopingdid not want to reform-the structure ofthe government. He wanted to keep his absolutecontrol over the country. For example, when thestock market was established, he did not allowstock prices to fluctuate freely, which largely reducedinvestors' interest in the stock market andcurtailed the market's ~bility to put money intothe most profitable and thus most efficient hands.Deng did not understand that the success ofthe economic reform relied on the freedom of theplayers in the market. And the freedom of theplayers in the market depended on less governmentcontrol.By comparing China with foreign countries,the college students discovered this problem first.Besides their access to foreign publications, exchangeprograms sent many students abroad,which gave them firsthand knowledge of theWestern world. When those students returned toChina, they told their friends about what theyhad seen.Also, the college students were the most faithfulreaders of the Western books which weretranslated and published in China. When booksdescribing the idea of nonviolent protest werepublished, the students read them eagerly. Thespirits of Mahatma Gandhi, Romain Rolland,Chinese translator Fu Lei, and others were planteddeeply in the hearts of the people by thosebooks.As the economic reform went on, it becameclearer to the students that it would have nochance of succeeding without democratic reform-thepolitical leaders should be elected bythe majority, and the minority (including studentsthemselves) should have a chance to expressthemselves.In 1987, the students went to the streets to expresstheir thoughts. They had the support of HuYaobang. But they did not get much support

334 THE FREEMAN • SEPTEMBER 1989from the common people because, in 1987, theeconomic reform was still heading in the right direction.Deng Xiaoping did not want to lose any of hiscontrol. He fired Hu Yaobang as the GeneralSecretary, moved Premier Zhao Ziyang to Hu'sposition, and promoted Li Peng, who was a representativeof the old guard and a stepson of thelate premier Zhou Enlai, to the Premier's position.Although Zhao Ziyang was not as enthusiasticas Hu Yaobang in supporting the students' drivefor democracy, he understood that politicalchanges were unavoidable, saying, "As the economicreform developed, the political reform becameunavoidable."The unavoidable came in 1988, when inflationrose to over 30 percent. Living standards wentdown for the first time since the reform. Otherproblems, such as corrupt officials using theirpower to reap illegal gains (sometimes runninginto the·millions of dollars) also irritated the people.In the face of those problems, Li Pengshowed only his uselessness.Although the conservatives had controlled theexecutive branch of the government since 1987,the Party was not in their hands. After HuYaobang was fired as the Party's General Secretary,he was still a member of the five-man PolitburoStanding Committee, which gave him theright to vote for reform on all the important issues.The DemonstrationThe breaking point was in early April, whenHu Yaobang had a heart attack during a debateat a Party meeting. He was hospitalized and diedon April 15. After Hu's death, the original balanceof the Politburo Standing Committee waslost, and the reformers had virtually no chance ofwinning votes in the Committee.On April 16, the students began to send floralwreaths to the Monument for People's Heroes inthe center of the Tiananmen Square. Millions ofpeople responded in support of the students,which brought the city of Beijing to a standstill.Deng Xiaoping lost his temper. He underestimatedthe strength of the students at this time,and he forgot what Mao Zedong had said: "Theones who suppress the students will not have agood ending in their lives." With the support ofthe old guard and the army, Deng decided tocrack down on the student movement.On May 20, after Zhao Ziyang, who was thenstill the General Secretary, knew that a bloodycrackdown was on its way, he insisted that LiPeng go to the Square with him and visit the students.After Li Peng had left the Square, ZhaoZiyang told the students, "We come too late....We are too old to see the day when China isstrong. But you are young. You should stayalive." The student leaders took Zhao's hint andbegan preparing to leave the Square.But the old guard didn't want the students toretreat because they would lose their excuse topunish them. So before the student leaders tooktheir vote on whether to leave the Square, the oldguards broadcast Li Peng's and Yang Shangkun'sspeeches declaring martial law and describing thestudents as rioters. When the vote took place, thestudents who wanted to stay in the Square wonby a small margin.After Li Peng's speech, troops were sent intoBeijing to carry out the martial law. But the studentswere stronger than the old guards expected.Beijing citizens flooded the streets. Theyblocked the army trucks and persuaded manysoldiers to turn back against their orders.Yang Shangkun, the President of China and amilitary lord, whose brother, sons, son-in-law, andother relatives are in key army positions, movedin 350,000 troops to prevent Beijing's 38th Armyfrom interfering when the 27th Army under YangShangkun's brother was carrying out the crackdown.After several days of preparation, on thenight of June 3 and the morning of June 4 theChinese government declared war against its ownpeople. Tanks crushed anyone in their way. Machineguns shot unarmed civilians. Fearing thatthe soldiers wouldn't shoot their countrymen,military leaders reportedly gave the soldiers injectionsof stimulant before they were sent to thecity.The command center designated the occupationof every street corner as a "military campaign,"the word normally used to denote a majorbattle in a regular war.One doctor said during the massacre that hefelt he was in great danger because he knew toomuch about the situation of the students and thesoldiers.

CRACKDOWN IN CHINA 335Under the army's pressure, the students decidedto leave the Square. But the army poured intothe Square before the students retreated. ThenTiananmen Square, the Square of HeavenlyPeace, became a slaughter-yard in which Chinesebutchered Chinese. Because of the governmentnews blackout, the death toll couldn't be confirmed.Similar killing happened in Chengdu, the capitalof Sichuan Province, the home of Deng Xiaoping,Li Peng, and Yang Shangkun.The people's voice was diminished after thearmy's occupation of the Square. Some peoplestayed at home to listen to the Voice of Americaand BBC's Chinese news programs, which mightbe one of the reasons there were shortages ofshort-wave radios in some areas. And many otherswere deceived by the government.The FutureThe government took over Beijing, but theydid not win. This is the weakest regime since1949.First, it is afraid of the truth. Before and afterthe bloody crackdown, the government tried itsbest to mislead the people.As a Chinese proverb says, one cannot wrapfire with paper. There are simply too many peoplewho know the truth of this event. Throughword of mouth, it is only a matter of time beforepeople throughout China know the facts. Theother reason that the news blackout won't workis that this government is much less creative thanMao Zedong's. Their methods had been used byMao-but Mao's techniques had been exposed tothe public during the reform.Second, Mao Zedong never paid people todemonstrate in support of him. But this regimehad to pay the Beijing suburban people and bribethem with supplies of chemical fertilizer todemonstrate in its favor.Last, before the military crackdown, the governmentreportedly moved $80 million to foreignbanks and prepared airplanes for the· leaders' escape.Mao Zedong never would have thoughtabout escaping from China.Such a weak regime, as described by one Chinesestudent, "The 80-year-olds are calling the70-year-olds to decide which 60-year-olds shouldretire," is not going to last. And the representativesof the old guard, such as Premier Li Pengand the new General Secretary, Jiang Zemin, donot have the ability to run such a big countryagainst the overwhelming majority of the people.Deng Xiaoping has miscalculated the strengthof the people. The blood in Beijing and othercities scared some. But it wakened more. Afterthe Beijing Massacre, many people who used tobe friends of the Communist Party had a changeof heart. As the president of Wen Hui Bao, theleftist Hong Kong newspaper, said, "I have beena friend of the Chinese Communist Party. I wasso even during the Cultural Revolution. But today,I feel shame to be a friend of theirs."A government with no friend is weak. Such aweak government is not strong enough to turnback the economic reform measures which alreadyhad been carried out. So, the economicstructure was not damaged by the student movement.And the day for people's success is not toofar away.With no doubt, this is one of the darkest timesin China's history. But as a Chinese poem pointsout, "The darkest time has come. Is it going to belong before the dawn?" 0

336The Rise and Fallofthe Edselby Anthony YoungMention "Edsel" to anyone over theage of 30 and you will hear prettymuch the same response. While theanswers may vary somewhat, practically everyoneknows it was a car introduced in the 1950sthat failed miserably. Many people will addthat they think it bombed because ofits bizarrefront-end styling. But, in fact, the Edsel failedfor more fundamental reasons.The Edsel proved that mere size doesn't insulatecorporate decision-makers from errorsin judgment; large automotive corporations arejust as capable of making major mistakes innew product planning, production, advertising,and marketing as smaller companies. It is a fascinatingstory that holds free market implicationsworth remembering.The early 1950s were a euphoric period forautomakers. In 1955 Americans bought arecord 7,169,908 new cars. This auto-buyingfrenzy was just one aspect of the postwar economythat Vance Packard described in The StatusSeekers, published in 1959. 1 In Packard'sview, automobiles evolved from mere transportationvehicles just after World War II tosymbols of middle-class affluence in the firsthalf of the 1950s. The V-8 engine reignedsupreme and horsepower was the watchword.In this heady market atmosphere Ford MotorCompany conceived a new car that they hopedMr. Young, a regular contributor to Automobile Quarterly,has written extensively on automotive history.would help the company surpass General Motorsin overall market share.Seeds ofDisasterFord executives attributed General Motor'slarge market share to OM's wide range of offerings-fromthe low-priced Chevrolet andPontiac, to the mid-priced Buick and Oldsmobile,up to the luxury-priced Cadillac. HenryFord II and Board Chairman Ernest Breechbelieved that the low-priced Ford, upper-middle-pricedMercury, and luxury-priced Lincolncar lines left a gap Ford should fill. A 1952market study confirming this made the roundsat Ford and Lincoln-Mercury division headquarters.The new car should be for the youngexecutive. By 1954, a task force drew up plansfor a medium-priced car to be sold throughLincoln-Mercury dealers.One top-level Ford executive, Lewis D. Crusoe,disagreed with the proposal, statingstrongly that the new car should be a productof a whole new Ford division with its own dealernetwork. Henry Ford II and Ernest Breechagreed with Crusoe. This was the first key mistakein the Edsel saga and perhaps the mostdamaging.The Ford Motor Company was restructuredso that there would be distinct divisions forFord, Mercury, Lincoln, and the yet-to-benamedmid-priced car division. In the summerof 1955, the staff for the new "E" (experimen-

337tal) car division was brought together in someinconspicuous buildings that had made up theshort-lived Continental Division.What's in a Name?One of the first jobs for division presidentDick Krafve was to select a name for the divisionand the models to be built. The task wasfraught with peril. As author Robert Lacey putit, "The name had to excite the public whilenot alarming it unduly. It had to distance thenew vehicle from existing Ford, Lincoln, andMercury labels, while remaining reassuringlypart ofthe same great family of automobiles. Ithad to satisfy all manner of other requirements,from starting with a letter that wouldlook good on the front hood ornament, to notrhyming with anything rude."2Market research had played a key role indeveloping both the concept and the name ofthe highly successful Ford Thunderbird, introducedin the fall of 1954. Ford again drew uponmarket research for the names of its new divisionand models.Polling was conducted in New York, Chicago,and two small towns in Michigan, askingpeople not just for ideas, but what came tomind when certain names were suggested. Thepossibilities numbered 2,000. Foote, Cone andBelding, the new division's ad agency, ran acontest with its employees that produced 8,000suggestions, later pared down to 6,000 names.In an effort to get new direction, the head ofFord market research contacted poet MarianneMoore, asking her to come up withnames that would evoke "some visceral feelingof elegance, fleetness, advanced features anddesign." Among her more memorable suggestionswere Resilient Bullet, Utopian Turtletop,Pastelogram, Mongoose Civique, Andante conMoto, and the Varsity Stroke.3 Understandably,none of these was adopted.In a meeting of the Ford Executive Committeein November 1956, exasperation reachedits peak. Chairman Ernest Breech finally madethe momentous decision. "Why don't we justcall it Edsel?" he asked. Edsel Ford was HenryFord I's only son. Edsel's three sons wereWilliam Clay, Benson, and Henry II. All threewere opposed to Breech's suggestion, but thename was adopted.Twelve months of work to come up with justthe right name for the division had gone downthe tubes. It was a name having significanceonly to the Ford family, not the man in thestreet. In fact, during name-association polling,"Edsel" brought forth responses like "Pretzel"and "Weasel." In a terse memo, public relationsdirector for the new division, C. GayleWarnock, typed, "We have just lost 200,000sales."4The names for the various Edsel modelswere chosen from a final master list havingpositive connotations. They were Pacer, Citation,Corsair, Ranger, and for the three stationwagons, Roundup, Villager, and Bermuda.The Recognition FactorThe styling of the Edsel is surely the mostremembered aspect of the car. This, too, had adepressing effect on sales. Why did it end uplooking the way it did?The original Edsel took shape in the FordDesign Center and was kept under tight wraps.To begin with, photographs were taken of thefront-end of every new domestic car. Althoughdiffering to a greater or lesser degree, all hadbasically the same horizontal design theme.The design chief for the Edsel proposed averticaltheme to give it the recognition factorFord felt an entirely new car needed to set itapart. Lacey wrote, "With concealed airscoopsbelow the bumpers, this first version of the 'E'car was original and dramatic-a dreamlike,ethereal creation which struck those who sawit as the very embodiment of the future."5It was never to be. When all the concessionswere made to accommodate cooling, ventilation,production costs, and a host of opinions,the Edsel that emerged in 1957 is sadly the onewe remember today. The front~end waslikened to an Oldsmobile sucking a lemon, ahorse collar-even a toilet seat. The rest of thecar, both inside and out, was really no better orworse than the other offerings in the latefifties. Ford achieved the recognition factor itwas shooting for, but it wasn't positive recognition.To build up interest in the new automobile,public relations director Warnock decided on

338 THE FREEMAN • SEPTEMBER 19891959 Edsel Rangercarefully controlled leaks to the print media.These took place over a two-year period priorto the Edsel's introduction. Both Time andLife made statements to the effect that themystery car was the first totally new car in 20years, and that it had been in the planningstages for 10 years. This was patently false. Farfrom being revolutionary, the Edsel borrowedheavily from both Ford and Mercury components.In fact, during the first year of production,Edsels were built in Ford and Mercury plants.The Ranger and Pacer Edsels (including theRoundup, Villager, and Bermuda station wagons)were built on Ford chassis, and the Corsairand Citation Edsels were built on Mercurychassis. The Edsel division paid Ford and Mercuryfor each Edsel built. Every 61st car downthe Ford or Mercury assembly line was an Edsel,so workers had to reach for parts in separatebins. Mistakes were made and quality onthese hastily assembled cars suffered.'This became painfully apparent whenCOURTESY OF THE FORD MOTOR COMPANYWarnock planned to launch the Edsel. Automotivejournalists were to drive 75 Edsels fromDearborn, Michigan, to their local Edsel dealers.The cars had to perform without mishap, .and couldn't reveal any defects. After all, thecar had been the subject of nearly two years ofhype, and expectations were high. After acomprehensive testing procedure that tooktwo months to complete, 68 cars were handedover to journalists and driven to their respectivedestinations. The other seven had to becannibalized for parts. The average repair billfor each car came to roughly $10,000, whichwas more than twice the price of the top-ofthe-lineEdsel.The Market YawnsFord officially introduced the Edsel inSeptember 1957. "There has never been a carlike the Edsel," the brochure read. Nearlythree million curiosity seekers visited Edselshowrooms in the first week. Dealers pumped

THE RISE AND FALL OF THE EDSEL 339the car for all it was worth, but many peoplewere underwhelmed. Aside from the radicalstyling, consumers couldn't understand whatall the hype had been about.Ford's fledgling automobile couldn't havebeen introduced at a worse time. The fall of1957 was marked by a recession that had a severeimpact on car sales. Compared to the previousyear, Desoto sales plunged 54 percent,Mercury dropped 48 percent, Dodge was off47 percent, Buick 33 percent, Pontiac 28 percent,and so it went. Ford· had considered introducingthe Edsel in June instead of September,but decided against it. Thus, only a littleover 63,000 Edsels were sold in its first year.Some blamed the recession for the Edsel'spoor sales, and this was partly true, but anothernew car, the American Motors Rambler,sold over 100,000 units in 1957 and twice thatin 1958. The Rambler was the right car for themarket-the Edsel was not.Ford made yet another error with the Edsel.The company had introduced the snazzy, midpricedFord Fairlane in 1956, undercutting theEdsel's market segment. The Fairlane sold forless than the Edsel, and many car buyers whowanted a Ford product saw the car as a bettervalue.In an effort to cut its losses, Ford merged theEdsel division with Lincoln-Mercury and, for1959, cut back on available models, added anoptional six-cylinder engine, and altered thecar's styling somewhat. Plans already were inmotion to revamp the Edsel's look for 1960.Just under 45,000 Edsels were sold in 1959.Even as the completely restyled 1960 Edselswere rolling down the assembly line, the decisionhad been made to cease production. Only2,846 units were sold in the car's third and lastyear.Market LessonsThe Edsel serves as a textbook example ofcorporate presumption and disregard for marketrealities. It also demonstrates that advertisingand pre-delivery hype have their limits ininducing consumers to buy a new and unprovencar. In a free market economy, it is thecar-buying public, not the manufacturer, thatdetermines the success or failure of an automobile.A manufacturer shouldn't oversell anew car, or unrealistic expectations will bebuilt up in the minds of consumers. If the newlyintroduced car doesn't live up to expectations,it is practically doomed on the showroomfloor.Ford learned from the Edsel that it couldn'tdictate to consumers what they should buy. Ithasn'f made a similar mistake since. Severalyears after the Edsel's demise, Ford introducedthe Mustang, a brand-new, sporty, affordablecar Americans eagerly embraced. More recently,Ford introduced the Taurus, again a responseto the car buyer's needs and wants,which has proved a tremendous market success.The Edsel, on the other hand, will remainan automotive oddity-the answer to a questionnobody asked.D1. Vance Packard, The Status Seekers (New York: DavidMcKay Company, 1959), pp. 312-316.2. Robert Lacey, Ford: The Men and the Machine (Boston:Little, Brown and Company, 1986), p. 481.3. Len Frank, "The Edsel: It Really Was That Bad," CollectibleAutomobile, July 1984, p. 62.4. Lacey, pp. 483-484.5. Ibid., p. 481.

340Crime and Consequencesby Robert James BidinottoSummary ofParts I and II: The crime explosion ofrecent decades coincided, ironically, with welfare-stateprograms to address alleged "causes" ofcrime and with efforts to supplant inmate punishmentwith "rehabilitation." These reforms were implemented by an "Excuse-Making Industry"ofsocial scientists, whose fallacious deterministic theories held that criminals were helpless "victims"ofsocial, psychological, or biological forces supposedly beyond their control.Treating criminals as victims undermined justice and began to bias the criminal justice system ontheir behalf "Reforms" helpful to criminals included new courtroom rules excluding certain voluntarycriminal confessions and factual evidence; lenient bail and release-on-recognizance practices;and routine sentence-reduction and release policies, such as plea bargaining, probation, parole,and insanity defenses. These measures not only have failed to reduce criminality; they havediminished public safety. So have "progressive" correctional programs, to which we now turn ourattention.partm: "...ToInsure Domestic11ranq uiity...e "What to do with criminals? Those relativelyfew criminals netted by thecriminal justice system must bedealt with somehow. Over the centuries, societyhas employed countless methods to accomplisha variety of purposes: punishment andretribution, deterrence, incapacitation, moraleducation, and rehabilitation. 1And yet crime continues to increase. Hereagain, Aristotle's point about causality applies:the nature of an entity determines what it willdo. The fundamental reason for the intractablecrime problem is that previous crime-controlefforts have failed to consider the nature ofthecriminal himself. To reform the criminal justiceand correctional systems-and, we hope, theCopyright 1989 by Robert James Bidinotto. Mr.Bidinotto, who has written several articles for The Freeman,is a full-time writer and lecturer specializing inpolitical and cultural topics.criminal-we must first understand somethingabout the criminal mind."Inside the Criminal Mind"Numerous empirical studies demonstratethat criminals simply don't think like non-criminals.A representative study in Colorado foundthat, even at an early age, future delinquentshad "less regard for the rights and feelings oftheir peers; less awareness of the need to acceptresponsibility for their obligations . . .and poorer attitudes toward authority, includingfailure to understand the need for rulesand regulations in any well-ordered socialgroup. . . . They were significantly less likelythan their nondelinquent [peers] to beviewed as dependable, friendly, pleasant, considerate,and fair." Many other studies haveechoed these findings. 2 Stanton Samenow describesthe criminal mind thusly: "Despite amultitude of differences in their backgroundsand crime patterns, criminals are alike in oneway: how they think . . . [all] regard the worldas a chessboard over which they have totalcontrol, and they perceive people as pawns to

341be pushed around at will. Trust, love, loyalty,and teamwork are incompatible with their wayof life. They scorn and exploit most peoplewho are kind, trusting, hardworking, and honest.Toward a few they are sentimental butrarely considerate. Some of their most altruisticacts have sinister motives ...."Such traits are also typical of what is calledthe "psychopath" or "sociopath," as Samenowmakes clear. "Although diagnosticians maymake distinctions between the psychopath andcriminal, for all ostensible purposes, one differshardly at all from the other." Among thecommon characteristics of the criminal andpsychopath: a short-range, self-indulgent outlookon life; a lack of any sense of self-responsibility;the desire to manipulate and dominateothers through chronic deception and force;and the ability to shut off his conscience atwill. 3At one time, the criminal was even describedas a "moral imbecile"-one whoseshortcomings were primarily ethical. 4 Summarizingnumerous studies of criminal psychology,Wilson and Herrnstein note that "one ofour recurrent themes in these test data is thelack of internalized constraints"-e. g., whatused to be called "conscience."5The criminal welcomes anything that wouldassist him in his predatory behavior. And here,the Excuse-Making Industry is invaluable tohim. Its overall ethical thrust has been to excusemalicious behavior and thus deaden thepangs of conscience. By concocting theories,policies, and programs which excuse irresponsibility,Excuse-Makers have fostered a generalsocial climate of moral relativism-thus underminingany guilt feelings which might act as innerconstraints on criminal behavior.If a salient trait of psychopathic criminalityis a deadened conscience, then the suddentakeoff of crime during the heyday of moralrelativism-the 1960s-makes even moresense. There is even more specific evidence ofthis: the simultaneous geometric increase in thenumber of so-called "serial killers" on theprowl.The serial killer is anihilistic repeat murderer,who often commits ghastly crimes out ofpure hatred for society. As FBI experts describehim, he "exhibits complete indifferenceto the interests and welfare of society and displaysan irresponsible and self-centered attitude.While disliking people in general, hedoes not avoid them. Instead, he is capable ofdisplaying an amiable facade for as long as ittakes to manipulate people toward his ownpersonal goal. He is a methodical and cunningindividual ... fully cognizant of the criminalityof his act and its impact on society, and it is forthis reason that he commits the crime." [Emphasisadded.]6Ominously, as many of these multiple murderersemerged during the 1960s as during thefour preceding decades combined. During the1970s, their number nearly tripled over that ofthe 1960s; and that figure, in turn, has beentripling again during the 1980s. 7 If a deadenedconscience is a salient feature of the criminal, itis a defining trait of the serial killer. The abruptgeometric increase in this most depraved formof antisocial behavior is inexplicable-unlesswe consider the abrupt erosion of the morallandscape, and moral conscience, since the1960s, courtesy of the Excuse-Making Industry.The failure of the Excuse-Makers to understandthe criminal mind has crippled their abilityto design effective remedies for crime.We've already seen the disastrous consequencesof their influence upon the criminaljustice system. Now consider, more briefly,their corruption of the so-called "correctionalsystem."The Correctional SystemThe Excuse-Makers' revolution in penologywas consolidated during the 1960s and 1970s."The day-if there ever was one-whenvengeance could have any moral justificationpassed centuries ago," declared former AttorneyGeneral Ramsey Clark in his influential1970 book, Crime In America. "Punishment asan end in itself is itself a crime in our times ....The use of prisons to punish only causes crime.... Rehabilitation must be the goal of moderncorrections. Every other consideration shouldbe subordinated to it."8And it was. Today's "correctional facilities"are designed for the outwardly mobile. Closerrelationships between prison staff and inmatesare encouraged. Discipline has been relaxed,

342 THE FREEMAN • SEPTEMBER 1989and punishment largely banished. Inmates areto be enticed from their criminal waysthroughcounseling and group therapy sessions,vocational and educational opportunities,input into prison policy-making, a host ofprograms for "self-expression" and entertainment,and participation in various release programs.This atmosphere is primarily a result ofindeterminate sentencing provisions, underwhich an inmate may be released on parolewhenever authorities feel he has reformed.For example, under Massachusetts laws, a"state prison" sentence means that only onethirdof the inmate's minimum sentence mustbe served; and a six to twelve-year "reformatory"sentence means he'll be parole-eligible inone year-or, if he's a repeat offender, in 18months. 9 Likewise, in Oregon, a felon sentencedto five years for a major crime may doas little as one month; for a lesser felony, he'lldo one day. (Outraged Oregonians recentlypassed a "truth-in-sentencing" referendum toend such practices.)10The most egregious instances of early releaseare in the case of "life" sentences. Contraryto public impressions, a sentence of"life"-or even "life without possibility of parole"-almostnever means that. In states likeMassachusetts and Nebraska, "life without parole"sentences "routinely are commuted toparole at some point."ll In Wyoming, "life"means 20-25 years before parole eligibility; butwith "good time" (Le., good behavior reductions),a "lifer" might spend half that time inprison. "Life" actually means about twelveyears before parole eligibility in Virginia12 andKentucky; ten years in Mississippi and WestVirginia; and seven in Georgia. 13The likelihood of speedy release on parolehas shaped the entire prison environment. Inessence, the "plea bargaining" process, whichbegins in the courtroom, extends into theprison itself.The inmate generally behaves himself, participatesin rehabilitation programs, and perhapsproclaims a sudden religious conversion.If single, he may place "lonely hearts" classifiedads in newspapers, hoping to spark an outsideromance that (thanks to furloughs) willlead to marriage and children-and hence, evidenceof a "stable family" of dependents who"need" his presence. This all looks good to theparole board.For their part, prison authorities make deals,extend privileges, tend to inmate grievances,and are rewarded with a relatively quiet prisonpopulation. Pragmatic considerations-costs,overcrowding, and the desire to curtail violence-havereduced them to tacit co-conspiratorswith inmates in an awkward charade: theinmates pretend to reform themselves, whiletheir keepers pretend to believe them.In short, the carrots of outside release programs,special privileges, and ultimately, earlyparole, have replaced the disciplinary sticks ofpunishment in keeping the prison system r~nningsmoothly. The only casualties are truthand justice.From Rehabilitation to"Reintegration"But while prisons were reshaping themselvesaccording to the new rehabilitation dogma, adistressing thing was happening: rehabilitationefforts were failing, universally and miserably.l4Yet the collapse of rehabilitation didn'tprompt the Excuse-Making Industry to questionits deterministic premises. Instead, itsmembers rooted about desperately for still anotherexcuse to continue the rehabilitation approach."While numerous theories have been offeredto explain the failure of rehabilitation,"admitted the Massachusetts Department ofCorrection (DOC) in a 1988 report, "manyhave commonly traced this failure to the verynature of the incarceration process itself, aswell as counter-productive forces operatingwithin the prison community or, in other terms,'prisonization.'"And what is "prisonization"? "According tothe prisonization hypothesis, prison incarcerationproduces damage by interrupting and interferingwith t1)e offender's life cycle-school,work, heterosexual relationships, finances, etc.-at a time when the damage is most .harmful,between the ages of 18 and 30 .... Offendershave traditionally been taken out of our societyand placed in another social system, theprison, that in no way, constructively resembles

CRIME AND CONSEQUENCES 343the society to which they will eventually return."The DOC concluded that"... rehabilitationper se is not the problem, but rather those'prisonization' forces which greatly overshadowand diminish rehabilitation efforts."15 Theproblem, in short, is that we're trying to rehabilitateinmates in prison.The Excuse-Makers' ingenious "solution"was that inmates should still be rehabilitated-notbehind prison walls, but out in thecommunity. Hence, the "reintegration model,"which "assumes that offenders can better learnto obey the law if they are involved throughpersonal and social ties with the normal institutionsof the community-family, church, andthe workplace."16 Observe that the DOC reportrefers to "prisonization" as a mere "hypothesis,"and makes clear that the reintegrationmodel only "assumes" the benefits ofwhat is often called community-based rehabilitation.This is appropriate, for there is no evidenceto support them. The Excuse-Makers'deterministic premises prevent them from everasking how it is that a "normal" outside environmentmanaged to "shape" the inmate into acriminal in the first place-or how returninghim to it will keep him out of future trouble. Infact, the criminal, by choice, was never part ofnormal society."It is misleading to claim that the criminalwants what the responsible person wants, thathe values the same things that a responsibleperson values," Samenow argues. Rehabilitation"cannot possibly be effective because it isbased on a total misconception. To rehabilitateis to restore to a former constructive capacityor condition. There is nothing to which to rehabilitatea criminal. There is no earlier conditionof being responsible to which to restorehim .... [Likewise] the notion of 'reintegratingthe criminal into the community.' It is absurdto speak of reintegrating him when he was neverintegrated in the first place."17The criminal lives within a criminal subculture,where "normal" people and institutionsare to be used, victimized, and manipulated.Typically, his family is neglected or exploited;his jobs (if any) serve as mere launch pads forwider criminal activity; and his involvementswith respectable institutions are a cover, mask-ing his felonious activities. Without his changinghis thinking-something the criminal mustwant to do himself-his rehabilitation andreintegration prospects are nil, Samenow concludes.18"Prisonization" is only the latest rationalizationto mask the Excuse-Makers' visceral hostilityto punishment and prisons as such. Asearly as 1951, in his widely acclaimed BreakDown the Walls, John Barlow Martin wrotethat "Prisons should be abolished."19 Writerssuch as Ramsey Clark, John G. Wilson, JessicaMitford, Donald Powell Wilson, and KarlMenninger (among many others) sometimeswent as far, or nearly so. Their views won aquasi-official status. The National Council onCrime and Delinquency recommended that nonew prisons be built until all other optionswere examined.2o Likewise, the AmericanLaw Institute's influential Model Penal Coderecommended that courts not impose a prisonsentence except as a last resort for public safety.21The idea of imprisonment was even subvertedfrom within. In a revealing instance ofthe fox guarding the chicken coop, John O.Boone-who pioneered "community-basedcorrections" as Commissioner of Correctionsboth in Washington, D. C., and in Massachusettsin the early 1970s -later foundedthe National Campaign Against Prisons. 22But the Excuse-Making Industry would takewhat it could get, and its last-gasp efforts tosalvage rehabilitation paid off. In 1965, theFederal Prisoner Rehabilitation Act gave Federalsanction and support to nationwide "community-basedcorrections" experiments, suchas work-release programs, home furloughs,halfway houses, and the like. This seed money,one proponent wrote, "began a new era, withcommunity-based corrections as a major componentin the field of criminal justice."23 Likethe phoenix, rehabilitation had risen from theashes in new garb. But has "community-basedcorrections" worked any better than traditionalrehabilitation?Prison FurloughsA "prison furlough" is the temporary releaseof an inmate back into the community.Furloughs, usually under armed guard, used

344 THE FREEMAN • SEPTEMBER 1989to be granted only as rare exceptions, typicallyto let an inmate attend a family funeral or getemergency medical care. Yet thanks to the Excuse-MakingIndustry, unescorted prisonleaves, in the guise of "community-based corrections,"are now a routine part of prison lifein most states.Given that only a tiny percentage of criminalsare ever imprisoned, it makes no sense toallow them, once captured, the chance to escapeor commit further crimes. Yet everyweek, across the nation, thousands of society'smost vicious robbers, rapists, and killers are allowedto participate in what is supposed to bean "honor system." In 1987 alone, some200,000 furloughs-ranging in duration fromfour hours to 210 days (in Oregon)-weregranted to more than 53,000 prison inmates. 24In many states, furloughs are granted, at leastoccasionally, even to murderers serving nominal"life" sentences, usually when they arenearing parole or after a sentence commutation.Until aroused citizens forced a change inits laws last year, Massachusetts routinely furloughedfirst-degree murderers supposedly ineligiblefor parole.The Massachusetts example shows just howfar the Excuse-Making Industry is willing togo. As a sympathetic writer put it, "Under theMassachusetts concept of repair rather than revenge,no person is believed beyond redemption,not even a rapist or a killer."25 That's why,despite "the fact that 85 percent of the DOCinmate population has a present or past violentcriminal history,"26 28 percent of that papulationhad participated in the furlough programas of January 1987. Since the program's inceptionin 1972, 121,713 furloughs had been grantedto 10,835 Massachusetts inmates; 5,554 ofthose unescorted leaves were taken by firstdegreemurderers, supposedly serving "lifewithout parole" sentences.27The results, predictably, have includedchronic escapes, and grisly crimes committedby furloughed inmates-up to and includingmultiple murders. 28If rehabilitation is one excuse for grantingfurloughs, there are pragmatic ones, too. MassachusettsCorrection Commissioner MichaelFair testified that furloughs for murdererswere "a management tool for [inmate] behavior.... [I]t would be more dangerous to run asystem without a furlough program."29 Why?"Once we have removed all hope from someone,"he explained, "then we have the difficultyof dealing with someone who has nothing tolose. We would have a very dangerous populationin an already dangerous system."30 But ifarmed guards can't control "very dangerous"killers· inside prison walls, how are unsuspecting'unarmed citizens supposed to deal withthem on the streets?Such release programs, and the tragediesthey foster, are inexcusable, and can be defendedonly by factual misrepresentations.Similar techniques are commonly used to defendall release programs, so a brief survey isappropriate.For instance, Massachusetts officials proclaimeda furlough "escape rate" of only 0.5percent. This impressive-sounding number wascalculated by dividing the 428 escapees by the121,713 furloughs granted from 1972 through1987. However, those furloughs were grantedrepeatedly to only 10,835 inmates. 31 Dividing428 by that number reveals an actual escaperate of one out of every 25 furlough participants-hardlya record to boast about.The tale of Peter J. Limone shows anotherway in which "escape statistics" mislead.Limone is a gangland figure sentenced to "lifewithout parole" for a contract murder.Nonetheless, in 1987 he was in a Boston prereleasecenter, preparing for "reintegration,"when authorities found that he'd been usingthe center-and some 160 furloughs-to managea local loan-shark operation. Limone's furloughs,of course, still count as 100 percent successfulon DOC records-simply because healways returned.32Another way of claiming the "success" offurlough and other release programs is by manipulatingrecidivism statistics. A "recidivismrate" is the percentage of inmates who, oncereleased, return to crime. Depending on howone measures "return to crime," however, suchnumbers can show glowing success wherethere is none.Does one measure "return to crime" over asix-month period, one year, three years, or fiveyears? The shorter the time span, the smallerthe recidivism rate. Does one simply count re-

CRIME AND CONSEQUENCES 345arrests? or re-convictions and re-commitmentsto a state prison? The latter numbers also artificiallyreduce the recidivism rate.Another trick is to use selected samples.One report claimed that 1984 parolees whohad not had the "benefit" of a furlough programhad a 31 percent recidivism rate. Thiswas much higher than the 12 percent reportedby parolees who had furloughs. The conclusion:furloughs reduce recidivism. 33 But unmentionedwas the fact that inmates are prescreenedfor admission into release programs:those with the worst prison disciplinary recordsare not eligible. This biases the sampling procedureat the outset, by comparing bad appleswith the worst apples. Program participation itself,therefore, has nothing to do with loweringrecidivism.Statistics aside, the most compelling argumentagainst inmate furlough programs is theirfundamental injustice, both to past andprospective crime victims. For victims andtheir families, the emotional strain of knowingthat the perpetrator is allowed to walk thestreets freely becomes unbearable. They oftendread the day-or night-of the criminal's return,or of a chance encounter on a street or ina restaurant.It is inexcusably cruel that taxpaying crimevictims should have to bear these additionalburdens, imposed on them by their paid protectors.It's even more monstrous that, in somestates, they aren't even informed when theirtormentor is turned loose.Work ReleaseEverything said about furloughs applies to"work release"-the (supposedly) supervisedrelease of an inmate to work at a job in thecommunity.From their earliest days, work release programs-likeall other outside releaseschemes-have been exploited by criminalsbent on remaining criminal. Because of theirlow-security status, work-release programs areresponsible for a huge share of all prison escapes.In Massachusetts, for example, 26 percentof all prison escapes were from work release.34Work programs-inside or outside thewalls~on't reduce inmate recidivism. For instance,about 50 percent of work-programgraduates in New York are re-arrested withinsix months-roughly the same percentage asthose who simply come out ofjai1. 35 Other programssurveyed have shown similarly dismalresults. 36 And those few studies showing lowerrecidivism for work release inmates invariablysuffer from the same "selection bias" samplingerrors cited earlier for furlough studies.In general, vocational training of inmates isbased on the idea that unemployment causes alife of crime. Train the inmate in a job, the reasoninggoes, and help him find employment onthe outside, and he's less likely to "have tosteal" for a living.But a fallacy underlies the assumption. Doesunemployment lead to criminality-or viceversa?"Criminals are at heart antiwork,"Samenow argues. "For many criminals, workmeans to sell your soul, to be a slave." Whenemployed, many criminals use their jobs as furtheropportunities for crime. Indeed, a RandCorporation survey of 624 California prison inmatesfound that 27 percent had been regularlyemployed at the time they were engaged incrime. Being employed and being a criminal,then, are not mutually exclusive.37To assume that a job will reform a criminalis to assume an economic cause for criminality-justanother symptom of the "sociologicalexcuse" for crime.Other Community-BasedCorrection ProgramsThere are many other outside release programsto ease the transition of the inmate backinto society: for instance, pre-release centers,halfway houses, and drug treatment centers.All suffer from the same fundamental flaws.There may be some argument for a gradualintroduction of a long-term inmate back intothe community at the end of his sentence,when there's little incentive for him to escapeor commit crimes. But a lengthy stay in a prereleaseinstitution, long before his release date,is simply inviting trouble.Because its correctional system sports awide variety of such "alternative" and "diversionary"institutions, Massachusetts again pro-

346 THE FREEMAN • SEPTEMBER 1989vides interesting evidence of the "success" ofsuch programs. During 1985, 71 percent of the284 escapes occurring in all Department. ofCorrection facilities were from pre-release centers.38Some might find that acceptable, if therewere any evidence that participation in pre-releasecenters lowers recidivism. But there isn't.It's another example of the Excuse-Maker'swishes being father to his thoughts and plans.The earlier-cited example of the mobster usinga pre-release facility as a headquarters forloan-sharking illustrates the rehabilitativepowers of such institutions.There are countless hybrid programs, combiningwork release with community service,or involving prisoners in the rehabilitation ofmental patients. These have been plagued byinmate escapes, abuse of patients and staff, accessto drugs and contraband, and the like.39But it's pointless to belabor every variationon the theme of "community-based corrections."Such programs can't work, because"reintegration" is a flawed concept. Reintegrationprograms are designed by normal people,for normal people. They all assume that criminalsthink and feel like normal people. Butthey don't.The FaUure ofRehabUitation andReintegrationPractical ConsiderationsThe argument is often made that such experiments,even if flawed, are (a) no less successfulthan imprisonment, and (b) far less costlyto society. Both arguments are false.(a). After thorough research, Wilson andHerrnstein concluded: "However one measurescrime, it is less common in places wheresanctions are more likely." For instance, onestudy of boys convicted of serious crimesfound that those sent to reformatories showeda greater reduction in their re-arrest rates thanthose put into community-based programs likefoster homes, halfway houses, and wildernesscamps. In fact, "the more restrictive the supervisionin these more benign programs, thegreater the reduction in recidivism."4O(b). The National Institute of Justice (NIJ)released a 1987 study comparing the socialcosts of prisons to having prisoners out on parole,probation, or in community-release programs.It found that building more prisons andfilling them with criminals cost far less thanwhat society pays for having criminals on theloose.The NIJ survey of 2,190 inmates in threestates found that each committed an averageof 187 crimes per year. These cost an estimated$430,000 per criminal in law enforcement expenditures,victim and insurance losses, andprivate security measures. This compares withabout $25,000 a year to build a prison cell andkeep a prisoner in it. Putting 1,000 more offendersbehind bars during the 1980s wouldhave cost an additional $25 million a year-butwould have averted an average of 187,000crimes each year, costing society about $430million. 41On practical grounds, incarcerationworks-serving the goals of retribution, deterrence,incapacitation, and punishment.Moral ConsiderationsBut the moral issue is of overriding importance;and here, the "reintegration model" isutterly indefensible. At the core of their defensesof parole, furloughs, and all other releaseprograms, Excuse-Makers believe thatoccasional innocent victims are "acceptablelosses.""The [low escape rate] numbers cannot excusethe harm suffered by victims of crimecommitted by furloughed inmates," concededone Excuse-Maker. "However"-he quicklyadded, excusing the inexcusable-"public officialsmaking decisions regarding the furloughprogram ... must weigh the risk of this harmalong with the benefit to the larger community."42This cost-benefit approach-"to balancepublic protection with the management of ourprisons and rehabilitation of inmates"43-isethically appalling. It elevates bureaucrats andpoliticians to a godlike status, letting them decidewho lives and dies. Worse, it proposes sac-

CRIME AND CONSEQUENCES 347rificing innocent human lives-merely to appeasepotentially rowdy inmates, or to letkillers and rapists have "another chance."One magazine's reporters showed how victimsare' typically reduced to faceless statisticsin such calculations. Note the use of the word"only": "Of 457 murderers who were freed onfull parole [in Canada] between 1975 and 1986,only two individuals have been convicted of asecond homicide. Indeed, convicts on early releasecommitted only 130 of the 7,838 Canadianhomicides that occurred during that sameII-year period-less than two percent."44Hugh Haley, executive director of Ontario'sJohn Howard Society-which advocates lenientparole for murderers-summed up theExcuse-Makers' ethical premise even morebluntly. "Are we going to keep hundreds ofpeople in jail," he demanded, "just to save twoor three?"45Replied one of Willie Horton's victims, CliffBarnes, in a similar context: "So we're expendable.Is that what they're saying?"46That, indeed, is what the Excuse-Making Industryis saying. That, in fact, is what the reintegrationpremise requires.Reforming the CriminalJustice SystemIf justice is truly to become the central focusof the criminal justice system, then the followingreforms-some controversial-must be seriouslyconsidered.Troth in the CourtroomNo facts should ever be banished from criminalproceedings. All exclusionary rules concerningevidence and confessions should beeliminated. If police obtain evidence by improperor illegal methods, that should be thesubject of separate disciplinary or even criminalproceedings against the offending officers.But evidence is evidence.Additionally, it's usually absurd to excludean individual's past record from court deliberations.Career criminals often operate in uniquepatterns, which can serve as virtual signaturesat certain crime scenes. Yet past records are oftenexcluded as "prejudicial." Admitting thesein evidence, to show a pattern consistent withthe charged crime, only makes sense. Also,consideration of an individual's past recordshould be a routine element in all sentencing.Juvenile offense records are often sealed, allegedlyto prevent "early mistakes" from "pursuingthe child into adulthood." Today, manyteenagers are engaging, not in mistakes, but inserious, sadistic crimes. Sealing or expungingtheir records when they reach adulthood is anotherperversion of the fact-finding process.They should be admissible into adult sentencingproceedings, as evidence of career criminality.Bail, Release on Recognizance,and ProbationCareer criminals-and anyone with a historyof escapes or failures to show in court-shouldnever get bail consideration.As for probation, every crime, no matterhow petty, should merit some level of punishment,if only to show that crime has inescapableconsequences. Probationary "sentences"teach offenders-especially impressionableyoung offenders-that "the law" is a 'paper tiger, that they can get away with crime.A young offender's first brush with the lawshouldn't be brutal; but it should definitely besomething he'd not wish to experience again.Plea BargainingPlea bargaining should be abolished. Neithernecessary nor ethical, it corrupts the entirecourt process and everyone involved. Thecooperation of some criminals should not bebought with the bribe of a reduced sentence:the prize never equals the price. Going easy onlower-level crooks in order to buy their testimonyagainst their bosses merely shuffles theunderworld hierarchy: the boss is replaced bythe lower-level crook who bought his freedom,and crime marches on.Even if tough, determinate sentencing lawsare passed, they will be undermined and bypassedif plea bargaining is permitted: chargeswill be reduced to evade the harsher penalties.Ending plea bargaining is the key to makingtougher sentences stick.

348 THE FREEMAN • SEPTEMBER 1989Psychiatry in the CourtroomThe use of psychiatrists and psychologists as"expert" witnesses should be banned. Soshould the "insanity" and the "diminished capacity"defenses. Criminal intent and the mentalstate of a defendant should be determinedby the same kinds of evidence and testimonyas are used in all other criminal proceedings.Victims in the Courtroom"Victims are 'legal nonentities' in the justicesystem," writes William Tucker. "The legal fictionis that 'the state' is the victim of crime.The victim has no more standing in a criminaltrial than any other witness has-and a gooddeal less than the accused."47 The defendant,of course, has official standing and defenserepresentation-paid for, in many cases, by thetaxes ofhis victim.The individual is the crime victim, not thestate. For that reason, well-meaning "victimcompensation" laws should be opposed: it's unjustthat every taxpayer should have to compensatea crime victim for a criminal's acts. Butthere are many things that should be done forthe victim.Prosecutors should be required to keep thevictim informed of the status of his case; andhe should be allowed to attend any proceedings.Victim impact statements should be allowedprior to sentencing, at least wheneverthe defendant is allowed to introduce "mitigatingcircumstances." Until release programs areabolished, victims should have the chance totestify prior to any release decisions, beforethe appropriate agency.Restitution from the criminal to the victim isgood in theory, but tough to enforce. However,it should always be an option, to be added toany sentence.SentencingFirst, "indeterminate sentencing"-and theparole process which is its offspring-mustend. All convicted felons should serve fixed,determinate sentences for their crimes. Earlyrelease being out of the question, there's noreason for parole boards (more savings for taxpayers).This will reduce arbitrariness and theunfairness of inmates serving different sentencesfor the same crime.Pre-sentencing defense testimony concerningmitigating circumstances should be admissibleonly in the case of a guilty plea. If a defendantpleads innocent, but is later found guilty,he shouldn't be allowed to abruptly concedehis guilt after the verdict, then plead mitigatingcircumstances before sentencing-not afterputting everyone through the trouble and expenseof a trial. In all cases, mitigating testimonyshould be balanced by testimony fromcrime victims. These statements should begauged on some fixed point system for alteringthe usual sentence-but only within a very limitedrange.Criminal penalties should increase in severityupon subsequent convictions of otherfelonies. Borrowing terminology from the Excuse-Makers,I propose "progressive sentencing":the term of imprisonment for repeat offendersshould increase in multiples-say, twoyears for a first burglary conviction; four for asecond; eight for a third; and so on. I also proposethat this "progressive" feature be transferableamong different sorts of crimes, thuspreventing criminals from simply varyingtheir crimes in hope of avoiding serious punishment.Capital punishment never should be appliedin cases where a murder conviction dependedlargely on circumstantial evidence. But in casesof pre-meditated murder in which there is noquestion of guilt, it should be the standard sentence.There also should be a time limit on theappeals process.The Overcrowding ProblemOur courts and prisons are badly clogged, inlarge part because of the crime wave fosteredby the Excuse-Making Industry, whose only responseis to set more criminals free.The first, obvious solution-as the NationalInstitute of Justice study makes clear-is tobuild more prisons. Citizens should realize thatthey're far safer living next door to a prisonthan having the same criminals free on probation,parole, or release programs because of"overcrowding." And it's far cheaper.

CRIME AND CONSEQUENCES 349But much of the overcrowding problem isbecause of laws that shouldn't exist.Today, we have a terrible drug problem, andan enormous drug-related crime problem. Perhaps25 percent of prison space 48 is occupiedby those who've committed drug-related offenses.Many arrested for burglary, robbery,and larceny are drug addicts, stealing to supportexpensive habits.But these habits are expensive precisely becauseof the illegality of the drugs. There areenormous profits in supplying illegal commoditiesat higher-than-market prices-somethingcriminals are always willing to risk.Legalizing drugs and other "victimlesscrimes," many fear, would lower their price, increasetheir availability, and thus make themeven more attractive, particularly to youngsters.But would it? Currently, untold thousandsof youngsters see drug-dealing as theirbest hope for glamor and wealth. This enticesthem into the subterranean criminal world ofdrug-peddling and-ironically-drug use. Takingthe profits out of drug-dealing, via legalization,would strip away the incentives of wealthand any illusions of glamor. It would end thepresent widespread seduction of youngstersinto the drug world as suppliers.To legalize drugs is not to endorse them, andit doesn't mean we approve them. We simplygo our own ways, allowing foolish, irresponsiblepeople to be their own victims-becausewe recognize that laws can't turn fools intosages. More important, we rightly fear grantingto government the power to become an armedbusybody, intruding into our private lives andmost personal decisions. 49At root, our drug problem is a self-esteemproblem. Happy, fulfilled, self-respecting peopledon't become drug addicts. But passing lawscan't give people self-esteem. The morally confusedor emotionally empty will tum to someother palliative-alcohol, cults, or promiscuity.Legalizing drugs won't cure the drug problem.But it will go a long way toward curtailingdrug-related crime-and the huge burdens it isimposing on our criminal justice system and onourselves.

350 THE FREEMAN·· SEPTEMBER 1989Correcting theCorrectional SystemPrisons"Corrections" don't correct. "Correctionalfacilities" should drop that pretense, and renamethemselves "prisons." With the end ofindeterminate sentencing and release programs,prisons can focus on their major goal:public safety. The prison exists, first and foremost,to incapacitate the offender from committingfurther crimes. It need not be brutal orinhumane to accomplish that; but order shouldbe maintained by increasing penalties, notprivileges. Prison authorities shouldn't negotiatewith criminals for responsibility and calm:they should enforce it.Opportunities should be afforded to thoseinmates who care to improve themselves: jobtraining, high-school equivalency courses, etc.But that doesn't mean world-class law libraries,gymnasiums, cuisine, and the like. Inmateshave no right to expect better living conditionsthan do military men, who somehowmanage to survive chow lines, forced marchesin heavy gear, double bunks, and collective livingarrangements. Is it too much to require aconvicted felon to share a cell with another inmate,or to keep it clean and neat? Is it toomuch to demand that he work at a prison job,helping offset the costs he's imposed on taxpayers?RehabilitationA lot of money can be saved, and mischiefaverted, by sending the legions of prison psychiatrists,counselors, and social workers packing.An alternative is available. For many years,clinical psychologist Stanton Samenow hasbeen working to "habilitate" hardened criminals.His methods, which don't require advancedpsychological training, are based onholding the criminal utterly accountable for histhinking and actions, and teaching him tochange irresponsible mental and behavioralhabits. It's a long process, requiring the criminal'ssincere desire to change and willingnessto work hard. Because of that, it's far from universallysuccessful, though those who stick itout do improve. 50 But this approach couldn'tbe more different from the group therapiesand psychological fads of the Excuse-Makers,whose premise is that the criminal is not responsible.ReintegrationExcuse-Makers argue that prisons should besaved only for the hard-core offender. That, infact, is exactly who the typical prisoner is. Releasinghim back into society is a dereliction ofresponsibility that is itself almost criminal.Community-based corrections is just rehabilitationon the streets-the same failed approaches,but with the added opportunity ofcountless innocent victims. Furloughs, work release,education release, halfway houses, prereleasecenters-all should be ended ongrounds of simple justice and public safety. Ifthe primary purpose of prison is to incapacitateoffenders, there's no reason for "communityreintegration" programs.Crime and ConsequencesThe United States was founded on thepremise that each individual is an end in himself,and that he is morally and legally self-responsible.Self-responsibility means being accountablefor the full consequences of one'sactions, for good or ill. Thus the rewards andprofits of life, in justice, should go to those responsiblefor making the world better; thepenalties and losses should accrue to thosewho make it worse. Perhaps the best model ofthis ideais the free market economic system itself,where rewards and penalties are distributedwith impartial fairness, based on one standard:the individual's capacity to generatevaluable goods and services.Under the symbol of Justitia, our criminaljustice system began with the purpose of impartiallymeting out justice. Each person washeld morally self-responsible, hence accountablefor the consequences of his actions. Butdeterminism and the Excuse-Making Industryhave undermined all that.Today, the Excuse-Makers look at the crime

CRIME AND CONSEQUENCES 351wave they have created, and simply shrug. TheAmerican Bar Association recently spoke forthem all, saying, " ... the public mistakenlylooks to the criminal justice system to eliminatethe crime problem .... The public's expectationthat the system should control crimecannot be reconciled with the sense of criminaljustice professionals . . . that the system itselfhas a limited role in crime control and crimeprevention."51That's simply more excuse-making. Citizenshave a right to expect that the system is morethan a procedural game, to provide employmentand high incomes for legal professionals.They have a right to expect not "due process"as an end in itself-which actually becomesundue process. They have a right to expectsubstantive justice.Crime can never be eliminated, not if wehave the power to choose evil. But it can becontrolled, if criminals are regarded as volitionalentities, fully responsible for the consequencesof their actions. The answer is to reformthe entire criminal justice system, from itsbasic premises to its routine procedures, with asingle goal in mind: to reassert the responsibilityof the individual.D1. For good discussions of these purposes see: Robert D.Pursley, Introduction to Criminal Justice, second edition (NewYork: MacMillan, 1980), pp. 352-356; James Q. Wilson andRichard J. Herrnstein, Crime and Human Nature (New York:Simon & Schuster, 1985), chapter 19; and "What are PrisonsFor?" Time, Sept. 13, 1982, pp. 38-41.2. Wilson and Hermstein. See chapter 7 for results of numerousstudies.3. Stanton E. Samenow, Inside the Criminal Mind (NewYork: Times Books, 1984), generally, and on pp. 20, 181.4. Wilson and Hermstein, p. 198; David Kelley, "Stalking theCriminal Mind," Harper's, August 1985, pp. 57-59.5. Wilson and Hermstein, p. 196.6. Robert R. Hazelwood and John E. Douglas, "The LustMurderer," FBI Law Enforcement Bulletin, April 1980.7. Elliott Leyton, Hunting Humans (New York: Pocket Bookedition, 1988), pp. 311-13.8. Ramsey Clark, Crime in America (New York: Simon &Schuster, 1970), chapter 13.9. Massachusetts Parole Board, A Guide to Parole in Massachusetts,May 1987, pp. 13-16.10. Representative Denny Smith, address before the WestSalem, Oregon, Rotary, Jan. 18, 1988.11. "Can This Be Life?", Corrections Compendium, Feb.1987, p. 8. All data in this paragraph were current as of 1987-88.12. Unpublished survey of states by author, summer 1988.13. Data supplied by Contact Center, Inc., Lincoln, Nebraska;current as of 1987.14. The failure of psychological rehabilitation was detailed inPart I of this series. On general rehabilitation failures, see also:Wilson and Hermstein, pp. 377-78, 382-84; Samenow, chapter12, esp. p. 193 on a 1974 National Academy of Sciences study;Time, Sept. 13, 1982, pp. 38-41, and Feb. 2, 1987, p. 61; and Insight,Feb. 13, 1989, pp. 8-19.15. Massachusetts Dept. of Correction, Community ReintegrationProgram, March 1988, pp. 1-2.16. Ibid.17. Samenow, pp. 21,203-4.18. See Samenow generally. Also see Samenow, Before It'sToo Late (New York: Times Books, 1989); and Samenow's profile-interviewin People, May 14, 1984, pp. 79-81.19. Quoted in Norval Morris and Gordon Hawkins, TheHonest Politician's Guide to Crime Control (Chicago: Universityof Chicago Press, 1970), p. 115.20. Vernon B. Fox, Community-Based Corrections (EnglewoodCliffs, NJ, 1977), pp. 2, 270.21. Morris and Hawkins, pp. 123, 141-42.22. Fox, p. 272.23. Ibid., pp. xiii-xiv.24. 1988 survey conducted by Contact Center, Inc.; releasedSept. 30, 1988.25. Lester Velie, "The State That Freed Its Young from Jail,"Reader's Digest, May 1984, p. 215.26. Community Reintegration Program, p.ll.27. Massachusetts Dept. of Correction, Fact Sheet on Furloughs,1988.28. For examples see Robert James Bidinotto, "GettingAway With Murder," Reader's Digest, July 1988; Boston Herald,Dec. 20, 1987; and Lawrence, MA, Eagle- Tribune, Dec. 24,1987 and Jan. 10, 1988. For examples from other states, see AnnRule, "A Rapist's Revenge," Redbook, April 1988; and RalphAdam Fine, Escape of the Guilty (New York: Dodd, Mead &Co., 1986), p. 189.29. Hearings, "Massachusetts Furlough System," MassachusettsHouse Post-Audit Committee, Oct. 21, 1987; uncorrectedtranscripts, pp. 78-9.30. Lawrence Eagle-Tribune, June 11, 1988.31. Fact Sheet on Furloughs.32.Boston Herald, Aug. 29 and Dec. 27, 1987; WarrenBrookes column, Washington Times, Mar. 2, 1988; Limone'srecorded commutation hearing before the Massachusetts ParoleBoard.33. Community Reintegration Program, p.14.34. Massachusetts Dept. of Correction, Apprehension andOperations Research Unit, 1985 report on DOC escapes.35. "Punishment Outside Prisons," Newsweek, June 9, 1986,p.83.36. Wilson and Hermstein, pp. 276-77, 322-23, 388.37. Samenow, Inside the Criminal Mind, chapter 6.38. Massachusetts Dept. of Correction 1985 report on escapes,pp. 4, 6.39. Hearings, "Massachusetts Furlough Program," MassachusettsHouse Post-Audit Committee, October 15, 1987, pp.101-2,263; Oct. 21,1987, pp. 95,206-9.40. Wilson and Hermstein, pp. 390-91, 394-95.41. Edwin Zedlewski, "Making Confinement Decisions,"Research In Brief, National Institute of Justice, July 1987; releasedJuly 1988. .42. Letter to The Wall Street Journal, May 25, 1988, by JohnLarivee, executive director, Crime and Justice Foundation,Boston.43. Hearings, "Massachusetts Furlough Program," MassachusettsHouse Post-Audit Committee, October 14, 1987; uncorrectedtranscript, p. 25.44. "Killers At Large," Maclean's, July 18, 1988, p. 44.45. Ibid.46. Hearings, "Massachusetts Furlough Program," Nov. 5,1987, uncorrected transcript, pp. 43-44.47. William Tucker, "Crime Victims Strike Back," Reader'sDigest, June 1985, p. 52.48. Estimate provided to author by Edwin Zedlewski of theNational Institute of Justice.49. See Robert James Bidinotto, "Morality Laws =MajorityLicense," The Freeman, April 1987.50. Samenow, esp. chapters 13 and 14.51. American Bar Association, Criminal Justice In Crisis,Nov. 1988, pp. 7, 51.

352Social Consciousness andIndividual Freedomby David BeersOne way to look at the progress of a societyor even of civilization itself is to seethat progress in terms of the developmentof moral values. Alexis de Tocqueville, thegreat French social philosopher and observer ofAmerican society in the 1830s, noted that thepower behind America's great progress as a societyand the wellspring of its creative energy wasthe body of values to which Americans held. ToTocqueville, the individualistic, self-reliant characterof the Americans and their passion for individualfreedom had more to do with the successof the fledgling nation than even its vast naturalresources. Holding to the same values which hadinspired its Declaration of Independence fromthe British Crown, American society had quicklygrown to equal, and in many ways surpass, its Europeanforebears.The moral underpinnings of our society haveundergone gradual change over its history, butnever so great as in the last three decades. The19608 brought new values to the fore in the mindsof many Americans. There were growing perceptionsof the inequalities that exist among Americans-particularlyinequalities of income-and agreater awareness of the welfare of the disadvantaged.From this new "social consciousness"sprang a desire that new rights be recognized inaddition to the fundamental rights to life, liberty,and property. People had a right to a certain minimumstandard of living, it was argued, and moreDavid Beers is a doctoral student in economics atGeorge Mason University and a fellow at the Center forthe Study ofMarket Processes. This essay won the firstprize in FEE's 1988-89 essay contest, "Why ChooseFreedom?"was done to try to guarantee this right throughgovernment action than had ever been done before.In the face of the wide disparities in incomeamong Americans, the government, in the wordsof Lyndon Johnson, was to guarantee "not justequality as a right and theory but equality as afact and equality as a result" (Howard Universitycommencement address, 1965).Behind the great changes in public attitudeand public policy during this time was a risingtide of anti-capitalism, the currents of which arestill with us today. Implicit (and often explicit) inthe demands that social inequalities be addressedby government welfare programs is the argumentthat the capitalist system is "socially unjust." It isa system in which factors such as luck, birth, inheritance,physical or mental impairment, or impersonaleconomic factors may determine an individual'swelfare. It allows one man to bask inluxury and comfort while another strives in vainjust to find food and shelter. In this way, it is alleged,the capitalist society, while successful inproducing prosperity for many, fails in its moralduty to many others.Here is a different sense of the word "moral"from what Tocqueville had in mind. WhatTocqueville referred to as the great strength ofAmerican society was the common commitmentof individuals to the value of freedom. What ismeant in the phrase "society's moral duty," onthe other hand, is something altogether different,for "moral" in this case is a collective imperative.The "moral failure" of our society does not consistprimarily in the failings of its individual members;rather, "the system is to blame." Consequently,the moral responsibility to the

353disadvantaged belongs to society as a whole, ormore accurately to the recognized agent for carryingout social purposes: the government.Although the heady days of the Great Societyare past and the utopian visions of the 1960s havecooled to something that one would like to thinkis. sober realism, the idea that the United Statesas a society owes a moral debt to the victims of asystem based on "profits rather than people" isstill almost universally held. Discussions aboutsocial programs such as Aid to Families of DependentChildren, Social Security, and unemploymentbenefits focus on "how much," never"whether or not." In fact, even under the ReaganAdministration's budget "cuts," debates overthese programs were not usually so much about"how much" as about "how much more."Such unanimous acceptance of this ethic of socialconsciousness is surprising considering that ascant 40 years ago it would have been almost inconceivableto most Americans. Its acceptance isnothing short of shocking, given the performanceof the burgeoning system of transfers to the poor,which by the most accepted standards of measurementhas been dismal. Flying in the face ofall expectations, the consistent reductions inpoverty that had been occurring throughout the1950s and early 1960s actually ground to a halt in1968 as anti-poverty legislation came into effect.Moreover, as Charles Murray notes in LosingGround, the proportion of people who dependedon government transfers to keep themselvesabove the official poverty level began to growsteadily from that year on.The Power to PersuadeAll statistics aside, though, the most remarkablepoint about the great rise of social consciousnessin American culture is its apparentlyoverwhelming persuasiveness-despite the factthat such an ethic is logically and pragmaticallyantagonistic to some of the most basic values ofour society. Granted that there are many peoplewho by some misfortune are unable to supportthemselves or their families, the act of using thecoercive machinery of the federal government toenforce public "giving" is a flagrantly immoral invasionof the individual's right to hold property.Very few Americans would consider themselvesMarxists today, yet on this issue nearly all cling tothe essential spirit of Marxism embodied in themotto "from each according to his ability, to eachaccording to his need."Capitalism is often depicted as a system whicheats away at the moral fiber of a culture. It is asystem allegedly driven by self-interested behaviorand one that rewards selfishness at the expenseof compassion. Blind to anything but the"bottom line," it supposedly encourages the notionthat success is the accumulation of materialwealth, rather than the nurturing of spiritual values.Such allegations of moral decay in the freesociety, even if they were true, would carry littleweight in view of the moral bankruptcy of welfarism.The tragedy of 20 years of the War on Povertyis not that its measures have been too small to reducethe poverty rate today to anything less thanit was in 1968. The tragedy is the multitude ofable people who became welfare recipients everyyear when they would have found their way outof the poverty trap in the absence of these programs.Social programs may supply some importantbenefits to the genuinely helpless. But the inevitableirony of government transfers to thepoor is that they induce other people to qualifyfor them-people who could work for a decentliving, but choose idleness and a welfare check instead.More tragic still are the children of welfarefamilies whose role models are parents who can'tor won't hold a job or who have given up trying.Not only do these children fail to learn the importanceof work and self- reliance, but the valueof education-already hard for a child to appreciate-becomesincomprehensible to them. Notsurprisingly, this situation results in poorer attendance,more frequent classroom disruptions,higher dropout rates, lower literacy and overallcompetence levels, and higher juvenile crimerates. Many children of school age in our innercities now are third-generation welfare recipients.The prevalence of the confused notion of "society'smoral duty" is revealing. It demonstratesthe awareness of a grave social problem, but atthe same time b~trays an unwillingness to admitto the individual moral imperative presented bythe problem. Invoking the moral obligations ofsociety is a subtle way of getting others to makethe sacrifices to help those in need. Taking astand for social justice by advocating governmenttransfers to the disadvantaged is less costly than

354 THE FREEMAN • SEPTEMBER 1989"putting one's money where his mouth is" anddonating time or money to a private charity, sincethe government makes sure that the burden of"contributing" to new social programs is sharedby all tax-paying members of society.This is not meant to imply that there are notsincere, committed advocates of the underprivilegedwho make genuine sacrifices for the causeof helping the poor, homeless, and disabled. Certainlythere are. But as government plays an everlarger role as the official agent of charity, it is surethat such altruists will become fewer in number.In a way analogous to the erosion of the workethic among welfare recipients, the values ofcompassion and concern for one's fellowmen arediminished among potential benefactors. Just asthe availability of welfare benefits removes theburden of responsibility on the recipient for hisown well-being, the provision of welfare benefitsby the government relieves the would-be giver'ssense of responsibility for helping his fellowmen.The idea that the relief of poverty is "society's responsibility"and is thus in the domain of governmentaction rather than individual action, then,tends to stunt the development of individual altruismand compassion.Opportunity and IncentiveThe free society lays no claim to any particulardistribution of income, nor does it rule out misfortuneor failure. But it does allow every opportunityand incentive for recovering from misfortuneand failure, and furthermore, it forcespeople to face up to their own moral commitmentstoward helping others, rather than abdicateresponsibility behind a facade of ineffectivegovernment programs. It promotes healthy selfexaminationsince the results of one's actions orlack of actions to help others are more readilyseen in the free society than under the bureaucraticmorass of the welfare state.By relegating the act of giving to the categoryof paying one's income tax, the welfare stateserves only to insulate individuals from the moraldecisions of whether to give and how to give.One never knows what part of his taxes is goingto social programs, much less how the money isspent, or on whom. Yet the taxpayer is givensome satisfaction in knowing that, like everyoneelse, he has done his part-even if in reality "hispart" went to a perfectly able recipient. whocouldn't resist the temptation to take a free rideat the expense of the system.In the free society, an individual who gives to aprivate charitable organization is aware of boththe amount of the sacrifice he is making and, to alarge degree, the actual use to which his donationis put. Unlike tax-funded bureaucracies, it is inthe interest of organizations which freely competefor donations to give as much informationabout the nature and results of their activities aspossible. Since both the benefactor and the organizationhave an interest in the outcome· of a donation,there is the greatest possible chance thatfunds. will be creatively and properly directed toindividuals with genuine need.The strength of American society lies in thevalues upheld by its individual members-notjust values embodied in its laws, or even in documentslike the Bill of Rights and the Declarationof Independence. Many of the poorest and mostoppressive societies of the world have constitutionswhich are nearly identical to ours. The differenceis one of moral heritage. Contrary to thegrim caricature of the capitalist society as riddenwith selfishness, callousness, and graft, our moralheritage includes a common respect and concernfor our fellowmen, and an unselfish considerationfor the rights and welfare of others. These elementsof the American character are not underminedby a principled adherence to the rights ofproperty and voluntary exchange. On the contrary,the freedom guaranteed by adherence tothese rights is a necessary condition for thegrowth of that character. Unselfishness and compassionentail a moral independence and an honestself-examination that can only exist in thecontext of individual freedom.D

355What Is a Doctor'sRelative Worth?by Jane M. OrientCongress has.decided that some doctorsaren't worth nearly as much as they getpaid. Their "inflated" fees are one ofthe primary targets of the Medicare budgetcutters.Prostate surgery, cataract surgery,coronary artery bypass, and total hip replacementare often given as examples of "overvalued"procedures.On the other hand, some doctors think theydon't get paid enough. Among these are internists,family practitioners, and pediatricians,who spend most of their time talking to patientsand examining them. Insurance companiesdon't pay as much for an hour of conversationas for a few minutes of cutting or ofmanipulating a catheter or an endoscope. As arule, patients are not willing to pay very muchfor a mere consultation either. Our societytends to place a higher value on technical skillsthan on "cognitive" ones. Patients seem tothink that a new lens in their eye, an injection,or a sophisticated laboratory test is worthmore than a clinical diagnosis or a piece ofgood advice (e.g., to stop smoking).As an internist, I also think that I deserve tobe paid more. And I suspect that some of thoseothers deserve to be paid less. Unfortunately,none of the "proceduralists" have offered toshare the wealth with me (and if they did, theymight be accused of fee-splitting and sent offto jail). If I raise my fees too much, patientsmight decide to find another doctor. (In anyevent, physicians can't raise fees to Medicarepatients above the government-imposed ceil-Jane Orient, M.D., is in the private practice ofmedicinein Tucson, Arizona. She is also an associate in internalmedicine at the University of Arizona College ofMedicine.ings called MAACs or Maximum AllowableActual Charges.)A voluntary solution to this perceived maldistributionof income does not seem possible.So what is to be done? Enter the governmentand its helpers, who promise to devise a "fair,"if coercive, solution.How Many Blood PressurePrescriptions Are There in OneHernia Operation?For a mere two million dollars, the HealthCare Financing Administration (HCFA) andseveral foundations have funded a study thatcould revolutionize the way that physicians arepaid. Researchers have developed the resource-basedrelative value scale (RBRVS),which assigns a "value" to each medical servicein terms of its cost in "resources," relative toother services. For example, an "office visit,limited service, established patient" to an allergistis worth 62 RBRV units, whereas a "repairof an inguinal hernia, age 5 years or over" isworth 476 and an "initial history and physicalexamination related to the healthy individual,including anticipatory guidance; adult," if doneby an internist, is worth 114. 1Researchers at the Harvard School of PublicHealth, under the leadership of healtheconomist William Hsiao, arrived at these figuresby a complex process that started withcalling a number of doctors on the telephone.The researchers wanted to determine theamount of time required to perform variousservices, and also the intensity of the effort required.How much skill was needed, and howmuch stress was involved? The doctors were

356 THE FREEMAN • SEPTEMBER 1989asked to consider a "reference" procedure,such as a follow-up visit with a 55-year-old manon two types of blood pressure pills, and compareit with other services that they might provide.For example, the doctor might say that anintermediate telephone consultation with a patientwho has a rash takes one-fifth as muchphysical effort but 10 times as much diagnosticacumen as seeing the man with high bloodpressure.Refining the information, researchersaccounted for "intraservice," "preservice," and"postservice" work. Also entered into the finalequations were overhead costs, including malpracticeinsurance and the cost of the requiredtraining.Weighting the ScalesSome physicians (usually "proceduralists"by specialty) argue that the study was biasedfrom the beginning. HCFA wanted the outcometo favor "cognitive" instead of "procedural"work, so they chose a study group that hadpreviously reported the desired findings. Apparently,HCFA got what it was paying for.The Harvard group also has been accused ofviolating one of the fundamental rules of scientificresearch. The researchers failed to specifyin advance the method to be used for normalizingthe rankings across various specialtiesranging from allergy to psychiatry to plasticsurgery. Ophthalmologist Robert Reinecke,MD, of Thomas Jefferson University Hospital,thought that Hsiao's group might have withheldthe details in order to prevent somespecialists from jury-rigging the rankings tobeat the system. However, in response toqueries at an informational meeting in Dallas,the project directory for the Hsiao study statedthat the methodology had not been workedout, and that the researchers planned to try differentformulae until the data looked right. Inother words, the researchers could manipulatethe methodology until the calculations supportedtheir predetermined conclusions. 2 Theresults could then confirm the Statistician'sLaw: "If you torture the data long enough, itwill confess. "Although the rankings passed statistical testsfor reliability, many of them failed the test ofcommon sense. For example, ear, nose, andthroat specialists noted that the removal of onelobe of the parotid (salivary) gland, a fairlysimple procedure, had the same relative valueas an extensive and difficult cancer operation.Obstetricians noted that a simple diagnosticD&C was assigned a higher value of intensityper unit time than performing a hysterectomyor attending a patient during a difficult labor. 3Some specialists agree that certain proceduresmay be overvalued, but they argue thatthe resulting payments enable them to continueto perform services that are undervalued.For example, the fees for cataract surgery subsidizemedical treatment of glaucoma, a timeconsumingservice. Lowering the fees forcataracts might make it impossible for individualpractitioners to survive, while high-volume"mills" take over the field. Similarly, reducingfees for D&C's might drive physicians to droptheir obstetrical practice, because fees for deliveringbabies are inadequate to cover themalpractice insurance premiums. Price ceilingswould also destroy doctors' ability to adjusttheir fees according to patients' ability to pay.Furthermore, they may become less willing toaccept difficult cases.A "Bait and Switch"?Two strong boosters of the RBRVS, theAmerican Society of Internal Medicine(ASIM) and the American Academy of FamilyPractice (AAFP), believe that the governmenthas finally recognized the value of the"cognitive" services provided by their members.They have joined forces with a powerfullobby, the American Association of RetiredPersons (AARP), to push for its acceptance.The agenda of the AARP is clear, exceptperhaps to ASIM and AAF~ AARP leaderswant to force physicians to work for the governmentfor a fixed fee ("take assignment"). Aban on "balance billing" is the next step afterthe RBRVS. One impediment to this agenda isthe perception that there are inequities in thecurrent system of paying physicians. Oncephysicians agree to accept a system that is"fair," their case against a fixed-fee schedule isgreatly weakened.The government also might look favorablyon the RBRVS, but not out of sympathy for

WHAT IS A DOCTOR'S RELATIVE WORTH? 357beleaguered internists and family doctors.HCFA needs a cost-containment tool. At first,it may appear to physicians that many will increasetheir incomes substantially, even if atthe expense of their colleagues. However, thispay increase might be a temporary effect. Thedollar value of the payment is determined bymultiplying the RBRV units by a conversionfactor. The conversion factor could be loweredat will. Alternately, new measures to "controlthe inappropriate volume of care" (Le. rationing)could be introduced. Increases in feescould be offset by disallowing claims on the basisthat the service was medically unnecessary.In fact, such denials already occur. (For example,HCFA denied payment for an "unnecessary"electrocardiogram on a patient who hada cardiac arrest in the intensive care unit.)Descriptions of the RBRVS appear overwhelmingin their erudition and their complexalgebra. In one's struggle to understand what isincluded in the calculations, it is easy to overlookthat which is left out: the value of a medicalservice to the patient.Are all "office visits, limited service, establishedpatient" of equal importance to the patient?The Harvard researchers never intervieweda single patient. If they had, a patientmight have told them that some visits result ina lifesaving diagnosis or in relief of pain andanxiety. But some visits are for an expensivebut purely optional diagnostic test, or for anopinion about a trivial problem. A hernia repairmight allow a laborer to continue working.But the same hernia might not pose any inconvenienceto a bedridden patient. A cataract operationmight restore a patient's ability to liveindependently. But he might choose to havethe second cataract removed only "becauseMedicare is paying for it," as one patient confidedin me.The Objective Versus theSubjective Theory ofValueThe RBRVS considers only one side of thetransaction. It equates the value of a servicesolely with the cost of its production. Thus, it isbased on an old idea: the objective theory ofvalue, one of the fundamental tenets of Marxisteconomics. (Of course, the objectivity ofsome of the costs-such as the estimate of"stress"-is purely a pretense.)The objective theory of value is often takenas axiomatic. In fact, the critique of this theoryin the 19th century by Austrian economistssuch as Eugen von Boehm-Bawerk representeda revolution in economic thinking-a revolutionthat has yet to affect the Harvard Schoolof Public Health.The subjective theory of economic value,proposed by the Austrian economists, recognizesthat "the value of all goods is bound upwith man and his purposes . . ." (i.e., not solelywith the impersonal operation of marketforces). "In its subjective sense, value denotesthe significance which a good ... possessesfor the well-being of a certain subject."4While goods do have an objective value,Boehm-Bawerk noted that this is not necessarilyproportional to their subjective value:Two cords of beechwood, for instance, possessequal objective fuel value. And yet oneof them may be the only fuel supply of apoor family in a hard winter and absolutelyirreplaceable because of their lack of money.It will possess a far greater subjective valuefor the satisfaction of that family's wantsthan will the other cord which is owned by amillionaire. And again, where wood is to behad in such abundance that it constitutes a"free good," it may very well have no subjectivevalue for anyone's well-being at all,despite the fact that its "objective fuel value"remains entirely unchanged. 5In the subjective theory of value, the individualactor, the purchaser of goods and services,is the unit with which economics is concerned.In private medicine, the individual patient withhis own needs and values is the unitofpractice.The ranking of values varies with each individual,depending on personal circumstances andexpectations. A person may be willing to makegreat sacrifices to obtain certain services, butwill purchase others only if they are verycheap. For example, to one person cancerchemotherapy or surgery may seem a burdenso great that the expectation of benefit maynot be worth the price (either in money or suffering).To another, a small chance of cure maybe worth any amount of pain and all of his

358 THE FREEMAN • SEPTEMBER 1989worldly possessions. No third person can makea determination of the value of the service,even though its cost to the persons providing itmay be exactly the same in the two instances.According to the subjective theory of value,costs are basically opportunity costs incurredby a decision-maker, i.e., the value of the othergoods or services he is willing to forgo in orderto obtain the goods or services under consideration.Such costs must be bOl}le exclusively bythe person making the decision; they cannot beshifted to others. Nor can they be measured byothers, since subjective mental experience cannotbe directly observed. (However, the subj~ctivevalue is reflected in the price that an individualis willing to pay.) Furthermore, costsare dated at the moment of final decision orchoice.6 Recalibration of a relative value scale,say every year, is far too slow to account forchanges in the personal circumstances of theactors in any economic transaction.The objective theory of value reduces bothproducer and consumer to interchangeableunits in a collective. It is the stock in trade ofthe would-be central planners, who wish tocontrol the practice of medicine, to standardizeand depersonalize both medical services andpatients. Hsiao sees the RBRVS as a mechanismby which (presumably omniscient) plannerscan redistribute physicians to areas ofneed and encourage or discourage certaintypes of practice or behavior.'Some persons who support the RBRVS doso because they think the alternative proposalsfor paying physicians would be worse. Themethod favored by HCFA administratorWilliam Roper is capitation: fixed payment bythe head regardless of the number of servicesthat a patient requires or demands. (Thismethod-the Kopfausschale-was introducedin Germany about 1931).8 Others propose topay physicians a fixed amount according to thediagnosis, as hospitals are now paid, regardlessof what treatment is provided.Forgotten in the debates in the corridors ofpower are two individuals who might be able, to arrive at a price for services without theneed for a $2 million study: one doctor and onepatient, making a voluntary agreement. Thedoctor knows what it costs to keep his officeopen and the opportunity costs of providingcertain services. The patient knows the valueof a service in his individual circumstances andhow much he is willing and able to pay. But theability of individuals to make voluntary agreementsis becoming ever more circumscribed inour welfare state, as the planners gain controlof the resources.Like the leaders of the AARP and otherlobbying groups, many persons today believethat the relative worth of an individual doctoris not one cent more than Harvard researcherscalculate and the government pays.In the past, similar methods of central planningand wage and price controls inevitablyhave led to distortions in the market, especiallyshortages. 9 After Hsiao and his colleagues figureout how many blood pressure prescriptionsthere are in a hernia operation, Americanhealth planners, like their Canadian counterparts,may be learning the calculus of rationing.The next questions will be like thosefeatured in recent Canadian television specials:How many deaths on the waiting list for heartsurgery equal a year of hemodialysis? Howmany clinic visits for preventive medicineequal a cataract operation? And at what agedoes the cost-benefit ratio for a pacemaker exceedwhat "society" is willing to pay? 01. W.C. Hsiao, P. Braun, N.L. Kelly, and E.R. Becker, "Results,Potential Effects and Implementation Issues of the Resource-BasedRelative Value Scale," lAMA 1988, pp. 2429­2438.2. R.D. Reinecke, "A Better Mousetrap? Flawed ResearchShould Not Be the Basis of Public Policy," AAPS News 1988(4), p. 1.3. M. Kirchner, "Will This Formula Change the Way YouGet Paid?" Medical Economics, April 4, 1988, pp. 138-152.4. E. von Boehm-Bawerk, Value and Price.' An Extract, 2nded. (South Holland, Ill.: Libertarian Press, 1973).5. Ibid.6. R. Nash, Poverty and Wealth (Westchester, Ill.: CrosswayBooks, 1986).7. W.C. Hsiao, P. Braun, E.R. Becker, and S.R. Thomas,"The Resource-Based Relative Value Scale: Toward the Developmentof an Alternative Physician Payment System," lAMA1987, pp. 799-802.8. M.J. Lynch and S.S. Raphael, Medicine and the State (OakBrook, Ill.: Association of American Physicians and Surgeons,1973).9. R. Schuettinger and E. Butler, Forty Centuries of Wageand Price Controls.' How Not to Fight Inflation (Washington,D.C.: The Heritage Foundation, 1979).

359Privatization inNorthern Ireland­Making Politics Normalby Nick ElliottFor most of us, party politics may be a dubi­. ous blessing, but for Northern Ireland itseems to be just what is needed. While inmainland Britain, strenuous debates have beenfought about government intervention in theeconomy, Northern Ireland has been excluded.Not only would market reforms boost the NorthernIreland economy; they also would improve itspolitics.Ever since the partition of Northern Ireland,the political parties there have been sectarian.The largely Protestant Ulster Unionists andDemocratic Unionists want to maintain the unionwith the mainland. The SDLP (Social Democraticand Liberal Party) and Sinn Fein are mainlyCatholic and advocate amalgamation with theSouth. The two main parties in mainland Britain,the Conservatives and Labour, do not stand candidatesin Northern Ireland.There are, no doubt, conservative Catholicswho would support the Conservative Party, giventhe chance. And there undoubtedly are socialistswho support the Unionists, but who would preferto have a Labour Party to support. The parties inNorthern Ireland do not represent the diversityof opinion existing there. The great issues thathave fueled debate in Britain over the last 10years-essentially about government involvementin the economy-have yet to be introducedto Ulster.Of all the provinces of Britain, Northern Irelandhas been least touched by privatization andderegulation. The British government has doneNick Elliott is a British free-lance writer and press consultant.little to reduce the $5 billion annual subsidy thatit sends from the mainland to Ulster. NorthernIreland has been excluded from much of the freemarket legislation affecting the rest of Britain.Recently, however, the government has announcedthat Short Brothers, the aircraft manufacturer,and the Harland & Wolf shipyard are tobe privatized. These plans have provoked controversy,and what is most interesting is that all ofthe sectarian parties have come out in opposition.The only indigenous group to support the plans isthe recently formed North Down ConservativeAssociation.This is possibly an encouraging first step towardmaking Northern Ireland politics normal. Ifthe people in Northern Ireland were allowed toargue about the same things that people do in therest of Britain, then politics would lose much ofits sectarian nature.There are plenty of suitable targets for marketreforms. Northern Ireland has an unusually largepublic sector, which provides 42 percent of allemployment. One of the most encouragingtrends in Britain over the past decade has beenthe growth in self-employment-many more peoplenow own their own businesses. The trend hasyet to spread to Northern Ireland. It has a comparativelylow start-up rate for new businesses,and the mainstays of the Northern Ireland economyare still staple industries such as shipbuilding,textiles, and agriculture. Little attempt has beenmade to stimulate local enterprise.Part of the problem has been a conditioned relianceof Northern Ireland business upon subsidiesfrom the British government. Subsidies tothe manufacturing sector for 1986-87 were equiv-

360 THE FREEMAN • SEPTEMBER 1989alent to $64 per week per employee. (Averageearnings in Northern Ireland are $300 per week.)Between 1976 and 1985, over half of the subsidizedfirms received two or more grants-whichis a worrying sign of dependency.Preserving the Past at theExpense ofthe FutureWhile employment in the rest of Britain hasmoved out of industry and manufacturing intoservices, and while the mainland economy hasbecome far more dynamic, the past has been preservedin Northern Ireland. The Northern Irelandeconomy has failed to bring the same prosperitythat has been enjoyed in the rest of Britain;unemployment has remained at 17 percent, whileit has fallen in the rest of the country to 9 percent.Subsidies have distorted the Northern Irelandeconomy, keeping jobs and capital in tradeswhere there is no longer any comparative advantage,and keeping resources out of potential newenterprises. It is also likely that government fundinghas "crowded out" more efficient investmentby the private sector. During 1984-87, governmentgrants to industry amounted to 75 percentof all industrial investment.Politically, it isn't good for Northern Ireland tobe so dependent upon the British government asan outside benefactor. Rather than resulting fromimpartial economic decisions, jobs and investmentstake on political overtones. Even whencivil servants try to be scrupulously impartial,their decisions appear to have political implicationsfor those rewarded or disappointed. Thegovernment has laid itself open to charges ofProtestant bias by heavily subsidizing the Protestantcompany Shorts. By contrast, profit-seekingdecisions taken by firms in the market are notseen as a vote for one side or the other.The politics of Northern Ireland would benefitfrom a climate of enterprise. In addition to reducingsubsidies, the government might encourageemployee share ownership in Northern Irelandcompanies. Workers would feel less reliant on theBritish government for livelihood, and thesesteps would help to develop an enterprise cultureas an alternative to the political culture.Market reforms would bring other politicalbenefits. Northern Ireland has been excludedfrom the radical reforms of secondary educationbeing implemented in the rest of Britain. Thesereforms put parents in charge of running schools,allow them to opt for financial independencefrom government, and fund schools according tothe number of pupils they attract. In England,Wales, and Scotland these reforms will introducecompetition and raise the standards of education,but in Northern Ireland the reforms could fosterpolitical improvement as well.Many of the funded schools in Northern Irelandhave a strong religious bias. Parents have nochoice but to send their children to these schools,even if they would prefer a secular or non-denominationaleducation. Greater choice in education,as engendered in the mainland reforms,would allow more parents to avoid sending theirchildren to sectarian schools.A freer economy also would reduce the importanceof sectarian politics to consumers and workers.As is true the world over, when you pick aproduct off a shelf, there is usually no way ofknowing if it was made by someone who is black,white, or yellow. Trade crosses many boundaries,including sectarian divisions. Northern Irelandwould benefit if business became more important,because the dominance of politics would diminish.British politicians often have maintained thattheir Keynesian policies are necessary to "keepNorthern Ireland afloat." They never seem to considerthat subsidies may just prolong inefficiencyand dependency. They also have been unwilling tostir things up with radical policy changes, becausethey hold a cautious suspicion of Northern Irelandpolitics. British leaders could do nothing betterthan to upset the stale politics of Northern Irelandby shifting the focus of debate.D

361Israel: The Roadfrom SocialisDlby Macabee DeanIn the last decade, Israel has undergone agreat change in its thinking about stateownedcompanies. Most Israelis, includinga ·large percentage of the socialists who formerlybacked state-owned companies, now regardthese firms as a drain on the nation's resources.What brought about this change? To find ananswer, we need to understand why the Israelisestablished state-owned businesses in the firstplace. And to do this, we must review the factorsthat preceded the founding of the State ofIsrael in 1948.Years before the 1917 Balfour Declarationgranted the Jews a homeland, Jews had beensettling in Israel, then called Palestine. Manyof them belonged to one or another of the variousworkers' movements which were in voguearound the tum of the century. In that era, socialismwas believed to herald not only bettertimes, but some sort of economic millennium.An integral part of socialist dogma was thebelief that capital was ruthlessly exploiting labor.This, it was believed, could be eliminatedonly when the means of production wereowned and controlled by the socialist state.This philosophy was rejected by the forerunnerof Likud, today Israel's largest politicalparty by a tiny margin, which is considered tobe moderately "right" in the political spectrum.But at that time-and to a smaller extenteven today-these dissenters were castigatedas "fascists" by the socialists. And the word"fascist," in the days of Hitler's Germany andMr. Dean, a veteran journalist, has lived in Israel since1947.Mussolini's Italy, was a snarl word of immensepropaganda value. It could be used againstanyone who wasn't a socialist of one type oranother.The leftist workers founded the Histadrut(the General Federation of Labour) early thiscentury to unionize and thus protect the workersfrom "exploitation." The main problem,however, was not exploitation, but creatingjobs, since the few Jewish capitalists, mainlylandowners, preferred Arab labor to Jewish.So the Histadrut went much further thanmerely unionizing the workers. It set out togain control of existing means of production,to create new places of work for immigrants (aforerunner of the state-owned companies), andto situate these work places, if possible, in areasthat would be critical in the event of war.(Today's settlements in the West Bank andGaza Strip follow the same pattern as outpostswhich constitute a line of defense.)In all fairness to the Histadrut, then, and tothe State of Israel today, no profit-seekingbusinessman would have established enterprisesin these militarily vulnerable areas. Afteryears of subsidies, some still face difficultstruggles for survival. Others barely make endsmeet.Thus, the Histadrut developed a dual personality:it was, and is, both a labor union andan employer. This conflict of interests hascaused many of the problems that have besetHistadrut enterprises for decades.The problems came to a head more than ayear ago when the Histadrut's huge industrialsector, Koor, ran into grave financial difficul-

362 THE FREEMAN • SEPTEMBER 1989ties. Typical is what happened to Alliance, itstire plant. Alliance was facing bankruptcy. TheHistadrut knew this, yet it approved wagehikes-not wage cuts. The outcome: the plantwas closed down, and the workers werethrown out of work. What is interesting here isthat the government itself followed the samepolicy: giving wage hikes to faltering enterprisessuch as El AI, the national airline.The long-range significance of the Histadrut,which considered itself (and was) an integralpart of a state in the making, is that it embarkedon building its own economic empire-ina way quasi-state-owned companies-beforethe State of Israel was founded.The Histadrut gradually became involved innearly every field of endeavor-agriculturalsettlements, agricultural marketing, housing,construction, quarrying, cooperative groceries,industry, transportation, insurance, banking,exports and imports, social welfare, health services(still the largest system in the country, encompassingtwo-thirds of all Israelis), and eveneducation-although this once large networkhas shrunk over the years. Today, the·Histadrutdirectly controls about 25 percent of theIsraeli economy (according to its own claim)and has a huge influence on another considerablepercentage., This background is very important, for whenthe State of Israel was founded in 1948, theleaders of these socialist organizations (most ofwhich today are banded together in a politicalbody called the Alignment) became the majorpolicy makers in the various socialist-dominatedcoalitions from 1948 until 1977. Thus we seethat the setting up of state-owned companieswas a continuation of a policy started decadesearlier by the Histadrut.A Mixed EconomyBut, if socialistic thinking prevailed in Israelin 1948, why did Israel's leaders adopt a mixedeconomy-one featuring cooperatives, kibbutzes,government companies, and private.firms? Why didn't they try to establish pure socialism?The answer is simple: Israel at thattime (as today) depended heavily on financialhelp from abroad, mainly from the U.S. governmentand American Jews. The U.S. governmentfavored a free economy; and althoughmany American Jews leaned toward socialism,they generally contributed only small amounts;the really big contributions came from the capitalisticsector.Two of today's largest state-owned companies-IsraelChemicals (formerly the Dead SeaWorks) and the Electric Corporation-werefounded by private investors. The governmenttook them over when both ran into financialhardships and faced dissolution. The Dead SeaWorks' original installations were destroyed bythe Jordanians in the 1948 war. Because investorswere hesitant to put their money intothe strife-torn Middle East, the companycouldn't raise the immense sums needed to rebuildin a different location. Similarly, as Israel'spopulation soared after 1948, thefounders of the Electric Corporation couldn'traise enough capital to meet the Israelis' burgeoningdemand for electric power.Today, Israel has 159 state-owned companies.The total revenues of these firms in 1987stood at 12.1 billion New Israeli Shekels (NIS)(At that time the exchange rate was NIS 1.60to $1; since then the shekel has been devaluedto NIS 2.00.) These companies employ 65,000persons, about five percent of the labor force.If we add the employees of the state-ownedfirms to those employed in the various civilservices (state, local, and public institutions,and so on), we find that one-third of all gainfullyemployed Israelis work directly for variousbranches of government. And this doesnot include the armed forces.The state-owned companies include some ofthe largest firms in Israel. In addition to the twoalready mentioned, Israel Chemicals and theElectric Corporation, they are: Bezek (communications),Israel Refineries (petroleum), El AI,Israel Shipyards, Israel Aircraft Industries, andMekorot (which controls the nation's watersupply).Some of these companies made money in1987, some lost. The money-makers includedthe Electric Corporation, NIS 73.2· million;Bezek, NIS 36 million; El AI, NIS 37.3 million;Israel Chemicals, NIS 36.7 million; Israel Refineries,NIS 22 million. The big losers were IsraelAircraft Industries, NIS 151 million; BeitShemesh Motors, NIS 41 million; and Israel

ISRAEL: THE ROAD FROM SOCIALISM 363A worker in Israel's troubled textile industry.Shipyards, NIS 21 million.The purchase value of these companies is amatter for negotiations, but the governmenthas quoted a figure of $1 billion for IsraelChemicals and the same amount for Bezek.This is a fairly large sum even in most Westerncountries.To sell these firms, the Israeli governmentwill have to overcome the difficulty faced bythe Dead Sea Works and the Electric Corporation:most businessmen still have doubts aboutinvesting in the strife-tom Middle East.True, Egypt has signed a peace treaty withIsrael, but most major Arab nations maintain astate of suspended hostilities. The Iraq-Iranwar has just indeed wound down, but the Iraniansstill preach a type of Moslem fundamentalismthat could spread to other Moslem countries,and is already wreaking havoc inLebanon. Moreover, for years Lebanon hasbeen torn by an internal civil war, and it wasfurther battered when Israel launched a campaignin 1982 to force out 20,000 soldiers of thePalestine Liberation Organization. In themeantime, Qaddafi of Libya continues tothreaten Egypt, and there have been serioustroubles in Yemen, the Sudan, and Ethiopia.WIDE WORLD PHOTOSThe latest round of difficulties has been thePalestinian uprising in the West Bank andGaza Strip territories occupied by Israel as aresult of the 1967 Six-Day War. All in all, not avery promising region to set up a business.Despite these difficulties, dozens of mainlyAmerican but not necessarily Jewish-run companies,some of them fairly large, have investedin Israel during the past few decades. Theyfeel that Israel has advantages which overshadowthe disadvantages: a strong and stabledemocracy, trained labor, plenty of highlyskilled university graduates in the sciences, andeasier access to the Common Market than theycan gain from the United States.Some of these companies have done quitewell; others have not. Several have repatriatedtheir investments, as they have from othercountries, when they began to retrench theirinternational activities. The picture whichemerges is that these investors generally havedone no better or worse than they would havein any other foreign country, despite the ongoingturbulence in the Middle East that showsno signs of subsiding.What caused the great change in Israelis'thinking about state-owned companies? Sever-

364 THE FREEMAN • SEPTEMBER 1989al things.Perhaps the outstanding reason was economic:Israel gradually realized that tocompete in international markets it had to producequality goods at competitive prices. Thischange in thought became essential followingits agreement with the Common Market (notas a full member but as one enjoying most ofthe rights) which forced it gradually to scaledown its customs duties. More recently, Israeland the United States signed a Free TradeArea agreement which stipulated a gradual reductionof duties.Improving EfficiencyIsrael government officials, therefore, had torun the nation's factories at peak efficiency ifthey wanted the nation to export; they also hadto insure that better-made and lower-pricedforeign goods didn't replace Israeli productswithin Israel itself.All this meant overhauling Israel's industry,and the state-owned companies were hit particularlyhard because their management hadrarely attracted top men. They preferred theprivate sector where the salaries were muchhigher, and were paid in accordance with performance.Moreover, many of the Israeli directorsof state-owned companies were handpickedfor their political views, not for theiradministrative ability and business acumen.As Oudi Recanati, a leading Israeli banker,said in 1987 about the inability of state-ownedcompanies to pay top managers competitivesalaries:One of the biggest drawbacks in stateownedcompanies is that there rarely is a directrelationship between performance andcompensation for this performance. Thecompensation structure in state-owned companiesis rigid. Any attempt to try to compensatean outstanding manager for his performancecreates a web of complication in asystem where nearly all salaries and wagesare linked.If the top man is given a pay hike-whichhe honestly deserves-it would start a chainreaction through the entire company. Hisdeputies would also demand a hike, even ifthey did not deserve it, and so on throughoutthe entire managerial and manpowerstructure. Giving the top man a deservedpay raise leads to giving everybody a payraise. And then other state-owned companiesfight for the same benefits. In the end,everybody gets a pay raise, which in effectmeans that the man who "performs" isrobbed of his salary differential.Privatization would allow establishing asystem of compensation for performancewhose effects would be enormously beneficialto the company_ It would also lead to thecomplete separation of politics and management.In a similar vein, consider the following 1986statement by Natan Arad, spokesman forMoshe Shahal, Minister of Energy and Infrastructure.Shahal has been a life-long and dedicatedmember of the socialist Alignment:The Minister firmly believes that privateinitiative is superior-in efficiency, in loweringprices through competition, and soon-than government regulation. The Ministerbelieves that no matter how dedicated,hardworking and intelligent governmentemployedor government-regulated managementis-and many of our men certainly fitthis category-private management will turnin better results. This philosophy has proveditself abroad in other countries which oncebelieved in direct government interventionin every phase of business life.It is interesting that Arad made this statementonly after the 1977 national elections hadbrought the moderate rightist Likud' to powerfor the first time since the State of Israel wasfounded in 1948.Although the Likud has always favored sellingstate-owned companies, it sold only a fewin the past decade. Why?The answer is patronage. Government companiesprovide a valuable outlet for patronage,especially for placing party adherents, civil servantsapproaching retirement age, and so on.Undoubtedly, one of the reasons that the socialistAlignment came out for the sale ofstate-owned companies in the past fewyears-and did nothing during the 29 years itwas in power-is that the Likud is now ap-

ISRAEL: THE ROAD FROM SOCIALISM 365pointing its own men, ousting Alignment menif possible. The Alignment began yelling "politicalization,"conveniently forgetting that ithad initiated and for many years had benefitedfrom the patronage provided by state-ownedcompanies. All of these state-owned companiesare connected in one way or another witha Ministry. The Minister appoints the Director­General and the Board of Directors, and fillslesser positions.Since the state-owned company's Director­General wants to expand his power, he takestwo major steps: he brings in the people he canbest work with-not necessarily the best peopleavailable-and he sets up subsidiary firmsthat he can control from top to bottom. Onegovernment company, Paz, which owns 45 percentof the gasoline stations in Israel, was recentlysold for $95 million to Australian businessmanJack Liberman. As a state-ownedcompany, it had set up 28 subsidiaries thatwere sold with it.Gradually the Alignment's demand for privatizationgained the support of many membersof the Likud (whose ideals about sellingthe state-owned companies never wavered).Pressure to sell the companies began to mount.Serious efforts were initiated.Efforts to PrivatizeMove SlowlyDuring the past four years, the governmenthas sold only three of its companies and hassold shares in another three, out of 30 companiesmarked for sale. This still leaves 129 stateownedcompanies that haven't been put up forsale. Some undoubtedly will be put up for sale,but some cannot be sold since they performgovernment services, and no one expects thatthey will ever make a profit; others are subsidiariesof major companies; and some willnever be put up for sale for strategic reasons. Itis hard to conceive, for example, that the governmentwill sell any of its industries closelyconnected with the defense effort, such as IsraelAircraft Industries.There are reasons why more of the 30haven't been sold despite the government's seriousintentions. One frequently mentioned isthat the government doesn't know how to engagein a "hard sell." As the saying goes in Israel(and probably throughout the world):those who know how to make money go intoprivate business; those who do not become civilservants regulating the country's economy.To this must be added the resistance ofmembers of the Knesset who ask: "Why sell acompany making a nice profit? How can weknow that the new owners will be able tomaintain the same level of productivity andsales?" One always hopes that a better buyerwill come along, outbidding an investor whomakes a good offer, but who may lack the marketingoutlets and promotional ability to fosterthe company's growth. Preferable is a businessmanwho will offer less, but who possesses themarketing facilities and the promotional abilityto see that the company flourishes in the future.The government must carefully check outeach potential investor. What if one of them,through a front company, is run by an Arab citizenliving in a country that is openly hostile toIsrael? On a more practical scale, what if thepotential buyer has a reputation of buying acompany, then stripping it of its assets, leavingit an empty shell?Other reasons fall into several categories.Incumbent senior officials often fear theywill be thrown out of their jobs, since newowners usually put their own people in key positions.Elderly people of top managerial statusfind it difficult to obtain work on the same level.And since they were put in their posts bypolitical friends, they can often still mobilizethese friends for help.These senior officials will fight tooth andnail to delay the sale, and to muddy affairs,hoping that the interested buyer will back out.One method of delaying a sale is to playaround with the books. The State Comptrollerin 1986 accused Paz of indulging in "sophisticated"and "creative" bookkeeping soon afterit was mentioned for sale. This change wouldcertainly prevent any potential buyer from gettinga clear picture of the company's worth.Perhaps the following example will illustratehow difficult it is to figure out the worth of astate-owned company.Early in the 1980s, EI Al was plagued with aseries of strikes; it was also flying deeper and

366 THE FREEMAN • SEPTEMBER 1989deeper in the red. In 1982, after a four-monthstrike that culminated in a lock-out, El Al wasplaced in "temporary" receivership (which isstill its status).Although the staff was cut 40 percent, thenational carrier managed to fly almost theidentical amount of hours, and almost thesame passenger load. The company movedfrom the red to the black.Interestingly, in 1987 when there was considerabletalk of selling El AI, the governmentsuggested a figure of $800 million. The best offerreceived was for $300 million. This discrepancyshows the huge difference-much morethan the usual "bargaining" gap-which existsin all negotiations between the government'sidea of a company's worth and the potentialbuyers' assessments.The problem of selling state-owned companiesseems so formidable that an outside agency,First Boston, has been called in to work outa marketing strategy.Buying shares in a state-owned company hasits own pitfalls: both wages and the prices ofthe company's goods may be fixed by the governmentin an effort to keep the cost-of-livingindex down; most importantly, the Treasurysometimes has the power to overrule the boardon dividend policy, and the government candecide that, for the sake of national interest,some state-owned companies will not be runaccording to accepted business practices. Inthis case the government, not the market, decidesthe size of the profits, if there will be anyprofits at all. Hence, an investor is buying acompany over which he has no control.No businessman in his right mind would investin a state-owned company under these'conditions. Indeed, when the government wasinterested in selling shares in Israel Chemical'sBromine group, it had to waive these provisions.Yet assuming that these provisions areabolished all together, can the government al­Iowa monopolistic company-~uch as electricity,or water-to set prices? Both could lead todemonstrations and near-riots by a wideswathe of citizens who felt they were beingtaken for a ride.Another reason why it has been difficult tosell state-owned companies is that rank andfile Israeli workers, at one time even supportedby the Histadrut, had a policy of demandingsomething akin to a "transfer of ownership"payment. (This policy has largely disappearedin recent years.) Although they weren't losingtheir jobs, they demanded severance pay (oftendouble and triple ordinary severance pay),since somehow they believed they were technicallylosing their jobs because of the transferof ownership, although they continued towork, i.e., they were hired immediately andnever missed a paycheck.There are certain unusual "benefits" thatworkers in state-owned companies receive. Forexample, the 7,000 workers of the ElectricCorporation receive free power. In itself, this isno big deal, although they do use about threetimes the national average; 30 use eight timesand one person uses eleven times the nationalaverage.This waste is irritating to the consumers, andis especially annoying to every Minister whoseprovince includes the Electric Corporation.They have all solemnly promised to end thispractice. No one has succeeded, for within afew days after the Minister makes his publicannouncement, stories begin to appear in thepress that the workers are considering "turningoff the country's lights." This expression doesnot mean throwing a switch to put the countryinto darkness, but rather that there will be aseries of unexplainable breakdowns which willreduce power output.What does the future hold? In all probabilitythe government will continue to sell its companies,if possible to foreign investors for hardcurrency. At least it claims that it will abstainfrom setting up new state-owned companiesexcept as a "last resort."One such "last resort" occurred in 1983when the four leading banking networks weretottering on the brink of collapse. The governmentmoved to guarantee the price of theshares of these banks on the stock market,picking up several billion dollars of such sharesin the process. So, today, although these fourbanks are not in the legal sense "state-owned"companies, they are close to it since the governmentholds about 70 percent of their shares,and can find few buyers.Clearly, the road from socialism will offermany challenges in the coming years. D

367Sports in Americaby Tibor R. MachanWhen I arrived in America from Hungaryin 1956, one of my laments was. that Americans didn't do as well asthey could in the Olympic Games. The SovietUnion and other Soviet bloc countries didcomparatively better, as anyone who was familiarwith the record could tell.Everyone in my family had been involved insports. My father rowed and later became oneof Europe's better rowing coaches. He evencoached in the U.S. for a while, at Philadelphia'srenowned Vesper Boat Club. My motherwas 1942 foils champion in Hungary and is stilla coach in Salzburg, Austria. My stepfatherwas a saber fencer in Budapest and is todaythe U.S. Olympic fencing coach. My sisterswere top swimmers in Budapest. I myself did alittle of everything until I decided that I hadother priorities and confined myself to mereexercise, not serious athletics.One advantage of being an athlete in CommunistHungary had been that if one showedtalent and perseverance, one's life was mademuch better by the state. Under most statistpolitical systems-ones that hold the state as ahigher being than the individuals who compriseit-sports become a kind of public exhibitionof collective excellence. That was especiallytrue in Hungary and is still true in mostof the Soviet bloc countries, as well as in Chinaand in some of the rightist states such as SouthKorea. If one demonstrates ability and willing-Tibor Machan teaches philosophy at Auburn University,Alabama.He recently edited Commerce and Morality forRowman and Littlefield.ness to become a world class athlete, one isfreed from all normal responsibilities of lifeand is kept in considerable luxury and privilege.For this one sells one's soul and, especially,one's body to the state as long as it holds up.In my ignorance of the American politicaltradition, I was appalled at how little investmentthe American government made in amateurathletics. I noted that, with all its fabuloustalent, America could win at virtually any ofthe Olympic events, if only sufficient resourcesand discipline were invested in that goal.But of course here is the rub. American societymay include some of the greatest talent forpractically any task, including any facet of athletics.But it is not primarily a statist system.Government in this society is-or at least issupposed to be-a servant of the people. Individualsand their own goals are of paramountimportance, not showing off the system, provingto the world how fabulous the social organismhappens to be.Therefore, in America many of the Olympicevents are truly amateur sports. Of course,there are exceptions and gray areas-tennisand basketball, for example. But in the main,the athletes compete because that is what theywant to do. And these athletes tend to have avariety of goals in their lives, which shouldn'tbe surprising for relatively free men and women.Unlike, for example, the East Germanswimmers, many top American swimmers taketime from their training to devote to studying,family, and fun. Why not? Life has much moreto offer than being a single-minded athlete.Sport, after all, is supposed to be something of

368 THE FREEMAN • SEPTEMBER 1989an enjoyment in one's life, not a mission ofslave labor.But I didn't understand this when I firstcame to the United States. I was somewhat ofa converted nationalist and didn't realize thatwhat made this a nation worthy of respect hadlittle to do with winning the most medals at theOlympics, having the most productive economicsystem, being first in space, or any othersingle purpose that some people might preferto take as a sign of collective success. Whatwas vital for this nation-and there are signsthat this has not been entirely forgotten evennow, except perhaps by most of our intellectualsand politicians-was that each individualhad the liberty to strive for his own goals inlife, provided he or she didn't trample on thesimilar efforts of others.So now when I watch the Olympics mythinking and emotional reactions are very differentfrom that first time I came to the UnitedStates. I scoff at all the nationalism injectedinto the commentary. I am usually bemusedand even elated, in contrast to the networkcommentators, when it is noted that Americansare not doing· as well as the Soviet blocathletes-who usually appear glum even afterdelivering a 9.95 performance in gymnastics!Free people do not put all their energy intoa showy project such as the Olympics, except,now and then, spontaneously. Thus the 1984Los Angeles Olympics disturbed me, althoughI realized that most people were celebratingthe rejuvenation of the country, of which theAmerican athletes' success in Los Angelestended to be a symbol. But some of the nationalismbegan to grate on me.I am a refugee to this country not because itmanufactures Olympic winners, or the greatesttechnology in the world, or for any other singleachievement found in it, but because it is thebest environment for individuals to pursuetheir own happiness, according to their own individualtalents, abilities, and choices. D

369Readers' ForumTo the Editors:Thomas DiLorenzo's excellent article on"Monopoly Government" in the June 1989 issueof The Freeman has one important misstatement.The reason why government is in business doesnot have anything to do" . . . with the desire tosupplement agency budgets with commercialprofits" either on the Federal, and certainly noton the local level. It has to do with the prime motivatingfactor of virtually every politician: gettingre-elected! The common name for this is patronage.Here is how it works: The voter turn-out forthe primary election, i.e., the one in which candidatesget on the ballot, is always very small. However,those persons who are the beneficiaries ofpatronage can always be counted upon to vote.Their jobs depend on it. Thus, it is to every politician'sbenefit to dispense as much patronage aspossible in order to assure himself a place on theballot for the next election.In addition, in many localities, such as NewYork, there are stringent "election laws" for gettingon the ballot even for the primary. Amongthe requirements are a certain number of nameson petitions. For a newcomer, getting the requirednumber of names is an arduous task atbest. For the incumbent, it's a lot easier, especiallyif he has dispensed a lot of patronage.So there you have it. A great deal of governmentactivity in the commercial sector has to dowith the structure of the re-election process.LAWRENCE M. PARKSNew YorkDr. DiLorenzo replies:I agree completely with Dr. Parks' view thatpolitical patronage is a prime motivating forcewith any politician. I have coauthored two books(Underground Government, Cato Institute, 1983;and Destroying Democracy: How GovernmentFunds Partisan Politics, Cato, 1985) that exploresome of the more deceitful tricks that politiciansplay in their quest for re-election through the patronagesystem.I disagree, however, that the importance of patronageconflicts with my contention that governmentsoperate monopolistic, commercial enterprisesin order to supplement agency budgets.After all, it takes money to finance patronagejobs. Driving private enterprises from the marketis a way in which government enterprises at alllevels-especially the local level-finance additionalpatronage opportunities. In addition to thepatronage jobs provided by the monopolistic governmentalenterprises themselves, "profits" canbe used to create even more patronage jobs elsewherein the bureaucracy. Thus, we are subjectedto a vast system of what I call monopoly government.To add insult to injury, the people whobenefit at the expense of the taxpayers call themselves"public servants."THOMAS J. DILoRENZOUniversity ofTennesseeChattanooga

370A REVIEWER'SNOTEBOOKIntellectualsby John ChamberlainThe title of Paul Johnson's new book,Intellectuals (New York: Harper andRow, 385 pp., $22.50), is a catch-all thatpromises a history of those who live by theirbrains. But what we get is highly selective.Though he ends his series of entertaining shortbiographies with a glance at Evelyn Waugh,George Orwell, Cyril Connolly, and otherswho don't fit his schematization, the book isabout a specific breed of intellectuals whohave taken Karl Marx's words about changingthe world seriously.What is the common denominator thatunites Jean-Jacques Rousseau, Percy Shelley,Karl Marx, Henrik Ibsen, Leo Tolstoy, ErnestHemingway, Bertolt Brecht, Bertrand Russell,Jean-Paul Sartre, Edmund Wilson, Victor Gollancz,and Lillian Hellman, each of whom getsa major chapter? The common factor is thatthey are all leftists. Johnson does not holdthem to consistency. Bertrand Russell, for example,blew hot and cold on the Soviet Union- at one time, when the U.S. had a monopolyon the atom bomb, he advocated wipingMoscow off the map; world government wouldnaturally follow. Hemingway, a genius at storytelling, followed a fashion in leftism that puthim at odds with John Dos Passos on the SpanishCivil War in a way that Katy Dos Passos, afervent supporter of the anti-Stalin anarchists,quite rightly labeled as opportunistic. EdmundWilson, F. Scott Fitzgerald's friend at Princeton,began as a man of letters, not a reformer.He shifted as a New Republic editor in the depressionto do some first-rate reporting of the"American jitters" and going on from there totrack Lenin's road to the Finland Station. Butin late middle age he reverted to his origins asa man of letters.Leo Tolstoy's world-saving was suspended inmidstream to make way for the writing ofWar and Peace, possibly the world's greatestnovel, and Anna Karenina. These were worksof true genius. But Tolstoy thought less ofthem than of his efforts as a self-constitutedmessiah.Marx "howled gigantic curses" against thosewho would interfere with the revolution hesaw coming, but he brought up his daughters ina thoroughly conventional way. He didn't wantthem to have vocations. He talked about science,but he himself was incapable of good scientificresearch. Engels had to supply him bothwith cash and information about the workingclasses.Shelley could be heartless in his thinking,but his poetry was certainly not heartless. Ibsen,no collectivist, wrote plays about individuals.Sartre wrote under the influence of bothdrink and drugs. He hoped that Europe couldbe created as an entity, but he groveled to theSoviets and admitted lying about the things hehad seen in Russia. Camus's gibe was thatSartre, as an existentialist, tried to make historyfrom his armchair.Rousseau, among the leftist intellectuals, isthe main malefactor. His theory that societyshould be governed by a "general will" led inexorablyto Lenin's totalitarianism. The AmericanFounding Fathers wanted nothing of any"general will" beyond a commitment to pluralismand the safeguarding of minority rights.

371One could wish that Senator Sam Nunn ofGeorgia, who has suggested that alladolescents should serve a compulsory term indoing good as defined by government, shouldread Paul Johnson on Rousseau. Nunn's ownideal "general will" would surely be humane,but no group of politicians can be trusted toformulate compulsory goals for a country. Thatshould be left to individuals on a voluntary basis,subject to amendment as situations change.The egotism of Johnson's leftist intellectualsis almost incalculable. Johnson quotes a contributorto a book on Rousseau's Social Contractas saying that Rousseau was a "masochist,exhibitionist, neurasthenic, hypochondriac,onanist, latent homosexual afflicted by the typicalurge for repeated displacements, incapableofnormal or parental affection, incipient paranoiac,narcissistic introvert rendered unsocialby his illness, filled with guilt feelings, pathologicallytimid, a kleptomaniac, infantilist, irritableand miserly." Johnson documents much,though not all, of this. Yet Tolstoy could saythat "Rousseau and the Gospel" were "the twogreat and healthy influences of my life." Johnsonprofesses himself to be baffled. He lets Sophied'Houdetot, Rousseau's last lover, sumthings up by saying "he was ugly enough tofrighten me and love did not make him moreattractive. But he was a pathetic figure and Itreated him with gentleness and kindness. Hewas an interesting madman."The madness of some of Johnson's intellectualsdid not extend to Victor Gollancz, whopackaged and sold Rousseauistic literature forhis Left Book Club in London between thewars. Money-making is a rational objective.But the West, waiting for the evidence, mighthave been a little quicker than it was in notingthat the Rousseauists were lovers of humanitywho did not actually care for human beings.They treated their own wives, children, andfriends and relatives abominably. Sartre boastedhe could "run" four mistresses beside Simonede Beauvoir at a time. Paul Johnson suppliesthe evidence with detail that is mostamusingly stated. But he really owes us morethan that.After all, we have had good conservative,classical liberal, and libertarian intellectuals,too. A counter book could be written aroundMises and Hayek, Albert Jay Nock andWilliam Graham Sumner, Bastiat and AdamSmith, Carl Menger, Eugen von Boehm-Bawerk,and Leonard Read. The book would notbe as titillating as Johnson's current work: familylife on the Right remains generally clear ofthe sort of scandal that Johnson gossips aboutso zestfully. But if it is ideas that we care for,the counter book should be forthcoming. DUNFAIR COMPETITION: THE PROFITSOF NONPROFITSby James T. Bennett and Thomas J. DiLorenzoHamilton Press, 4720 Boston Way, Lanham, MD 20706 • 1989 •214 pages • $17.95 clothReviewed by Peter FrumkinAt first blush, the operation of a museumgift shop seems harmless enough. Whocould care if a worthy institution likethe Richmond Museum makes a little cash on theside by selling postcards and other small items?Probably no one. But what about a nonprofitYMCA that serves young professionals at a lowercost than a local private health club, drivingthe club out of business? In this case, the issuesbecome less clear and the questions more complex.Are some nonprofits using their nonprofitstatus to compete unfairly with their for-profitcounterparts? Do nonprofit organizations enjoysubsidies that make true competition impossible?How can the need of nonprofits to raise funds bebalanced with the concern of the business communitythat an unfair advantage exists which distortsthe market? These are just some of thequestions that James T. Bennett and Thomas J.DiLorenzo raise in their stimulating new study ofthe nonprofit economy, Unfair Competition.Tax-exempt organizations are one of thefastest growing segments of the economy. In1987, annual revenues exceeded $300 billion-orabout 8 percent of the gross national product.They have, however, only begun to attract significantattention from researchers.The very fact that many nonprofits are activelyengaged in for-profit commercial activities maycome as a surprise to some. After all, thoughts ofthe nonprofit community hardly conjure up im-

372 THE FREEMAN • SEPTEMBER 1989ages of profitable operations generating significantrevenues. In reality, however, many nonprofitsare growing increasingly dependent on thefunds which their various business ventures generate.Is this a development that should be greetedwith enthusiasm as a harbinger of lower costs toconsumers? If the analysis contained inUnfair Competition is correct, there may well behidden costs-and stiff ones at that-which needto be weighed before we accept the continuedprofiteering by the nonprofits. Bennett andDiLorenzo argue in fact that the phenomenalgrowth of the nonprofit sector has been achievedon the back of private business, with small forprofitfirms suffering the most from the unfaircompetition of tax-exempt commercial organizations.Nonprofits enjoy a whole host of advantages-chiefamong them being tax-free statusand reduced postal rates-that give them an unfairadvantage in the marketplace: "The effect ofthese special privileges is that governmental policynot only reduces the costs of nonprofit organizations,but it also raises the costs of doing businessfor their for-profit competitors.Profit-seeking firms must pay higher taxes andpostal rates to offset the subsidies accorded nonprofits.Thus, because of this preferential treatment,competition between nonprofits and forprofitsis inherently unfair."Attempts by government to address the problemof unfair competition have been few and farbetween, and those few measures that have beentaken have been largely ineffective. The UnrelatedBusiness Income (UBI) Tax which was intendedto level the playing field by taxing the revenuesof nonprofits has, for example, proven difficult ifnot impossible to enforce. Bennett and DiLorenzoexplain that the courts have not been able togive a rigorous and consistent definition of justwhat constitutes an "unrelated" business activityby a nonprofit. And because the UBI tax was toapply only to "commercial activity which is notsignificantly related to the purposes for which thenonprofit organization was established," enforcementand collection by the IRS has been less thansuccessful. For their part, nonprofits have takenan extremely expansive view ofwhat constitutes arelated purpose, making the under-reporting ornon-reporting of revenues commonplace.Even if nonprofits enjoy an unfair advantageover private businesses due to tax breaks andpostage subsidies, why should anyone worry?Bennett and DiLorenzo's answer is simple: unfaircompetition impedes the development of smallbusiness by making it hard for them to enter marketsand compete. This is significant because twothirdsof all new jobs are created by businesseswith fewer than 20 employees. The authors notethat because commercial enterprises run by nonprofitsare exempted from taxes and receive othersubsidies, taxpaying businesses must bear anextra burden by paying higher taxes than theywould otherwise to make up for exemptions enjoyedby their "nonprofit" competitors. Bennettand DiLorenzo conclude that unfair competitionends up crowding out of the market preciselythose firms which are the principal source of newjobs-ultimately reducing the rate of economicgrowth.The solution to unfair competition that Bennettand DiLorenzo offer is clear: "Nonprofitsentering a commercial undertaking must form afor-profit subsidiary that must obey all the samelaws and regulations that apply to for-profit enterprises."For according to the authors it is onlywhen we move beyond hidden subsidies and theineffectual regulations of UBI taxes that bothconsumers and producers will be able to enjoythe benefits of even-handed competition.Unfair Competition makes a powerful case thatthe time to crack down on the profiteering ofnonprofits is upon us and the future of free marketsand fair competition rests in the balance.Some may differ with the recommendations ofthe book and favor less radical and sweeping reforms.One may hope a solution can be foundwhich will both allow nonprofits to continue tooperate on a fee for service basis and which willalso ensure that the interests of private for-profitbusinesses are not damaged in the process. Anysuch compromise must, however, start from thepremise that free enterprise and a level playingfield are non-negotiable items.DPeter Frumkin is a graduate student at Georgetown Universitywhere he is studying public policy.

OTHER BOOKS 373THE HIGH COST OF FARM WELFAREby Clifton B. LuttrellCato Institute, 224 Second Street SE, Washington, DC 20003 • 1989149 pages • $19.95 cloth, $9.95 paperReviewed by E. C. Pasour, Jr.Ġ ... ovemment programs haven't solved the. economic woes plaguing U.S. agriculture.Despite record expenditures onfarm programs during the 1980s, financial stressin U.S. agriculture during the Reagan era was atits highest level since the Great Depression of the1930s. Luttrell's short book describes governmentfarm programs and demonstrates why they havebeen an expensive failure.The book is divided into 11 chapters. Chapters1 and 2 describe government intervention in agriculturefollowing World War I that culminated inthe Agricultural Adjustment Act of the RooseveltNew Deal. Chapters 3 through 6 analyzeprice support programs for crops from their beginningin the 1930s until the present time. Chapters7 through 10 discuss other programs, includingfood stamps, subsidized credit, and pricesupports for milk and sugar. Chapter 11 describesthe winners and losers, emphasizing that farmprograms are a "high-cost way to aid low-incomefarmers."Historical data are presented for a range of activitiesincluding production and exports of farmproducts, levels of price supports and marketprices, sugar imports, government expenditureson food stamps, Farmers Home Administrationloans, farm income by farm size, and expendituresby the U.S. Department of Agriculture(USDA).Farm programs today are remarkably similarto those instituted during the 1930s. And governmentexpenditures on farm programs, adjustedfor inflation, have increased dramatically duringthe past 50 years, despite remarkable changes inthe farm economy. Indeed, USDA outlays since1980 have been higher each year than net farmincome.Luttrell pinpoints numerous inconsistenciesand inefficiencies of price supports, subsidizedcredit, and other farm programs. For example,milk, sugar, and peanut programs raise foodprices to consumers. At the same time, more than$10 billion is spent on food stamp programs tomake food more available to lower-income con-sumers. Again, while espousing self-help and providingforeign aid to assist less developed sugarproducingnations, the United States has impededeconomic development in these countries,notably in the Caribbean area, through sharp decreasesin sugar quotas which limit their economicindependence.Of course, farm programs are inconsistent withcompetitive markets. Price supports that raise domesticprices above world price levels not onlyspawn protectionism to prevent the substitutionof lower-priced imports by U.S. consumers, theyalso create the "need" for export subsidies tomake U.S. products competitive in internationaltrade. The massive export subsidies under PublicLaw 480 ("Food for Peace") and similar programsnot only continue today but have beensubstantially increased in recent years.Luttrell shows that most of the benefits of farmprograms go to farmers whose incomes, on average,exceed those of the nonfarm population. Forexample, in 1985 the top 4 percent of farms (measuredby value of products sold), with average netincome of well over $100,000 per year, receivedabout one- third of all government price supportpayments. In this reverse Robin Hood approach,the programs provide the lion's share of governmentpayments to a relatively few higher-incomefarmers. Moreover, the benefits of higher productprices are quickly incorporated into higher pricesand costs of land and other farm assets. Consequently,farm programs have little effect on thelong-run profitability of U.S. agriculture.What is the reason for this apparent anomalyin which the "government taxes so many for thebenefit of so few"? Although Luttrell briefly addressesthis topic, it would have been helpful todevote more space to the reasons why governmenttends to spend great sums on agriculturalprograms.There are two explanations for the persistenceof government farm programs - "market failure"and income redistribution. In the formerview, government farm programs persist becausethe decentralized market process isn't capable ofcoordinating economic activity in agriculture.Luttrell demonstrates that the evidence doesn'tsupport this conclusion and that government interventionin agriculture frequently destabilizesmarkets for farm products.The income distribution explanation appears

374 THE FREEMAN • SEPTEMBER 1989to be more consistent with the evidence. The politicalprocess is short-run oriented, and farmers(and other groups) often exert disproportionateamounts of influence in the political process becauseprogram benefits (as Luttrell stresses) arehighly concentrated and the costs are widely diffused.For example, the sugar program that coststhe average U.S. family no more than $50 peryear benefits the 12,000 to 13,000 domestic producersof sugar and sugar substitutes, on average,by thousands of dollars per year. It isn't surprisingthat sugar producer interests exert more effort toinfluence the political process than do consumers!How should the nation move to restore marketforces in agriculture? Luttrell suggests a five-yearadjustment period in returning to a competitivesystem. He also puts forth a controversial "decoupling"proposal in which farm programswould be dismantled, and current farmers wouldreceive government payments unrelated to agriculturalproduction until death or the age of 70.Luttrell recognizes that economic theory cannotbe used to justify income redistribution to farmers.Moreover, he staunchly advocates the dismantlingof farm programs, leaving no doubtabout the inevitable result if agriculture isn't decontrolled:". . . ever-increasing costs to taxpayersand consumers, resulting in further regulationand more highly inefficient, centralized decisionmaking." 0Dr. Pasour is professor of economics at North CarolinaState University at Raleigh.A THEORY OF SOCIALISM ANDCAPITALISM: ECONOMICS,POLITICS, AND ETHICSby Hans-Hermann HoppeKluwer Academic Publishers, 101 Philip Drive, AssinippiPark, Norwell, MA 02061 • 1989 • 275 pages. $40.00 clothReviewed by Robert W McGeeThis book is an interesting blend ofscholarship and polemic. The text is210 pages, followed by 48 pages ofnotes, a 13-page bibliography, and a brief index,which makes it a good source documentfor anyone who wants to research any of themany interesting points that Hoppe raises. Itis decidedly anti-statist and presents a strongcase for capitalism on both a priori and empiricalgrounds.When I read a book, I make marginal notationsand underline the points that I think areworth reading a second time. With this book,I found that I had to restrain myself because Iwas making so many notations that it slowedmy reading. Practically every paragraph hasat least one point worth reflecting upon.Hoppe's writing style is entertaining in spots,and some of the examples he gives do a goodjob of pointing out the absurdity of commonlyheld collectivist viewpoints. The text is alsoheavy in spots, as is often the case with philosophy,but Hoppe partially overcomes thisweightiness by summarizing what he has justsaid in the first few paragraphs of the nextchapter. These short summaries provide agood overview of the previous chapter andgive readers a second chance to digest whathas just been read.After a brief introduction, Hoppe explainsthe relationship of property, contract, and aggressionto the two economic systems----eapitalismand socialism. Capitalism is the institutionalizedpolicy of nonaggression thatrecognizes and respects property and contract.Socialism is the system that aggressesagainst property and contract. One who aggressesincreases his or her satisfaction atsomeone else's expense. Someone gains andsomeone loses. One who enters into a contract,on the other hand, is part of a win-winsituation because both parties expect to benefitby the voluntary exchange. Socialism is aneconomically inferior system because, by relyingon aggression, it causes less property to becreated, and the property that is created is notput to optimal use. Politics and force, not economicsand voluntary exchange, determinehow property is allocated. Aggression is usedto take from some people to give to others.Hoppe spends the next four chapters explaininghow different ways of deviating froma pure capitalist system lower investment, increaseconsumption, and cause a change inthe composition of the population by favoringnonproductive over productive people. UnderSoviet-style socialism, the style advocated byMarxian socialists, the means of production

OTHER BOOKS 375are nationalized. Investment must be made bycaretakers of property rather than by owners,since there are no owners. Such an arrangementis inferior to capitalism for a number ofreasons.For one, caretakers do not have thesame incentive to care for "socialized" propertyas they would have to care for their own.Second, there is less incentive to maximizeutility of the property since the caretakers donot get to keep what they produce. Also, thelack of a pricing system makes it impossible toplan rationally. Less urgent needs get satisfiedat the expense of more urgent ones. Socializingthe means of production causes relativeimpoverishment, a conclusion that can bedrawn logically, since socially owned assetsmust necessarily be used less efficiently thanprivately owned ones. Where the incentive toproduce is lessened, there will be less production.Substantial empirical evidence also exists toverify this conclusion. East and West Germanyare offered as examples. The populationsare homogeneous, yet the West Germaneconomy thrives while the East Germaneconomy stagnates. The difference is causedby the economic systems used to allocate resources.The second variety of socialism is the social-democraticmodel. Under this system, theidea of socialized production is exchanged fortaxation and equalization. The means of productioncan be privately owned, with someexceptions, such as education, traffic, communications,central banking, the police, and thecourts. Individuals have the right to own andproduce, but not to keep all of the fruits oftheir labor. Some of these fruits belong to"society," which means the rights of the naturalowner have been aggressively invaded.Thus, the difference between Soviet-style andsocial-democratic-style socialism is one of degree.In the first case, private ownership isn'tpermitted. In the second case, private ownershipis permitted, but the state determineshow much of the fruits can be kept by therightful owner. Ownership rights are purelynominal. Social-democratic socialism settlesfor partial expropriation and the redistributionof producer incomes. The results, as withSoviet-style socialism, are reduced incentivesto produce and relative impoverishment.The third form of socialism is the socialismof conservatism, the ideological heir of feudalism.Like social-democratic socialism, conservativesocialism allows private ownership,but not the right to keep all the fruits of privateownership. But whereas social-democraticsocialism distributes from the producinghaves to the nonproducing have-nots, conservativesocialism distributes from the producinghaves to the nonproducing haves; it aimsat maintaining the status quo rather than increasingequality. The difference between thetwo kinds of socialism lies in the group ofnonproducers who receive the fruits of otherpeople's labor. Also, whereas the socialdemocraticform uses taxation to achieve itsgoals, conservative socialists favor the use ofprice controls, regulation, and behavioral controls.Again, the result is relative impoverishment,since use of any of these techniquescauses productive resources to be misallocatedfrom higher uses to lower uses.The fourth form of socialism is that of socialengineering. Whereas the Soviet, socialdemocratic,and conservative brands of socialismall fail on economic grounds, the fourthtype of socialism doesn't claim to be economicallysuperior to capitalism. It states, in effect,that even though socialism might be economicallyinferior to capitalism, it is morally superior.This empiricist-positivist Popperian styleof socialism sees empirical proof of capitalism'ssuperiority as ill-conceived. Socialism ismade immune to criticism because any failurescan be explained away as caused bysome as yet uncontrolled intervening variable.We can never know in advance what theoutcome of some policy will be. We must tryit first. Then, if the policy fails, we can explainit away.Hoppe then defends capitalism on ethicalgrounds and shows why socialism is indefensible.Under socialism, an individual's rights aredetermined by his class. Some individualshave an obligation to pay taxes, and othershave a right to consume them. The computerindustry, for example, must pay to subsidizefarmers, the employed must subsidize the unemployed,individuals without children mustsubsidize those with children. The whole sys-

376 THE FREEMAN • SEPTEMBER 1989tern is based on aggression.The remainder of the book is devoted tothe theory of the state, capitalist production,the problem of monopoly, and public goodstheory. The state exists on the principle of divideand conquer, and the continuous threatof violence. It attempts to control basic servicessuch as education, traffic and communications,the supply of money, and the productionof security. Hoppe points out thatmonopoly cannot exist without governmentsupport, and that many of the services providedby the state can be provided more economicallyby the market. Public goods do notexist. Anything that is worth providing can beprovided by the market. If the market doesnot provide a particular good or service, it isbecause consumers have determined that itisn't worth producing. Having the state step into provide something that the market doesnot results in misallocating resources fromhigher to lower uses.DProfessor McGee teaches accounting at Seton HallUniversity.THE FOUNDATION FOR ECONOMIC EDUCATION, INC.Irvington-on-Hudson, New York 10533* 1989-1990*ESSAY CONTEST"Education for aFree Society"HIGH SCHOOL DIVISIONFirst Prize, $1,500$econd Prize, $1,000Third Prize, $500For complete contest information call or write:COLLEGE DIVISIONFirst Prize, $1,500Second Prize, $1,000Third Prize, $500FREEDOM ESSAY CONTESTFoundation for Economic Education30 South BroadwayIrvington-on-Hudson, NY 10533(914) 591-7230

THEFREEIDEAS ON LIBERTY380 A Triumph for Bootstraps CapitalismClint BolickEgo Brown's battle against arbitrary economic regulation.383 Speculators: Adam Smith RevisitedChristopher L. Culp and Fred L. Smith, Jr.The "forestallers" of Smith's era were as reviled as the "insider traders"of the 1980s.CONTENTSOCTOBER1989VOL. 39NO. 10386 High-Definition TV: Government or Market Choice?Gary McGathConsumer decision provides the ultimate method for setting standards.389 The Confession of Yevgeni Turchik: Part-lime KGB AgentA special interview from inside the Soviet Union.392 The Real Child Care CrisisJ. Brian PhillipsThe state is neither an effective nor appropriate guardian for our children.394 Specialization and ExchangeGene SmileyGains from a rising specialization are the same whether we consider twoindividuals, the citizens of two states, or the citizens of two nations.396 The Minimum Wage: An Unfair Advantage for EmployersDonald J. BoudreauxThe minimum wage creates a surplus of unskilled labor in the marketplace.398 Free Market Money in Coal-Mining CommunitiesRichard H. TimberlakeThe issue and use of scrip in isolated economic environments.406 The Forgotten Right of AssociationDavid HoodHave the courts compromised a fundamental right in the name ofexpediency?409 Movie-Goers Can Think for ThemselvesTibor R.· MachanConsumers are not helpless pawns of advertisers.410 Book ReviewsJohn Chamberlain reviews A Critical Examination ofSocialism by WilliamHurrell Mallock. Other reviews: Hong Kong by Jan Morris, The FatalConceit; The Errors ofSocialism by F.A. Hayek, and Roosevelt and Stalin:The Failed Courtship by Robert Nisbet.

THEFREEMANIDEAS ON LIBERTYPublished byThe Foundation for Economic EducationIrvington-on-Hudson, NY 10533President ofThe Board:Vice-President:Senior Editors:Contributing Editors:Copy Editor:Bruce M. EvansRobert G. AndersonBeth A. HoffmanBrian SummersBettina Bien GreavesCarl O. Helstrom, IIIEdmund A. OpitzPaul L. PoirotDeane M. BrasfieldThe Freeman is the monthly publication of TheFoundation for Economic Education, Inc.,Irvington-on-Hudson, NY 10533 (914) 591­7230. FEE, founded in 1946 by Leonard E.Read, is a nonpolitical educational champion ofprivate property, the free market, and limitedgovernment. FEE is classified as a 26 USC 501(c) (3) tax-exempt organization. Other officersof FEE's Board of Trustees are: Thomas C.Stevens, chairman; Ridgway K. Foley, Jr., vicechairman;Paul L. Poirot, secretary; H.E Langenberg,treasurer.The costs of Foundation projects and servicesare met through donations. Donations areinvited in any amount. Subscriptions to TheFreeman are available to any interested personin the United States for the asking. Additionalsingle copies $1.00; 10 or more, 50 cents each.For foreign delivery, a donation of $15.00 a yearis required to cover direct mailing costs.Copyright © 1989 by the Foundation for EconomicEducation, Inc. Printed in the U.S.A.Permission is granted to reprint any article inthis issue, except "Free Market Money in Coal­Mining Communities" and "Movie-Goers CanThink for Themselves," provided appropriatecredit is given and two copies of the reprintedmaterial are sent to The Foundation.Bound volumes of The Freeman are availablefrom The Foundation for calendar years 1969to date. Earlier volumes as well as current issuesare available on microfilm from UniversityMicrofilms, 300 North Zeeb Road, Ann Arbor,MI48106.The Freeman considers unsolicited editorialsubmissions, but they must be accompanied bya stamped, self-addressed envelope. Our author'sguide is available on request.FAX: (914) 591-8910PERSPECTIVEChina: Why the WorstGot on TopThe recent slaughter of student demonstratorsin China's Tiananmen Square led me to reread"Why the Worst Get on Top," a chapter in E A.Hayek's classic The Road to Serfdom, written in1944. Why were the Chinese authorities so brutal?Why did the soldiers shoot their own countrymen?Consider Hayek's perceptive commentsabout totalitarian leaders and their minions:"To be a useful assistant in the running of a totalitarianstate, it is not enough that a man shouldbe prepared to accept specious justification ofvile deeds; he must himself be prepared activelyto break every moral rule he has ever known ifthis seems necessary to achieve the end set forhim. Since it is the supreme leader who alone detenninesthe ends, his instruments must have nomoral convictions of their own. They must, aboveall, be unreservedly committed to the person ofthe leader; but next to this the most importantthing is that they should be completely unprincipledand literally capable of everything...."Yet while there is little that is likely to inducemen who are good by our standards to aspire toleading positions in the totalitarian machine, andmuch to deter them, there will be special opportunitiesfor the ruthless and unscrupulous. Therewill be jobs to be done about the badness ofwhich taken by themselves nobody has anydoubt, but which have to be done in the serviceof some higher end, and which have to be executedwith the same expertness and efficiency as anyothers. . . . The readiness to do bad things becomesa path to promotion and power. . . . It isonly too true when a distinguished Americaneconomist [Frank Knight] concludes from a similarbrief enumeration of the duties of the authoritiesof a collectivist state that 'they would have todo these things whether they wanted to or not:and the probability of the people in power beingindividuals who would dislike the possession andexercise of power is on a level with the probabilitythat an extremely tender-hearted person wouldget the job of whipping-master in a slave plantation.'"-BRIAN SUMMERS

PERSPECTIVEOnEnvyIt is ludicrous to envy anyone who succeeds ina capitalistic economy. Those who achieve greatfinancial success do so through their productivityand are our most efficient servants. Their geniusand energy produce the cheapest, the best, or themost desirable products that we buy. If theydidn't, we wouldn't buy, and they wouldn't be sorich. Ours is truly a symbiotic relationship. Ourgood fortune is their good fortune-and vice versa.Their genius and energy are ours for the purchaseprice of their goods and services.Beyond Numbers-JIM RUSSELLBeachwood, OhioThe success of recent privatization efforts canobscure the fact that privatization seeks merelyto redress the damage done by collectivist actionsand principles. Often those principles are left essentiallyunchallenged, even aft~r property hasbeen returned to private hands. The strong antiproperty,anti-capitalist bias of government officialsis still largely intact. Some officials may haveconcluded that government action in the marketplaceis inefficient, but few think it immoral.We will not make real progress in shrinking thesize of government if we only react to governmentprograms and if our reaction consists onlyof bar graphs and balance sheets. The figures,while providing empirical evidence against stateintervention, apply to only one specific case atany time; there is nothing to carry over, no "bigpicture" to leave people with. The fact is thatmost people will countenance a good bit of inefficiencyif they believe it to be for a good cause.The goal should be to nip plans to expand governmentin the bud, before a protective constituencysprouts up. To accomplish this, themind-set of decision-makers in government mustbe changed. Such a change can occur only whenthe intellectual battle moves beyond simple numbercrunching. For success, the conflict must bewaged where notions of freedom and liberty arethe most compelling-the realm of ideas.- JEFF A. TAYLORKingstree, South CarolinaThe Worst PolluterCrude waste disposal practices, which theFederal government banned in the private sectora decade ago but allowed to continue at itsown nuclear weapon plants, are largely responsiblefor extensive environmental damage atthose plants. . . .At the Portsmouth Uranium EnrichmentComplex in Piketon, Ohio, workers dumped oilon the soil and plowed it under until 1983, failingto analyze it for cancer-causing solvents that havenow contaminated the underground water andthreaten drinking water supplies. . . .At the Savannah River Plant near Aiken, S.C.,wastes laden with radioactive and chemical pollutantswere dumped until the mid-1980's into seepagelagoons. . . .At the Pinellas Plant in Largo, Fla., toxic substanceshave been discharged into the PinellasCounty Sewer System. . . .The reports make clear, and experts agree, thatthe pollution was allowed to continue long aftertechniques for controlling it were thoroughly understood.Equal Rights-MATTHEW L. WALD,writing in the December 8,1988,New York TimesDo rights exist in the individual or in thegroup? If rights exist in the individual, then thereare no other rights that come with belonging toany group. A cajun does not have more rights becausehe belongs to a group labeled "cajuns" becausethere is no such thing as "cajun rights." Ablack does not have more rights than non-blacksbecause he joins other blacks to form a politicallyactive group. Therefore, there's no such thing as"black rights" per se, but only individual rightsthat are the same for any black, white, cajun, andeveryone else.-KEVIN SOUlHWICK,editor, Centre Democrat,Bellefonte, Pennsylvania

380THEFREEMANIDEAS ON LIBERTYA Triumph forBootstraps Capitalismby Clint BolickEgo Brown never fancied himself a crusader.His ambition is more that of a classicentrepreneur. His dream, as Mr. Browndescribes it, is to "spread the shine" withshoeshine stands on street corners throughoutWashington, D.C., and eventually in other citiesas well.The story of Ego Brown in many ways exemplifiesthe great American tradition of bootstrapscapitalism: the methodical climb up the economicladder by means of creativity, talent, and hardwork. Indeed, Ego Brown's little enterprise tookon added luster by providing employment opportunitiesto the homeless-a classic case of an entrepreneurdoing good by doing well.But along the way, Mr. Brown encountered anunexpected obstacle-a District of Columbia lawthat forbade him from pursuing his chosen business.This law and thousands of others like itform an oppressive barrier that prevents entrepreneurs.like Ego Brown from earning theirshare of the American Dream.The resulting battle for the right to earn a livingfree from excessive governmental interferencecast Brown in the unlikely role of championin the cause of economic liberty. His pathbreakingtriumph is a beacon to others outside the economicmainstream that opportunity still exists inAmerica.An Entrepreneur in ActionEgo Brown launched his career after he quithis job as a voucher examiner for the Navy sevenClint Bolick is Director ofthe Landmark Legal FoundationCenter for Civil Rights in Washington, D.C., andauthor ofChanging Course: Civil Rights at the Crossroads(New Brunswick, N.J.: Transaction Books,1988).years ago. "I used to look outside and thinkabout how good it would be to work for myself,"he recalls. He cast about for the right opportunityto do just that.Mr. Brown quickly discovered a lucrative potentialmarket in the thousands of scuffed shoespounding the sidewalks of downtown Washington."It's an image city," he says. "People care\ about their appearance and they wear niceclothes, but they forget about their feet."He set out to remedy this anomaly by providingthe "finishing touch"-a quality shoeshine.Drawing upon the talent he developed as ayoungster shining shoes for pocket money, Mr.Brown went to work. He started out in a barbershop near Howard University, but soon hungeredfor his own business. In 1985, he obtained a vendinglicense from the District of Columbia, investedin a portable two-seat shoeshine stand, and setup shop at the comer of 19th and M Streets, N.W.Attired in his trademark tuxedo, Brown quicklyattracted a large clientele for his distinctive "EgoShine."Mr. Brown dismisses the notion that shoeshiningisdegradingto blacks. "I'm out to changethat stereotype," he says. "I'm a shoeshine artist.I provide a valuable service, and I do it with atouch of class."The success of his first stand encouragedBrown to expand his business. That's when theidea of employing homeless people occurred tohim. He recalls that "when I used to see thesepeople on the streets, I'd dig into my pockets andgive them money. Then one day I realized Iwasn't helping them. They didn't need a handout.What they needed was an opportunity, a chanceto lift themselves by their own bootstraps."Thereafter, Ego Brown enlisted workers from

381the ranks of the homeless. He provided hishomeless recruits a shower, clean clothes, ashoeshine kit and training-and most important,a renewed sense of dignity.' Brown estimates heemployed as many as 20 homeless men, bothblack and white, at shoeshine stands in downtownWashington. His efforts were so successful,in fact, that a District of Columbia social workerregularly referred enterprising homeless peoplefor the "second chance at life" Ego Brown offered.But during the summer of 1985, these effortscame to an abrupt end as District of Columbiapolice slIut down Mr. Brown's business. They citeda 1905 law providing that "No permit shall issuefor bootblack stands on public space." Regulatedvendors peddling goods and servicesranging from hot dogs to photo opportunitieswith cardboard celebrities were allowed to operate,but shoeshine stands were prohibited.Mr. Brown appealed to his elected representativesfor help, to no avail. Although Mayor MarionBarry was calling for massive private sectorassistance to cure the homeless problem, he ignoredBrown's plight, apparently preferring tohave homeless people sleeping on the streetsrather than earning their livelihood on thosestreets.Thwarted by this anachronistic law, Brownstruggled to stay in business by shining shoes inprivate establishments. But by late 1988, he was astep away from the welfare rolls, his dreamdimmed to a faint glimmer.Sordid OriginsThe District's shoeshine stand prohibition wasa relic of the Jim Crow era. Governments duringthat time frequently placed severe constraints oneconomic activities pursued by blacks. Thoughostensibly race-neutral, these laws were designedto prevent blacks from gaining economic selfsufficiency.The shoeshine ban was such a law, adopted inapolitical environment permeated by racial bigotry.A 1906 District of Columbia Health Servicereport reflected the government's prevailing attitudewhen it spoke of blacks as "a race just enteringwhat is termed civilized life."The same District Board of Commissionersthat adopted the bootblack ban took a number ofother steps designed to subjugate blacks.W. Calvin Chase, editor of The Bee, Washington'sblack daily newspaper during this period, assailedthe District government for erecting a publicwhipping post and enacting stringent licensing requirementsfor the building trades. Chase calledthe whipping post "a pet scheme to deter thewhite wife-beaters by whipping the negroes. Themoment a white man is thrashed, the law will goout of business." Of the builder licensing requirements,Chase asked "[W]hat becomes of the minorbuilders, who are fully competent to constructa house, but not able to pass anexamination?" (The Bee, January 7, 1905)The shoeshine ban fit neatly into this pattern.According to the 1900 census, the public streetsof Washington provided a means of living to 1.5percent of the city's employed black male populationas "bootblacks," "hucksters," and "peddlers."By prohibiting bootblacks on thestreets-hence confining them to hotels and barbershops as employees rather than independententrepreneurs-the government eliminated animportant outlet for economic self-sufficiency.Today, oppressive economic regulations suchas occupational licensing laws and governmentconferredbusiness monopolies proliferate at thestate and local levels. These laws often far exceedlegitimate public health and safety concerns. Liketheir Jim Crow antecedents, these laws are raceneutralbut impose their harshest burdens onpeople outside the economic mainstream-primarilyminorities and the poor.From the Street to the CourtroomFor more than 50 years, the courts have consistentlydeclined to protect entrepreneurs fromarbitrary or excessive economic regulation.Moreover, establishment civil rights groups haveignored such barriers to opportunity, preferringto focus on social engineering schemes like quotas,business set-asides, and welfare.As a result, in May 1988 the pro-free enterpriseLandmark Legal Foundation launched itsWashington-based Center for Civil Rights, whichinitiated a long-range economic liberty litigationprogram. The Center hopes to restore the basiccivil right of individuals to pursue a trade or profession-acivil right that provided substantialimpetus for many of the major civil rights laws,

382 THE FREEMAN • OCTOBER 1989including the Fourteenth Amendment and theCivil Rights Act of 1964. The Center promptlyfiled its first economic liberty lawsuit againstMayor Barry and the District of Columbia on behalfof Ego Brown and two homeless men whoworked for him.In light of a half century of adverse legal precedent,the Center faced an uphill battle. The Districtcited scores of decisions in which the courtsrefused to strike down economic regulations, nomatter how onerous. But the Center argued thatthe shoeshine ban went too far, violating theFourteenth Amendment's equal protection, dueprocess, and privileges or immunities clauses. Allowingthe District to extinguish opportunities inthis quintessentially entry-level business, theCenter charged, would destroy economic liberty.Ego Brown's lawyers suffered a setback in October1988, when Federal District Court JudgeGeorge H. Revercomb denied an injunction onprocedural grounds. But Judge Revercomb expressedstrong sympathy for the merits of thecase, declaring that individuals have a Constitutionalright "to follow a chosen profession freefrom unreasonable governmental interference,"adding that "the federal courts' role in protectingAmerican citizens from unreasonable economicregulation has been one of the hallmarks ofAmerican liberty, prosperity, and progress."Heartened by Judge Revercomb's language,the Center pressed forward. Finally, on March 22,1989, Judge John H. Pratt declared the shoeshineban unconstitutional and permanently enjoinedits enforcement. "We would have to 'strain ourimagination,' " Judge Pratt declared, "to justifyprohibiting bootblacks from the use of publicspace while permitting access to virtually everyother type of vendor." The District is free toadopt reasonable regulations, he ruled, but maynot altogether prohibit shoeshine stands.An Entrepreneur VindicatedEgo Brown's victory in the courts may signal acrucial turning point in the battle to protect economicliberty. The Center plans to use theBrown v. Barry decision as a building block forother assaults on excessive economic regulation,and already has filed a challenge to the HoustonAnti-Jitney Act of 1924 on behalf of entrepreneurAlfredo Santos.For Mr. Brown, the ruling means vindicationand a chance to pursue his dream. His enthusiasmwaned during the four years following theforced demise of his business. Brown remarked aweek before the court decision, "I lose sleep becauseI can't understand why."But following his triumph, Ego Brown displayedthe resilience that is the hallmark of a successfulentrepreneur. "I plan to get back on thestreets and prove-to myself more than anybodyelse-that my idea, my dream can become a reality."Asked if he feared competition from othershoeshine entrepreneurs, Brown replied to thecontrary. "It would stroke my ego to see someoneelse out there with me," he said. "I would think Ihad something to do with that, that I inspiredsomeone to go into business. I beckon competition."And compete he will. Even before springreached full bloom in the nation's capital, EgoBrown was back on the streets of Washington,pursuing his dream. His stand was booming, andhomeless people were learning the trade. Wellwisherswere streaming by yelling, "Way to go,Ego!"For countless others like him, however, arbitrarybarriers remain. For a nation whose moralclaim is staked in its doctrinal commitment to opportunity,such barriers are a matter of shame.Challenging such barriers-securing for all individualsthe ability to control their own destinies-ispart of the unfinished business in thequest for civil rights.But Ego Brown's successful struggle provideshope to would-be entrepreneurs that one day ournation will honor that basic opportunity that isevery American's birthright-every American'scivil right.D

383Speculators: Adam SlDithRevisitedby Christopher L. Culp and Fred L. Smith, Jr.Financial middlemen are in disfavor everywhere.From the movie Wall Street tothe pages of The Wall Street Journal,they have become the villains of our age. Ourmodern media and intellectual leaders recognizea range of legitimate economic activitiessuch as farming, distribution, storage, andmanufacturing, but see little value in such unfamiliar,"immoral," and "unproductive" activitiesas corporate takeovers, insider trading,and junk bond financing. These activities involvetoo much mental acumen and too littlehonest sweat.To reinforce their biases, journalists quicklyassign pejorative labels to those things theydon't understand: "insider" trading, "junk"bonds, "leveraged buy-outs," "hostile"takeovers, "poison pill" defenses, "greenmail,"and those old favorites, "speculation" and"profiteering." The plot outline of the mediastory varies, but when the story ends, the middlemanalways winds up wearing the black hat.Those in the media are not alone in theircondemnation. Politicians and other socialcommentators find it useful to chastise suchmiddlemen as serving no useful purpose. Infact, these entrepreneurs are typically portrayedas being mere paper-pushing, tapewatchingprofit maximizers who exist only toskew the distribution of wealth. But if middle-Mr. Culp is an Associate Policy Analyst for the CompetitiveEnterprise Institute (eEl) in Washington,D. c., and a research associate for Friedberg CommodityManagement, Inc., in Toronto, Canada. Mr. Smithis the President of CEI. The authors wish to acknowledgecontributions of Tom Miller in helping to preparethis article.men are so non-productive, we might well askwhy competitive capitalist societies have createdso many types of them. Some insight intothis question is gained when one realizes thattoday's respected service and distributionworkers were once also condemned as parasiticmiddlemen.We should not be surprised that the MichaelMilkens of today are caricatured and pilloried.What is not understood is often condemned,and few people understand the value of entrepreneurialactivities. Mankind is reactionary-thenew, the novel, and the unusualmay be essential, but such activities rarely receivehonor in their own day. Today's insidertraders and junk bond salesmen were yesterday'sdraymen and warehousemen. In theirday, transportation and storage were viewed assuspiciously as innovative financial vehicles aretoday.The story is told well in Adam Smith's discussionof the Corn Laws in The Wealth ofNations. Smith reviewed 18th-century publicattitudes toward two new forms of wealth creation:"forestalling" and "engrossing" (termspicked for the same connotative reasons that"junk" and "hostile" are the adjectives ofchoice for high risk, high yield bond financingand changes in corporate control today)."Forestalling" was a new economic activity involvingcom purchases during times of plentyin the hope that the com could later be resoldat a profit. "Engrossing" described a similar arbitrageactivity focusing on price differentialsamong different locales within England. Engrossers,for example, bought low in Birming-

384 THE FREEMAN • OCTOBER 1989ham and sold high in London-or rather theyhoped to do so. Both activities had becomepossible only as storage and transportationcosts dropped.The Role ofthe MiddlemanForestalling and engrossing were soundlycriticized as sterile middlemen activities thatproduced no new com but only raised prices.Such speculation, the conventional wisdomheld, could only hurt the general public.However, Smith explained clearly that suchmiddlemen played an essential role. If speculatorspredicted scarcity and it failed to materialize,they lost money. They not only had to sellthe corn at a loss, but also pay its storageand/or transportation costs. When the scarcitywas real, however, Smith explained that "thebest thing that can be done for the people is todivide the inconveniences of [that scarcity] asequally as possible through all the differentmonths, and weeks, and days of the year" and,of course, across the nation. Smith noted thatthe corn merchant-the specialist in this commodity-wasthe most appropriate party tocarty out this "most important operation ofcommerce."1Moreover, Smith noted, the risks were clearlyshifted from the consumers to these specialists.When engrossers and forestallers werewrong (a situation all too likely in commoditymarkets) and prices fell rather than rose, theybore the consequences of their follies. On theother hand, when these speculators were correctand shortages did occur, both they and thecitizenry benefited. As Smith explained, "Bymaking [the people] feel the inconveniences ofa dearth somewhat earlier than they might otherwisedo, he prevents their feeling them afterwardsso severely as they certainly would do, ifthe cheapness of price encouraged them toconsume faster than suited the real scarcity ofthe season."2Smith detailed the consumer advantages ofmaking uniform the supply of foodstuffs overtime and avoiding the feast or famine problemsthat existed before there were middlemen.3In modern terms, forestalling and engrossingwere creative forms of voluntaryrisk-shifting, in which risks were transferredfrom risk-averse consumers and growers torisk-taking speculators.Smith stated that "after the trade of thefarmer, [there is] no trade contributing somuch to the growing of com as that of the cornmerchant."4 He continued, "The popular fearof engrossing and forestalling may be comparedto the popular terrors and suspicions ofwitchcraft. The unfortunate wretches accusedof this latter crime were not more innocent ofthe misfortunes imputed to them, than thosewho have been accused of the former." ToSmith, "the corn trade, so far at least as concernsthe supply of the home-market, ought tobe left perfectly free."5Moreover, Smith explained that entrepreneursseek profits not necessarily becausetheir actions will benefit consumers;clearly, entrepreneurs have profit-maximizationin mind. Yet, speculative entrepreneurshipcarries positive external benefits for society apriori. It is ironic that the profit-seeking activitiesof forestallers and engrossers yield suchresidual benefits, while the actions of politicians,who are generally viewed as those responsiblefor promoting the welfare of society,often do more harm than good. 6The reader will notice the clear similaritybetween the speculators and arbitragers of todayand Smith's corn merchants. Indeed, theforestallers and engrossers were simply pioneersspecializing in the fields of risk management,information provision, and informationprocessing. As in Smith's time, such middlemenprovide society with services that are noless valuable because they are intangible; speculatorsare willing to take risks that consumerswould prefer to avoid.The Benefits of SpeculationSpeculation comes in many forms and hasmany benefits. Speculators, for example, constantlyquestion the validity of conventionalmarket wisdom by taking risks which othersview as foolish. Even when conventional wisdomis correct, speculators provide a de factocushion of insurance that improves the resiliencyof society against economic risks. Speculatorsalso serve a moral purpose by makingentrepreneurial activity, and resulting economic

SPECULATORS: ADAM SMITH REVISITED 385growth and prosperity, possible.Additionally, speculators enhance the efficiencyof firms and the deployment of capitalin the economy at large. If inefficient managementof a corporation, for example, is detectedby speculators, capital can be redistributedthrough the takeover process, with substantiveresidual benefits arising in society through betterallocation of resources. Furthermore, thethreat of takeovers serves as an implicit economicregulator of corporate management.Publicly held corporations typically becometakeover targets when their stock becomes undervalued.This is generally the result of mismanagementor the inefficient use of capitalresources. To avoid becoming takeover targets,then, firms have the incentive to operate efficiently.Forestallers and engrossers in Smith'sday-and corporate raiders and junk bondspecialists today-are merely entrepreneurs,and thus inseparable from capitalism. Unfortunately,unlike 18th-century England, we haveno Adam Smith to explain their role to theAmerican public. Our society finds it all tooeasy to shift the blame for declining moralstandards and failing projects to today's forestallersand engrossers.Rudolph Giuliani, Anton R. Valukas, andOliver Stone play before the masses on theirrespective theatrical stages when they portrayand prosecute the evil speculators. AdamSmith did not have to contend with televisionand Hollywood or crusading prosecutors; hewas able to argue directly to policy makers. Hedid not need to simplify his message for the 30­second sound-bite. Nonetheless, Smith didmake a strong case and his viewpoint eventuallyprevailed. The pejorative terms graduallylost their evocative power as people began tounderstand what these activities entailed.Our challenge is to teach the American publicabout the value of the modern counterpartsof Adam Smith's forestallers and engrossers.This task is made even more difficult by theabsence of any great Corn Law debate today.Accusations of embezzlement and corruptionon the financial markets pale in comparison tothe melodrama of impending starvation in18th-century England. Despite the absence ofa life-threatening crisis, though, this issue is asimportant today as it was in the days of Smith.Failure to consider the necessity of speculationfor a growing economy will lead to the declineof entrepreneurial activity.Attacking speculators deprives society of thevital economic and moral functions they serve.Morality cannot be restored to society by regulatingand censuring the speculative class; thisaction would only sell our future short. D1. Adam Smith, An Inquiry into the Nature and Causes of theWealth of Nations, edited by R.H. Campbell, A.S. Skinner, andW.B. Todd, Volume I (Indianapolis: Liberty Classics, 1981), p. 534.2. Ibid., p. 533.3. Many modern views of commodity futures markets depictthem as insurance markets, in much the same way that forestallersand engrossers provided de facto insurance for consumers. Whilethis is not altogether inaccurate, it is far more precise to representthese markets as intertemporal allocations of supplies. Forestallersand engrossers controlled the amount of commodities supplied inthe present largely through the amount they held in inventory forfuture consumption. The present-day analogue is found in futuresexchanges, where the price of a commodity futures contract is, inlarge part, a reflection of the fundamental intertemporal supplyand demand forces acting on the commodity. This view of futuresand forward markets has been discussed, at least briefly, by suchnoted economists as Piero Sraffa, John Maynard Keynes, HolbrookWorking, Paul Samuelson, and, more recently, Steve Hanke.For a detailed discussion of this issue, see Steve H. Hanke, "BackwardationRevisited," Friedberg's Commodity and CurrencyComments, December 20, 1987.4. Smith, p. 532.5. Ibid, p. 534.6. The theory of the public choice, contributions to which wonJames Buchanan the Nobel Prize in Economics in 1986, helps revealwhy politicians and bureaucrats often pursue their own interestsat the expense of consumer welfare.

386High-Definition TV:Government orMarket Choice?by Gary McGathHigh-definition television (HDTV)promises to be the biggest breakthroughin video broadcasting since color.It will offer wider pictures with much moredetail and clarity; watching TV will be almost likeseeing a movie in a theater.The technology for HDTV exists today, and itis even in operation in Japan. Unfortunately,there isn't an industry standard for AmericanHDTV: In accordance with conventional wisdomon broadcasting, the Federal CommunicationsCommission has to approve a standard. There isno shortage of ideas-the FCC has about 20 proposalsunder consideration.The problem is one of trade-offs between thehigher quality offered by HDTV and compatibilitywith the existing National Television SystemCommittee (NTSC) technical standards adoptedby the FCC in 1941. A TV channel occupies acertain bandwidth, a "space" in the spectrum ofbroadcast frequencies. IfHDTV signals could occupymore than one channel's bandwidth, thetask of sending a' high-quality picture would beeasier; but then fewer stations could operate in agiven geographic area without interfering withone another.Ideally, a broadcast signal would occupy thesame bandwidth as an existing TV channel,would be received by existing TV sets, and wouldcontain extra· information that the new HDTVsets could receive. J3ut trying to do this bringsMr. McGath is a software consultant in Hollis, NewHampshire.technology up against certain limits. According toa mathematical principle called Shannon's Law,for a given bandwidth and a given ratio of signalstrength to interfering noise, there is a maximumamount of information that can be transmitted ina given time. Whether it's possible to meet thephysical limitations and provide full compatibilitywith existing TV is a hotly debated question. If itisn't possible, the signal either has to use morethan one channel or give up full compatibilitywith today's broadcasting.Complex trade-offs like these are involved inmost technological standards. It's easy to supposethat the best way to deal with these trade-offs isto let the government decide for everyone andguarantee that different companies won't produceequipment that meets different and incompatiblespecifications.But the market is capable of resolving competitionamong proposed standards; it produces resultsthat are acceptable to consumers. When thegovernment sets the standards, there is no reasonto suppose that its choices will reflect what buyersactually want.As an example of how the market works, considerthe case of VCR's. Initially, there were twostandards, the Beta and VHS systems. Today,VHS is the clear winner, not by anyone's decree,but by the people's choice to buy it. The Betapurchasers may appear to be the victims of inefficientcompetition; but I still have a Beta recorderin my living room, and mail-order catalogues stilloffer a wide selection of Beta tapes. No d()ubt

387these will dwindle away in time, but by then I'llbe ready to buy a next-generation VHS recorder.Although other formats have appeared fromtime to time, they have succumbed to the buyers'judgment that the improvements they offeredweren't worth the investment in new equipment.VHS isn't necessarily the optimal solution;many people consider Beta tapes superior. Butmost people couldn't tell the difference; VHS wassatisfactory, and it was better positioned in themarket, so it became the de facto standard.Satisfying the ConsumerCommercially successful standards like VHSsatisfy the consumer; government-mandatedstandards may satisfy only the wishes of the peoplewho devise them. An example of the latter isthe computer programming language Ada, whichis the standard for Defense Department computerwork. Not surprisingly, it's one of the mostcomplicated computer languages ever devised; ithas provisions for doing virtually anything, oftenin several ways. Any commercial implementationmust pass rigorous tests for compatibility beforeitcan be called "Ada." Outside of governmentrelatedwork, Ada gets little use; it's too complicatedto learn and too costly in computer resources.The proposals before the FCC will put an initialpremium of $500 to $1,500 on an HDTV setcompared to a conventional set, even thoughstudies have indicated that most people who areshown both images don't consider the improvementworth more than $100. The costs of newtechnologies decrease with time only if they finda market to begin with. The new broadcastingequipment for HDTV also will be expensive; alarge potential audience will be needed to justifyits cost. If the FCC selects a system that no one iswilling to pay for, it will go nowhere.Government approval of a standard doesn'tautomatically lead to market success, as is illustratedby the FCC's early experience with colortelevision. In 1950, the FCC approved the CBSsystem for color TV, which involved a colorwheel rotating in synchronization with successiveframes of the picture. Not only was this methodincompatible with existing black-and-white sets,but it also added a major mechanical componentto the TV sets of the day. Because the CBS sys-tem was a commercial failure, the FCC reverseditself in 1953 and approved RCA's system, whichis the one used today. When the government setsstandards, it isn't likely to resist political favoritism.There are currently about 20 major televisionmanufacturers in the United States; ofthese, Zenith is the only one that is domesticallyowned. Not surprisingly, Zenith's proposal is oneof the leading candidates-perhaps because itreally is one of the best, though it's hard to avoidthe impression that its political position plays amajor role.Because many people in the U.S. electronicsindustry see HDTV as a chance to make a comebackagainst the Japanese, this will lead governmentorganizations to favor home-grown technology,whether it's better or not. CommerceSecretary Robert Mosbacher has said, "I believethat we should insist that United States firmsclosely benefit from the [HDTV] effort."The ideal implicit in the FCC's approach is asingle standard that would serve the country forthe next 30 years or so. Fixed standards offersome significant economic advantages: peopledon't have to replace obsolete equipment or getmultiple sets to receive incompatible formats.The equipment, however, becomes obsolescent,and nothing can replace it. Today's National TelevisionSystem Committee broadcasting standardis in fact ancient technology, established in theearly days of television. If computers had sufferedthe same fate, we'd still be using roomsizedmachines with less power than today's fivepoundportables.It may be that the market would have takenthe same route. Perhaps the established base ofTV sets would have precluded significant changesin technology until a major leap in quality becamepossible. On the other hand, an evolutionarymarket might have resulted in TV sets todaythat would provide movie-theater quality for thesame price that we actually have now.Letting the Market DecideWhat path might HDTV follow, if it were leftto the choices of the market? Its first appearancewouldn't be on the broadcast market, but on amarket like cable where there is a greater emphasison quality and a closer link between the viewerand the broadcaster. Viewers could be guaran-

388 THE FREEMAN • OCTOBER 1989Zenith's "Spectrum Compatible" High-Definition Television System will allow broadcasters to usecurrently unavailable TV channelsfor HDTVtransmissions without causing interference.teed a full schedule of HDTV programming, andcould be directly billed for premium-qualitybroadcasting. Cable networks would have an incentiveto make the necessary capital investment.We could expect to see cable companies offer discountsfor advance subscriptions, enabling themto raise capital, and to determine whether themarket really is there.Of course, the cable companies may choose astandard unsuitable for broadcast ~ Since thedevelopers of the technology would want thewidest possible market, this isn't very likely, but itcould happen. Although this would be a disasterfor lovers of homogeneity, the investors whose financialfuture is at stake would have judged thatthe over-regulated, overcrowded, commercialladenworld of broadcast television is a dyingmedium, without enough of a future to justifyholding cable technology back to its level.A non-broadcast path to HDTV could openup remarkable possibilities. Fairly soon, fiber optics-finestrands of transparent material thatcarry light, instead of electricity, through cables-mayreplace metal wire for non-broadcastcommunications. If this happens, tremendousamounts of bandwidth will be available, and truedigital television would become possible. Findingbandwidth for signals sent over the airwaveswould become as obsolete an exercise as findinga hitching post. But if the FCC holds non-broadcastTV back to the level of the broadcast medium,this won't happen.A market decision represents the sum of thechoices of many people, each having limitedknowledge and a stake in the outcome. A governmentaldecision represents the choices of afew people who have limited knowledge and astake only in the politics of what they decide. Ofthe two modes of decision-making, the marketwill give people what they want. D

389The Confession ofVevgeni Turchik:Part-Time KGB AgentEditors' Note: This interview appeared in Glasnost(issue 12), a dissident publication founded inMoscow in 1987. The interview was submitted toGlasnost by Aleksandr Chernyayev. An Englishtranslation has been provided by the Center forDemocracy in the U.S.S.R., 358 ~ 30th Street,Suite I-A, New York, NY10001.AUgUst 30, 1987, Tambov. During a Christianmeeting of the Baptist group "Ini­.. tiators" in the home of the activists, theTolstopyatovs, Yevgeni Turchik confessed that hewas a KGB agent. He is now serving a compulsorylabor sentence (9 Molodyozhnaya Street,Room 153, Uvarovo, Tambov District).After his confession, several conversationswere held with Turchik, two of which were taperecorded.The conversation below was held in thecity of Kirsanov at the apartment of an activist ofan Orthodox revival group.Two weeks after his confession, Turchik wastransferred to work at the site of agricultural constructionin the city of Uvarovo. Rasskazovo,where he used to live, is 20 miles from Tambov,where he traveled every day (although only visitsto one's close relatives were permitted, and nomore than twice a month). Uvarovo is 80 milesfrom Tambov. Thrchik has not been able to getpermission to leave Uvarovo.We, Yevgeni's friends, visited him later inUvarovo. Yevgeni was not allowed out of thedormitory the day we arrived at his job. Wewere able to talk with him for five minutes inthe presence of police functionaries, who heardliterally every word. Yevgeni informed us thatColonel Khilko, having learned of Turchik'spublic confession, came to him and tried againto get him to cooperate. He threatened Yevgenithat the statement/confession he had madewould be considered slanderous or made underthe influence of drugs. Yevgeni answered: "Ionly told the truth."TeD us about yourself Yevgeni.I, Yevgeni Turchik, was born in 1954 in the cityof Donetsk. My parents ... I didn't know my father.They were atheists and they taught me fromthe time that I was a child that if I wanted to getanywhere in this world I had to learn to deceiveand to rob others. My mother told me straightout: "Take what you want from people who aresmarter." So that's what 1did. And then, for stealingsomebody else's property, a camera, I was arrested....When did you first become acquainted with religiousbelievers, Yevgeni?I did not believe in God-probably becauseeveryone around me was an atheist. And I personallydid not know any religious people. I hadheard about believers. In the newspaperTambovskaya Pravda there was an article aboutbelievers-"Sufferers in Christ"-and our instructorsshowed it to us.The assistant director of the political section ofthe colony held a meeting at which he spokeabout this article. He said that there is a certaingroup of people here, believers, called "Initiators,"who work for the CIA and have connectionsabroad, that they receive literature from

390 THE FREEMAN • OCTOBER 1989abroad and· are involved in anti-Soviet propaganda.Not long after that I happened to meet one ofthem. I was really rather surprised; here we hadjust been talking about them, and suddenly alongcomes Ivan Tolstopyatov. It was, of course, interestingfor me to get to know him. At first we alllaughed at him and thought that this peasant wasa little dim-witted. But he was very different fromeveryone else. He was always ready to help andto make suggestions, and he was very honest. Hefirst told me about Jesus Christ-that He is God,that He loves me and that He died for me.The bosses weren't pleased that Tolstopyatovhad been talking to us about God, and they splitup our section. I ended up in another section anddidn't see Ivan any more. I corresponded withhim and with other believers. I thought that myletters were being read, and only about a yearpassed before I was summoned to the office ofthe director of the colony.Two men in civilian dress were waiting for methere. At first they said that they were journalistsand then they started asking me if there was anyway they could help me. I asked them straightout: "What do you want from me?" KGBColonel Yuri Khilko told me who they were andwhere they were from. They told me: "We choseyou, one in a thousand. You must help the motherland.We'll help get you transferred to compulsivelabor where you'll be able to visit Tambovwithout any problems. You must help us fight theBaptists. We know that you correspond withLyudmila Tolstopyatova, the daughter of a Baptistminister. That's very good. They'll accept youand you can tell us what they do and what theysay. Try to find out if they print anything and todetermine if you can where G. V. Kruchkov, theleader of the Council of the Evangelical ChristianBaptist Churches, is."How fast did they do everything they promisedyou?After about two months I was transferred tocompulsory labor and I found myself in the cityof Rasskazovo.And then you started attending the meetingsofbelievers. How did the believers receive you?They accepted me as one of their own. I didn'tthink that such a thing was possible-they accepta stranger as a close member of their own family.And that started me thinking about wl;1at ColonelKhilko had said. He told me that bJlievers hidbehind their religiosity, that they oppose all thatis good and that everything they do is constructedon hypocrisy and lies.How did you pass information about the believersto Khilko?I would meet them [the KGB] in the RasskazovoHotel, unless it was in Tambov, where theyhad a special apartment. We would arrange themeetings over the phone at the following numbers:work 99-427, home 291-47. These numbersare in Tambov. I would give them written reportsabout the believers and sign them with thepseudonym "Kashtanov." I would write: "Sourcesreport that. . . ." and so on, where I had beenand what I had seen and heard. It went on likethis for half a year.How many reports did you write in this halfyear?There were a lot of them. After all, I wrote oneevery week. They wanted to know literally everything:who dresses how, who is friends withwhom, do any of the believers go to the cinemaor' to a disco, who had a fight, what do theypreach, what do they talk about after the meetings,what topics are discussed at the youth sessionsfor the study of the Word, etc.Did you give them the books that the beHeversgave you?Yes. They were especially inter~sted in bookspUblished by "The Christian," but they wanted tosee others as well. When I gave Colonel Khilko acopy of Father Arseni, a book that I had been givenby Orthodox believers whom I had met, hephotographed the whole thing. They were eveninterested in religious calendars and bookmarks.Basically they were interested in all religious literature.Were the KGB agents interested in OrthodoxbeHevers?Yes. They were especially interested in whatthe Orthodox were preparing for the 1,OOOthanniversary of Christianity in Russia. They werealso interested in religious conversations amongthe Orthodox held outside of the church and how

THE CONFESSION OF YEVGENI TURCHIK 391the Russian Church clergy behaved.Did they pay you for your activities?They didn't exactly shower me with money.Every time I received a sum of money I had tosign a receipt, which was also signed with apseudonym. There was an interesting occurrenceonce-Colonel Khilko took a receipt from me for50 rubles but gave me only 25. He said that hehad expenses for photographic materials. Thatseemed a little underhanded to me, but I didn'task any questions, of course.When did you first want to break with theKGB agents?Sometime in March I prayed aloud at a meeting.It wasn't hypocrisy; it was a real prayer. I hadalready started believing in God then. WhenColonel Khilko found out about this he told me:"You were right to pray out loud, you're a realactor. But if it was serious, it was psychologicalstimulation and there is nothing blessed about it.In general, there are no gods and no devils."Sometimes after a meeting I would feel theclose presence of God and of the Holy Spirit, butwhen I met with them [the KGB] again or calledthem on the phone I would lose everything andbecome completely empty, and this scared me.And then, at such times, I started to think that Icouldn't go on like this.Which of your friends was the KGB especiallyinterested in?Sasha Chernev. They asked me to make copiesof the keys to the Chernevs' apartment. TheChernevs entrusted me with the keys, but Icopied them and gave them to Colonel Khilko.He asked me to describe the Chernevs' apartmentand to tell him when the Chernevs wereusually not at home. I think that the KGB operativesmade visits to the Chernevs' apartment andmaybe bugged it.How did your confession come about?My position was weighing down on me andthen, finally, I told Tolstopyatov's wife everything.I thought that they would hate and despiseme, but I saw that they still loved me and theywere compassionate. You won't believe it, butwhen I left them after that I thought that theywould throw rocks at my back, but they said:"May God bless you, dear." After that I didn'twonder anymore about whether I had to end myrelationship with the KGB. I ended it for good.I'm still a convict and they'll use that against me,of course. They'll try to get me to work with themagain, but I won't go back into that hell again.I'm weak and it's possible to scare me, but God,my God, is strong. I don't think the Lord willabandon me anywhere.What do you think scares the KGB more thananything else?Glasnost, glasnost, glasnost. That's whatthey're all afraid of. And I believe that if theChristian world learns about my turning to God,these enemies of Christians, these KGB agents,will be limited in their activities against us. I askall Christians who read this confession to pray forme; that will be the strongest support.Dear Christians, pray for me, God's sinfulslave, Yevgeni.DLenin on ReligionEvery religious idea, every idea of God, even flirting with the idea of God, is unutterablevileness, ... vileness of the most dangerous kind, "contagion" of themost abominable kind. Millions of filthy deeds, acts ofviolence and physical contagionsare far less dangerous than the subtle, spiritual idea of a God decked outin the smartest "ideological" costumes.-from Lenin, Works, Vol. 35

392The Real ChildCare Crisisby J. Brian PhillipsTh.e st.atistics are familiar. More than halfof all women with children under the ageof six have jobs outside the home; almost40 percent of all working mothers are single, widowed,divorced, or married to men who makeless than $15,000 a year; and the average cost ofday care is $3,000 per child. The conclusion isalso familiar: government must do something.But the private sector already is providing awide range of child care services. National childcare chains, such as La Petite, Kinder-CareLearning Centers, and Childr~'n's World LearningCenters, aim primarily at middle-income families.Lepercq de Neuflize, a New York investmentbank, recently put $3 million into ·14 preschoolstargeted at the upper-income market. And,across the nation, thousands of people operatefor-profit child care facilities.Of course, not every parent can afford suchservices. But the private sector has generated anumber of options. For example, many employers,becoming increasingly aware of the problemstheir employees face in finding child care, are offeringa variety of programs.Some companies, such as Merck, CampbellSoup, and Apple Computer, operate on-site childcare facilities for employees' children. Others,like IBM and BankAmerica, subsidize communitycenters. In all, the Conference Board estimatesthat 150 businesses and 600 hospitals have establishedon-site or near-site child care operations.A growing number of firms such as IBM,Merck, Hewlett-Packard, SmithKline Beckman,and Transamerica offer alternative work sched-Mr. Phillips is a free-lance writer based in Houston,Texas.ules to give parents more time to care for theirchildren. Control Data, Pacific Bell, The TravelersCompanies, Ie. Penney, New York Life, andmany smaller companies allow some employeesto work at home via computer terminals.Rolscreen, an Iowa manufacturer, has used jobsharing to overcome a labor shortage caused by alack of child care options.Real estate developers also recognize thegrowing importance of child care. "Developersare using day care as an amenity the way theyused to use shrubbery and health clubs," real estatemagnate Leonard N. Stern told Fortunemagazine (November 21,1988). Office buildings,apartment complexes, residential subdivisions,and business parks increasingly are offering onsitechild care for tenants.Perhaps the most ignored child care option isthe most widely used: home-based care by a relativeor hired sitter. Nearly 70 percent of all childcare is provided in this manner. Similarly, someparents form co-ops-resources are pooled andparents watch their children on alternate days.Parental ResponsibilityWithout a doubt, there is a tremendous needfor child care services. Most of this need, however,is being met by the private sector-entrepreneurs,employers, developers, relatives,friends, neighbors, and church groups. But for asmall, vocal minority, these alternatives are insufficient.They believe that child care, like education,is a right. And, like education, they believeothers should pay for it.The public school system, few would argue, is

393in terrible shape-violence, drugs, crumblingbuildings, falling test scores, uninterested teachers,and rebellious students. Increased governmentcontrols haven't improved the educationalsystem; in fact, the opposite is true. Yet, in thename of improved quality and affordability, manypeople want to subject the child care industry tosimilar controls.This brings us to the real essence of the childcare debate. Contrary to popular belief, parenthoodis not a right, but a responsibility. And, withfew exceptions, parenthood is avoidable.What child care advocates seek to !avoid is notparenthood, but the responsibilities that follow.Many people give more thought to the financialramifications of a home or car purchase than tothose involved in raising a child. Yet, the lifetimecosts of raising a child can easily approach thoseof buying a house.Some argue that children are innocent victimsof their parents' irresponsibility or misfortune.While this may be true, the childless neig\1bor,whose tax dollars would pay for governmentchild care programs, is no less innocent. Subsidizedchild care, in fact, is an undeserved reward.Like all undeserved rewards, it provides an incentivefor irresponsible people to continue theirirresponsible ways.Of course, unforeseen events sometimeschange an individual's or a family's financial situation.But bad luck is no justification for a coerciveredistribution of wealth. Such people mustrely on the voluntary charity of others. One person'sneed is not a claim on the property of others.ConclusionThe free market can operate effectively onlywhen people are responsible for their actions.When the market provides consumers with achoice of goods and services, the consumer mustdecide which suits his wants, desires, and values.The market provides many child care options.Cost and quality vary widely, and parents are freeto choose which best suits their budget and requirements.When consumers refuse to accept asubstandard product, the market responds accordingly.This is as true ofchild care as any otherproduct or service.But a growing number of parents refuse to acceptthe responsibility of choosing. They want thegovernment to mandate standards, to provide licensing,and to pay for child care. They want thegovernment to assume their responsibilities asparents. Sadly, this is the real crisis in child care. D

394Specialization andExchangeby Gene SmileyIhave spent the last 17 years teaching economicsto college students. During this timemy wife and I have owned two homes, neitherof which we built ourselves. To furnish ourhomes we have purchased chairs, tables, sofas,coffee makers, stoves, refrigerators, televisionsets, stereo systems, lamps, computers, and an indescribablemosaic of other home furnishings.When we wanted an automobile, a lawn mower,and a snow thrower we also purchased these.Like almost everyone else, I have found that Ican be better off if I specialize in a few activities-suchas college teaching-and let otherpeople specialize in producing other services orproducts, and then trade with them. The advantagesof this market process are so obvious thatmost of us simply take them for granted.The metropolitan Milwaukee area where welive produces a multitude of products, most ofwhich are shipped to other areas of the countryor sent abroad. Much of that production requiresmachines and tools produced in other parts of theworld. Elsewhere in our state many products,such as automobiles, motorcycles, tractors, papergoods, and magazines, are shipped to other statesand countries.The gains that arise from such specialization inproduction and market exchanges are the samewhether we consider two individuals, the citizensof two cities, the citizens of two states, or, just asimportant, the citizens of two nations. For somereason, however, many people deny that intema-Dr. Smiley is Associate Professor ofEconomics at MarquetteUniversity.tional specialization in production and the consequentexchange of products are beneficial.Recently such thinking led American officialsto "convince" Japanese leaders to restrict autoexports to the United States. The U.S. governmenthas continued to prohibit the importationof inexpensive sugar and cheese products. Becausesome Japanese computer chip makers refusedto go along with a world cartel set up by theUnited States government to raise chip prices,U.S. officials imposed large tariffs on selectedJapanese computer imports. For some years nowAmerican steel firms have received protectionfrom imported steel through "voluntary restraintagreements." The list of U.S. trade restrictionsgoes on and on.Congress is preparing a number of trade billsdesigned to "protect" American firms and laboreven further. Michigan Senator Donald Rieglehas said that these moves "will strengthen our nation-andbegin to restore our international financialstanding."Ifthe citizens of the United States can be madebetter off by reducing international exchangesand thus specialization, then the same logic mustapply to individual states. The citizens of Wisconsin,Michigan, New York, California, or any otherstate should be made better off if their state governmentsreduce or eliminate trade with otherstates. Why stop there? Why not give the citizensof Los Angeles, San Francisco, Chicago, Milwaukee,Detroit, or New York an improved quality oflife by having their city governments reduce oreliminate trade with other cities? Itwould be even

395better if, say, the residents of the Sherman Parkneighborhood of Milwaukee were prevented fromtrading with all outsiders. Finally, if this restrictionof trade is so beneficial, then let us have the governmentstop the members of each householdfrom trading with any other household. Let eachhousehold become self-sufficient.The logical conclusion is that if specializationand trade are harmful at the international level,then surely they must be harmful all the waydown to the level of each individual. We recognizethat this is absurd because it would impoverishus all. Voluntary specialization and trade atany level simply are not harmful.Ifthe government imposes quotas or tariffs on,say, imported steel, then reduced supplies andhigher prices for imported steel allow domesticsteel producers to sell more steel and raise theirprices. That, in fact, is what has recently happened.Firms that purchase steel, such as the producersof stainless steel kitchenware, are facingrising prices. Rexworks, a small industrial firm inMilwaukee, found that even though it had an excellentyear in production and sales, unanticipatedincreases in steel prices wiped out $2 millionin profits. Meanwhile the steel producers arereaping huge gains.These harmful effects extend far beyond thedirect purchasers of the protect~d products. Thereduced sales of foreign steel decrease the numberof American dollars foreign countries receive.Because foreigners have fewer dollars,their demand for American exports must fall.American exporters find that there is less foreigndemand for their products, and their sales andprices and incomes fall.While the measures designed to protect selectedU.S. firms raise their incomes, they reduce theincomes of American firms and individuals thatserve foreign markets. Consumers who buy protectedproducts must pay higher prices and face areduced range of choices. The benefit for the protectedfirms and industries, then, comes at the expenseof consumers in general and firms that export.Unfortunately, the losses incurred by thosewho are harmed by the protective measures willbe greater than the gains of those who arehelped. In free markets, specialization and exchangeencourage people to engage in those activitiesfor which they are the most productive.Trade protection stifles this process, so that totaloutput falls. And, when this occurs, we begin thelong trek down the road to the general impoverishmentof our society-in the name of "protecting"those firms whose owners and employeesare enriched at everyone else's expense.We have gone through this before. In June1930, during the early stages of the Great Depression,Congress tried to protect Americans by enactinghuge tariff increases. Such interventionserved only to lengthen and worsen the depression.Current proposals are inviting another GreatDepression. The freedom to choose our specializationand to exchange with whomever we wishis the only way to guarantee prosperity. D•.... ..Free TradeIfa person advocates free trade domestically, he cannot logically advocate• protective tariffs and other similar measures that prevent goods and servicesfrom moving freely across national boundaries. It is simply not truethat a nation and a people are made more prosperous by compelling themselvesto pay two and three times as much as they need to pay for the goods and servicesthey want. It just does not make sense to improve the means of movinggoods from one nation to another, and then to cancel out the savings in transportationcosts by passing laws to hamper the resulting trade. I am convincedthat such contradictions arise more from lack of understanding than from evil intentions.DEAN RUSSELLIDEASONLIBERTY

396The Minimum Wage:An Unfair Advantagefor Employersby Donald J. BoudreauxSuppose you want to help the sellers of aspecific product. One thing you might wantto do is try to ensure that a buyers' marketfor that good or service isn't created.A buyers' market is an economic situation thatfavors buyers over sellers. For example, everyonehopes that the real-estate market in his hometownwill be a sellers' market when the timecomes to sell his house. No one wants to have tosell a house when real estate is in a buyers' market.Nevertheless, people who advocate minimum-wagelegislation to improve the lot of unskilledworkers in effect support governmentcreation of a buyers' market as a way to help sellersof unskilled labor.Freely Moving Prices:The Great EqualizerEconomics and common sense teach us that,other things being equal, as the price of a productrises, more units will be offered for sale but fewerunits will be demanded by consumers.If a price is too low, there will be an excess demandfor the good or service in question, andbuyers will compete for the limited quantitiesavailable by offering higher prices to sellers. If aprice is too high, there will be an excess supply,and sellers (who cannot sell all that they wish atthe high price) will compete for customers by offeringlower prices. So long as there are no government-imposedrestrictions on prices, pricesProfessor Boudreaux teaches economics at GeorgeMason University in Fairfax, Virginia.will tend to adjust in each market so that thequantities demanded will be equal to the quantitiessupplied.It is important to realize that prices changeonly when there are bargaining inequalities betweenbuyers and sellers. Prices rise only whenthe amount demanded by buyers is greater thanthe amount supplied by sellers; prices fall onlywhen the amount demanded by buyers is lessthan the amount supplied by sellers..Put anotherway, prices rise only when there is a sellers' market,and prices fall only when there is a buyers'market. The rise or fall ofprices, however, eliminatesthe inequality ofsupply and demand and,thus, eliminates the conditions that people describeas sellers' markets and buyers'markets.Freedom of price adjustments ensures equality ofbargaining power among buyers and sellers.Freely moving prices are the great equalizer.Employers compete for human labor services,like most things of value in a society based on privateproperty in a market in which sellers andbuyers engage in voluntary exchanges. Wagerates (in combination with other forms of compensation)are determined in the labor market. Ifthis market isn't hampered by government, wageswill constantly adjust so employers and employeesenjoy equal bargaining power.Of course, unskilled workers aren't as productiveas workers with greater skills, and so wagerates for skilled labor tend to be higher thanwages for unskilled labor. It is a myth, however,that highly skilled workers enjoy greater bargainingpower with employers than do workers

397with fewer skills. If wage rates are free to adjustto their market-clearing levels, unskilled workerswill enjoy as much bargaining power as the mosthighly skilled workers, because freely movingwage rates adjust so that the amount of eachtype of labor demanded will tend to equal theamount supplied. Employers can have no bargainingadvantage over even the most unskilledworkers if wage rates are free to move to the levelsat which the amount of labor services demandedis equal to the amount supplied byworkers. Freely moving wage rates are the greatequalizer of bargaining positions among employersand employees.The Minimum Wage:The Great UnequalizerMinimum-wage legislation prohibits wagesfrom falling low enough to equate the number ofpeople seeking jobs with the number of jobs beingoffered. As a result, the supply of unskilledlabor permanently exceeds the demand for unskilledlabor at the government-mandated minimumwage.Minimum-wage legislation thus creates a buyers'market for unskilled labor. And as in all buyers'markets, buyers (employers) have an unequalbargaining advantage over sellers(unskilled workers).Consider, for example, a grocer. Suppose hedecides that a clean parking lot will attract morecustomers, and that this will increase his sales by$10 per day. Of course, the grocer will pay nomore than $10 a day to have his parking lotcleaned. He then investigates how best to get thisdone.Suppose there are two options available tohim. One way is to hire a fairly skilled workerwho can clean the parking lot in one hour, whilethe second way is to hire two unskilled workerswho, working together, will get the job done inthe same time. Other things being equal, the grocerwill make his decision based upon the relativecost of skilled versus unskilled labor.Let's assume the skilled worker will charge $6an hour, while each of the unskilled workers willcharge $2.50 an hour. In a free labor market, thegrocer will hire the two unskilled workers be-cause, in total, it costs him $5 per hour for the unskilledworkers whereas it would cost $6 for theone skilled worker.But what will the grocer do if a minimum wageof $4 per hour is imposed? To hire the two unskilledworkers will now cost him a total of $8 anhour. The skilled worker now becomes the betterbargain at $6 an hour. Minimum-wage legislationstrips unskilled workers of their one bargainingchip: the willingness to work at a lower wage thanthat charged by workers with more skills. The resultis unemployment of the unskilled workers.Consider another effect of the minimum wage.Because there are more people who want jobs atthe minimum wage rate than there are jobs to goaround,. employers have little incentive to treatunskilled workers with respect. If an employermistreats an unskilled worker, the employer neednot be concerned if the worker quits. After all,there are plenty of unemployed unskilled workerswho can be hired to fill positions vacated byworkers who quit.In addition, the permanent buyers' market createdby the minimum wage encourages employersto discriminate in their hiring and firing decisionson the basis ofsex, race, religion, and so on.Suppose an employer has two minimum-wagejobs available, but there are ten unskilled workerswho apply for the jobs. Because the workersare prohibited from competing with each otheron the basis of wage rates, other factors must determinewhich of the workers will be hired. If theemployer dislikes blacks, and if there are at leasttwo non-black workers who have applied for employment,no black workers will be hired. With asurplus of unskilled workers, there is no economicincentive to stop this bigoted employer fromindulging his prejudices.ConclusionMinimum-wage legislation creates an excesssupply of unskilled labor and gives the buyers ofunskilled labor an unfair bargaining advantageover the sellers of unskilled labor. It is a fantasyto believe that the welfare of unskilled workerscan be improved by such legislation. Unskilledworkers shouldn't be restricted to a permanentbuyers' market. 0

398Free Market Moneyin Coal-MiningCommunitiesby Richard H. Timberlake,'In the company town, or mining camp,... United States coin and currencywere not in good supply. . . . Duringthe heyday of the old company town, scrip circulatedmore freely than U.S. currency and was indeedthe coin of the realm.... Eleanor Roosevelt... in the mid-thirties, during. [one of] her humanitariancrusades, attacked the use of scrip by coalmining companies as a very evil thing. . . .Although many mourn the days of a bustlingand active coal economy, little can be said to supportthe ... issuance of scrip." (Truman L. Sayre,"Southern West Virginia Coal Company Scrip,"in Trade Token Topics, reprinted in Scrip,Brown, 1978, pp. 343-344)1. ThePossibllity ofFree Market MoneyEver since the abolition of the operationalgold standard in the early 19308, the federal governmentthrough its agent, the Federal ReserveSystem, has been almost the sole creator of themonetary base, and has also been the licensingagent for the banks that create most of the demanddeposits used in the United States. Nomoney of any significant amount can be createdtoday without some sanction or act of the FederalReserve System.This condition has encouraged the notion thatgovernment is a necessary, or at least desirable,Richard H. Timberlake is professor ofeconomics, Universityof Georgia. This article originally appeared inthe Journal of Money, Credit, and Banking, Vol. 19,No.4 (November 1987) and is reprinted here with permission.Copyright © 1987 by the Ohio State UniversityPress.regulator of any monetary system-that withoutgovernment involvement any monetary systemquickly degenerates into "chaos." If this suppositionwere valid, the evolution of money couldhardly have occurred. The barter system that precededearly monetary systems, in which governmenthad no part, would not have been supersededif the resulting monetary systems weredestined to be chaotic. This logic suggests thepossibility and perhaps the feasibility of a nongovernmentmoney. However, the practical efficacyof such a system cannot be deduced from atheory that merely suggests its possibility, butmust be sought from historical evidence of monetaryarrangements that have developed spontaneouslyin the private sector.This paper examines one such incidence of privatemoney creation-the issue and use of scrip,which occurred primarily in the isolated economicenvironments of mining and lumbering companytowns during the first half of the twentiethcentury. Fortunately, numismatic collections andrecords reflect the operational character of thescrip systems in these communities so that someevaluation of their monetary properties is possible.Much of the recent research on the creation ofprivate money has focused on that issued by privatebanks in the presence of a dominant legalmoney such as gold. (White 1984, Sylla 1976,Rolnick and Weber 1982) The issue of scrip, however,had nothing to do with banks. It was issuedby private mining and lumbering enterprises.While it, too, was redeemable in a dominantmoney, its issue and acceptance were not criticallydependent on any dominant money. For this

399reason, the phenomenon of scrip issue is especiallyrevealing.2~ Legal Restraints Against theIssue ofPrivate MoneyProscriptions against the arbitrary or ca~ual issueof money appeared at the very beginning ofthis country's political formation. First, the Constitutionstated: "No state shall ... emit bills ofcredit, [or] make anything but gold and silvercoin a tender in payment of debt." (U.S. Constitution,Art. 1, Sect. 10) No money except goldand silver was to be the legal tender issue of anygovernmental unit.Money to be money, however, does not have tobe legal tender. It can be what one might callcommon tender, i.e., commonly accepted in paymentof debt without coercion through legalmeans. Indeed, privately issued money to exist atall would have had to be common tender, andwould have had to earn its acceptability in a marketenvironment.Even though the states and Congress wereconstrained to monetizing only gold and silver,the general laws of contract and commercial instrumentssanctioned the appearance of moneysissued by privately owned commercial banks.(Hurst 1973) In addition, "Nothing in the Constitutionbarred private manufacture of coin, andthrough the first half of the nineteenth centuryCongress did not act against private coinage....General contract law allowed any contractor toissue his notes and coins and circulate them so faras the market would take them." (Hurst 1973)Free enterprise in the issue of common tendermoney was accidentally encouraged in practiceby the federal government's ineptness in establishinga useful denominational spectrum of fractionalcurrency during much of the nineteenthcentury. (Carothers 1967) Private transportationcompanies-canals, turnpike companies, and railroads-issuedsignificant amounts of such currencybetween 1820 and 1875. Municipal and stategovernments did likewise. Redemption of transportationcurrency when called for was in servicesrendered, while state and local governmentcurrency was redeemed as tax payments. (Timberlake1981)The paucity of government-issued fractionalcurrency was catastrophically aggravated by thefirst issues of greenbacks during the Civil War.The metallic values of subsidiary coins roserapidly above their monetary values in the summerof 1862, and the coins disappeared from circulation.These circumstances provoked not onlythe ill-conceived issue of postage stamp currency,but also extensive private issues of minor coin.(Carothers 1967, Faulkner 1901) The act that authorizedpostage stamps as currency in 1862 alsooutlawed the private issue of notes, memoranda,tokens, or other obligations "for a less sum thanone dollar intended to circulate as money or tobe received or used in lieu of lawful money of theUnited States." (Act of Congress, 12 Statutes at­Large, 592, July 17, 1862) Then in 1864, even theprivate issue of gold and silver coin was forbidden,again, "when the coins were intended foruse as current money." (Hurst 1973)3. The Appearance of Scrip as anEconomizing MediumThe lack of adequate denominations in government-producedmoney was not the only factorthat stimulated the private production of money.Shortly after fractional coinage was stabilizedaround 1885, coal mining and lumbering becamemajor industries. Both coal mining and lumberingenterprises had to be organized in the vicinityof the contributory resources, so were often locatedin isolated areas with low population densitiessignificantly distant from commercial centers.Coal-producing regions were hilly or mountainousareas where agriculture had been marginaland other commercial development had lagged."The 'Main Street,' " noted one observer in describinga coal mining community "was often railroadtracks." (Brown 1978) Coal mining entrepreneurs,therefore, had unique problems tocontend with in organizing their enterprises.Their common problem was what is known todayas a lack of infrastructure-no streets, nochurches, no schools, no residences, no utilities,and no banks or financial intermediaries. Thespecialized industries that might otherwise haveprovided these services were dissuaded from doingso by the high start-up costs and the enduringuncertainties of dealing with low-income communitiesthat might be there today and gone tomorrow.Alternatively, the coal mining companiescould deal with such conditions because they

400 THE FREEMAN • OCTOBER 1989were in a better strategic position to change uncalculableuncertainties into calculable risks.(Fishback 1986, Johnson 1952) Mining companies,therefore, built residences, churches,schools, and water works, and opened companystores or commissaries. In so doing, they becameboth buyers of labor from, and sellers of commoditiesto, the coal miners and their households.This kind of organization invited an economy inthe community's payments system-the use ofscrip in lieu of ordinary money."Scrip" has become a generic term for the issueof a localized medium of exchange that is redeemablefor goods or services sold by the issuer.Originally printed cards or "scraps" of paper,scrip evolved into metallic tokens with many ofthe physical attributes of official coins. Indeed,scrip in the very beginning was more in the natureof a trade credit, or demand deposit, at thesingle local general store. Ledger credit scrip,however, gave way to scrip coupon books, which"eliminated the tedious bookkeeping chores thatwere incident to over-the-counter credit (daybook or journal entries followed by ledger entries)."(Brown 1978)The use of scrip not only implied anissuer-the mining company-and a demander-theminer, it also required a supplying industry.The institutions that supplied couponscrip were companies already in business printingtickets, tokens, and metal tags for various otherkinds of enterprise. They advertised extensivelyin mining catalogues during the first half of thetwentieth century touting the advantages of theirown scrip systems. The Allison Company of Indianapolis,for example, noted that when one of itscoupon books was issued to an employee, "Hesigns for it on the form provided on the first leafof the book, which the storekeeper tears out andretains for the [company] time-keeper, whodeducts the amount from the man's next timecheck."Then, when the employee buys goodsfrom the company store, "he pays in coupons,just as he would pay in cash, and the coupons arekept and counted the same as cash.... Thecoupon book is a medium of exchange betweenthe company employees and the company store."(from 1916 Mining Catalog, Brown 1978) Otherscrip-producing ticket companies emphasized thesafety of the scrip coupon system in coal miningcommunities "where little or no police protectionis afforded." (adv. of the International Ticket Co.,in the Keystone Catalog of 1925, Brown 1978)The Arcus Ticket Company of Chicago advertiseda list of advantages of scrip to both the employerand employee, one of which for the employerwas the fostering of employee good-willby avoiding misunderstandings on charge accounts.The advantages to the employee includedkeeping the "'head of the house' better informedas to the purchases made by his family from dayto day.... This frequently puts a check to extravaganceand debt." (Keystone Catalog, 1925 inBrown 1978) Local scrip of this type was verysimilar to modern day travelers checks. The costsof travelers checks were also the costs of couponscrip: each unit could be used only once. It had tobe signed out when it was issued and signed whenit was spent. (Brown 1978)1The transactions costs of coupon scrip eventuallyencouraged the increased use of metal scrip.This medium became cheaper overall thancoupon scrip, in spite of metal's higher initial cost,largely due to the invention and development ofthe cash register after 1880. Pantographic machinesalso were instrumental in reducing the unitcosts of metal tokens. (Brown 1978)Instead of receiving cash, the scrip-issuing"cash registers" paid out metal tokens, made arecord of the pay-out and to whom it had gone,and kept a grand total of the amount issued. Thescrip registers would eject a specified "dollar"amount of scrip when a lever like that on a slotmachine was pulled. In a 1927 advertisement, theOsborne Register Company (ORCa) of Cincinnatipictured a 10-year-old child who, in a demonstration,issued $600 worth of metal scrip in variousamounts to 200 hypothetical employees in 55minutes, implYing an average emission of $3 peremployee every 16.5 seconds. (Brown 1978)4. The Positive-SumBenefits of ScripThe economics of scrip issue, as with all exchangebetween economic agents, required thatboth the issuer (the coal mining company) andthe acceptor (the employee) benefit from thetransaction. The company necessarily had contactwith the outside world. It bought machinery andother resources and sold coal in a national mar-

FREE MARKET MONEY IN COAL-MINING COMMUNITIES 401keto All these activities required the use of standardmoney.Scrip was used essentially as a working balanceof money with which the coal operator couldmake advances to his impecunious employees betweenpaydays. It was issued at the request of theminer to the extent of the wages he had alreadyearned, and it was redeemable in standard moneyon the next payday. The amounts were usuallysmall-five or ten dollars, or even less. To theworker it amounted to an interest-free, small-sumloan that he could get with almost no effort. Itenabled him to buy ordinary household goods atthe company store. To those workers who had"gone out and got drunk" on the previous weekend,or who had suffered some kind of householdemergency, scrip was a blessing only measurableby the cost of its common alternative. (Clark1980, Johnson 1952)Its alternative in a conventional urban settingwithout scrip was the pawn shop, loan shark, orinstallment peddler. (Johnson 1952) An industrialworker in the same unfortunate position in, say,Detroit, Pittsburgh, or Chicago, had access tomoney between paydays only by borrowingagainst his household capital at a pawn shopwhere he paid exorbitant interest rates if he reclaimedhis pawned goods.The scrip system could be abused in such away that a discount would also appear in somescrip transactions. Since the company store didnot sell liquor-for the obvious reason that itssale would encourage absenteeism and workerinefficiency-workers would at times obtain scripfrom the company clerk and sell it for conventionalcurrency in order to buy liquor. The bootlegger(during Prohibition) or other liquor vendor,whose shop was not likely in theneighborhood of the company store, faced significantcosts in redeeming the scrip for conventionalmoney, thus giving rise to a discount. (Brown1978, Caldwell 1969)2In spite of the obvious advantages of the scripsystem to both worker and mine owner, scrip, thecompany store, and the company town have beenuniversally bemeaned. (Brown 1978) The accountsof their operations include contradictionsthat appear sometimes in the same paragraph.(For example, see quote of Sayre used as an epigraph,p.1, Brown 1978.) All accounts, while criticalof the scrip system, acknowledge, first, that itwas issued at the behest of the miner; second,that its issue cost the miner nothing; and, third,that it was redeemable in standard money onpayday. The dogma of scrip's critics was that thecompany store, in which the scrip had to bespent, raised prices to monopolistic levels andthereby exploited the defenseless miner. (Dodrill1971) Fishback's and Johnson's studies of pricesin company stores versus those in independentstores refute this popular prejudice. Prices werefour to seven percent higher, but so were costs.(Fishback 1986; Johnson 1952)The advantage of scrip issue to the mine operatorwas that it was one worker perquisite hecould offer to attract labor into a somewhatunattractive environment. He already offeredhousing and mercantile services; by issuing scripagainst future wages he also provided commer-. cial credit with virtually no interest charges to theborrowers. (Johnson 1952) The practice, indeed,was so widespread that it can only be viewed asatraditional perquisite of the.trade. A companythat did not offer the scrip privilege would havebeen at a competitive disadvantage.The mine operator thus became a quasibanker. His cost for metal scrip during the 1920svaried from slightly less than 1 cent to 5 cents aunit for scrip tokens of simple design made inaluminum. In brass or nickel silver and with scallopededges and more intricate designs, costscould run as high as 11 cents a piece. (All thesevalues are unit costs in thousand-unit lots, andare from advertisements of several different scripmanufacturers between 1925 and 1940, in Brown1978.)Scrip sales information from the Ingle Companysales journal of 1928 reveals that the averagedenomination issued was about $ .25. (Brown1978) Since the average cost per token was onlyabout 3 cents and could have been even less, aninvestment by the coal company bank in, say,5,000 pieces cost it about $150 for the scrip coin,and perhaps $100 more for a scrip-issuing machine.To carry out this same banking functionwith regular U.S. currency would have requiredan investment in cash alone of $1,250, as well assubstantially greater security costs to protect themoney_ One observer noted, "The mining companycould pay almost its entire payroll in companyscrip, disturbing only a few dollars of actualworking capital." (Sayre, in Brown 1978) Of

402 THE FREEMAN • OCTOBER 1989course, paying out scrip gave workers some additionalclaims on the working capital of the companystores. So the monetary economy of usingscrip was in part offset by higher costs of merchandisinggoods. 3The difference between the payment systemcosts of scrip and of real money was a form ofseigniorage revenue the coal mine operator realizedand shared with his employees. They receivedinterest-free loans; he was able to offer afringe benefit that tended to reduce what wouldhave been a higher working capital requirement.While scrip was usually specialized to onecompany in a particular community, many coalmining companies had mines in different regions.Their scrip was good in all the different locationswhere their mines operated. As the scrip-usingcommunities gradually came to experience moreextensive commercial relations withreach other,their localized scrips became interchangeable.Even some independent stores accepted coalcompany scrip. (Brown 1978)Given the proscriptions against the privateprinting or coining of money by the Acts of 1862and 1864, one may wonder how scrip could havebeen issued and used legally. The key is the word"intended" in the proscriptive laws. The courtsruled that scrip was not intended to circulate asmoney: first, because it was redeemable only inmerchandise until payday; and, second, becauseit resembled money only superficially and wasclearly distinguishable from standard money.(The coin under the court's scrutiny was a 50-centtoken, but weighed only one-fifth as much as astandard 50- cent piece.) Any token that was redeemablein lawful money on demand was construedto be illegal, and whether the token inquestion was coin or pasteboard did not matter.(Brown 1978)5. The Environments inWhich Scrip AppearedThe extent of scrip use has many dimensions-temporal,geographical, and industrial. Itsmost notable occurrence in the twentieth centurywas in the coal mining regions of West VIrginia,in part because the state government passed a"wide open" scrip law some time before 1925.However, it was extensively used in other statesas well. The Tennessee. Coal Iron and RailwayCompany, for example, ordered 547,500 piecesbetween 1933 and 1937 from the Ingle-SchierlohCompany of Dayton, Ohio. (Brown 1978) Anothersource lists 20,000 coal company stores inthe United States, Canada, and Mexico all ofwhich used scrip between 1903 and 1958. (Dodrill1971)Numismatic records indicate that scrip wasalso used extensively in several other industries-fishingcanneries, agriculture (to pay croppickers),fruit canneries, logging and lumberingcompanies, and paper companies. (Brown 1978,Trantow 1978. Trantow's index lists over 1,100companies that issued scrip currency in 40 states.)One scrip numismatist cites a Chicago newspaperof 1845 that regularly quoted the discountedprices of coal scrip, city scrip, canal scrip, railroadscrip, Michigan scrip, Indiana State scrip, and Indianaland scrip, as well as the notes of privateand chartered banks. Private businesses issuingsuch scrip numbered in the thousands. (Harper1948) Furthermore, as Brown observed, "The useof paper scrip was much wider than the use of[coin] scrip ... [but] only a comparatively smallamount [of the paper] has survived." Therefore,the extent of scrip use must have been muchgreater than the vestiges in metallic collectionswould indicate. (See also Caldwell 1969.)Just as Brown in his work seemed unaware ofscrip that had preceded the issues by coal companies,Harper in his study of Scrip and OtherForms of Local Money thought that intensiveuse of scrip only appeared in the United Statesduring the depression years, 1932-1935. His researchuncovered several sources of "depression"scrip: (1) issues by local governments due to decreasesin tax revenues; (2) issues by chambers ofcommerce after local bank failures as a means of"corralling as large a proportion of the depressiondiminished volume of business as possiblefor their membership"; (3) issues by "homeownedstores as a weapon against ... chain- storecompetition"; (4) issues by "barter groups as ameans by which the unemployed could more convenientlyexchange services"; and (5) issues bycharitable organizations to needy ,persons as"commodity orders" for foodstuffs. "Local moneyin some form," he concluded, "is likely to recurin response to a public demand under substantiallysimilar circumstances."Most of this "depression" scrip had appeared

FREE MARKET MONEY IN COAL-MINING COMMUNITIES 403in earlier times-for example, municipal scripthat was redeemable as tax payments. The depressionscrip, however, was usually linked to adated stamp scheme that required the holder tofix low denomination (2- or 3-cent) stamps to thescrip at specified times. The stamps were to providethe revenue to redeem the scrip and to encouragespending, but they added an undesirableburden that greatly reduced the efficacy of thescrip's use. They also detracted from the scrip'seffectiveness as an addition to the existing stockof ordinary money. (Harper 1948)6. Implications oftheScrip EpisodeThe phenomenology of scrip issue has significantimplications. First, no one had any incentiveto leave scrip behind for monetary researchers tocount or to analyze. Demanders of such currencywould not regard it as a store of value for anytime longer than the period between paydays.Suppliers, to whom the scrip was an outstandingdemand obligation, would redeem it first if theyliquidated, merged, or closed down their enterprises.In addition, everyone who used it andbenefited from it was aware of its questionablelegality. Archival records of its outstanding quantities,therefore, are almost nonexistent. (Timberlake1981)Scrip's unrecorded existence is emphasized aswell by the research that has uncovered its formeruse. Each scholar who has unearthed one ofthe diverse scrip appearances has treated thephenomenon as unique, and with good reason.Each one was widely separated in time, place,and circumstance from the others. Yet, each onehad characteristics similar to the others. Allepisodes combined emphasize the feasibility ofthe spontaneous production of money in the privatesector.The coal mining scrip episode adds significant­1y to the total scrip experience for a number ofreasons. First, it lasted for over 50 years, so it wasnot just a temporary happenstance. Second, it appearedin a wide range of independent communities.In West Virginia alone, almost 900 coal miningcompanies employing about 120,000 minersissued scrip in one form or another. In other areasof Appalachia-southern Virginia, easternKentucky, eastern Tennessee and southwesternPennsylvania-the experience was similar.

404 THE FREEMAN • OCTOBER 1989Third, scrip's tenure was not dependent on theprevious existence of standard legal tender money.True, the coal company was bound to redeemthe scrip on payday, but this guarantee was only aflourish that enabled scrip issuers to avoid violat..ing the proscriptive laws against the issue of privatemoneys. As it was, many children living incoal mining communities did not see a dollar of"real" money until they grew up and left thearea. (Caldwell 1969)The self-sustaining nature of the scrip system,without recourse to standard money, stemmedfrom the fact that both the demander and supplierof scrip were active participants in both the labormarket and the household goods market atthe company store. This intimacy in two marketsby both participants en~bled them to evaluatewages paid and received in- real terms, that is, bythe quantity of household goods that the scripwages could purchase.. A decline in the purchasingpower of scrip at the company store wouldsimply have indicated to the miner that the realvalue of his' services to the company had declined.He thereupon would have moved to anotherlocation or occupation. Ifthe decline in realwages was due to an industrial depression or thecompetitive decline of the coal industry, as occurredsimultaneously in the 1930s, both mineworkers and mine operators would realize reducedreal returns in the mode of any resourceowners under similar circumstances.A fourth important result of the scrip systemwas its reflective· emphasis on the returns to thecapital structure of the payments system. In thescrip system the money was supplied endogenously:the coal company banks, the borrowingminers, and the scrip suppliers were all parts ofan economy of private ownership. Scrip moneywas not dependent on any outside money, butwas produced under the same condItions and incentivesas any common commodity. The miningcompanies rathe'r than the workers produced thescrip because in working without wages until payday,the workers were implicitly extending creditto the company. Scrip issue was a means of cleari~gthis debt before the regular payday. In addition,the coal mining company had the collateralvalue ofthe. mined coal to secure the "loan."4Both the companies and the workers realizedthe seigniorage returns from its existence. Whilethe scrip system was small-scale and had a lowprofile, the government could ignore it because itposed no threat to the government's monopolyover the production of money. However, if scripissue had shown any tendency to become a nationalpractice, the proscriptive laws against privatecoinage would surely have been interpretedand enforced much more rigorously.5An observer of the scrip system might conjecturethat the experience of the isolated communitiescould have ramified into an intercommunitysystem using some' kind of scrip clearinghouses(Le., scrip banks) if the laws restraining the privateissue of money had not existed. Over time,technological and organizational developmentscould have led to economies of scale and enterprise.Probably as few as three or four or as manyas two dozen issuers of scrip money might haveappeared. Some of the minters of scrip-Ingle­Schierloh, Osborne, Insurance Credit, Adams,Dorman, and others-would have expandedtheir enterprises to include management of intercommunityscrip systems and ultimately theirprobable evolution into credit card systems. Suchan extension of function would have been analogousto automobile dealers expanding into thecar leasing business-a sort of horizontal integrationto reap certain economies of scale.Had the scrip system become intercommunaland given rise to scrip-on-deposit in scrip banksnecessitating bank' reserves and clearing operations,some high-powered scrip into which localscrips could be converted would probably haveappeared. The experience of the ages seems toconfirm this evolution. (Friedman and Schwartz1986) Less clear is why the high-powered moneyhas to be issued or regulated by the state. Thequestion of whether or not the market systemcould, alternatively, produce a private monetarybase that would prove to be both stable and serviceablehas not been attempted.or allowed, andwill remain unimaginable until a general belief inmarket efficacy becomes pervasive. That time asyet seems nowhere near. 6DLiterature CitedBrown, Stuart E., Jr. Scrip. Berryville, VA.: VirginiaBook Company, 1978.Caldwell, Walter. Coal Company Scrip. Montgomery,W. Va.: War Printing Co., 1969.Carothers, Neil. Fractional Money (1930),reprint. New York: Kelley, 1967.

FREE MARKET MONEY IN COAL-MINING COMMUNITIES 405Clark, C. R. Florida Trade Tokens. St. Petersburg,Fl.: Great Outdoors Publishing Company,1980.Dodrill, Gordon. 20,000 Coal Company Stores inthe United States, Mexico and Canada. Pittsburg:Duquesne Lithographing Company,1971.Faulkner, Roland E "The Private Issue of TokenCoins." Political Science Quarterly 16 (1901),320-22.Fishback, Price. "Did Miners Owe Their Souls tothe Company Store? Theory and Evidencefrom the Early 1900's." Journal of EconomicHistory 46 (December 1986), 1011-29.Friedman, Milton, and Anna J. Schwartz. "HasGovernment Any Role in Money?" JournalofMonetary Economics (January 1986), 37-62.Glasner, David. "Economic Evolution and MonetaryReform," (unpublished).Harper, Joel W. Scrip and Other Forms ofLocalMoney. Ph.D. dissertation, University ofChicago, 1948.Hurst, James Willard. A Legal History ofMoneyin the United States, 1774-1970. Lincoln: Universityof Nebraska Press, 1973.Johnson, Ole S. The Industrial Store, Its History,Operation and Economic Significance. Atlanta:Foote and Davies, 1952.Rolnick, Arthur J., and Warren E. Weber, "FreeBanking, Wildcat Banking, and Shinplasters."Federal Reserve Bank of Minneapolis QuarterlyReview 6 (Fall 1982), 10-19.Sylla, Richard. "Forgotten Men of Money: PrivateBankers in Early U.S. History." JournalofEconomic History 36 (March 1976), 173-88.Timberlake, Richard H. "The Significance of UnaccountedCurrencies." Journal of EconomicHistory 41 (December 1981), 853-66.__________. "The.Central Banking Role ofClearinghouse Associations." Journal ofMoney, Credit, and Banking 16 (February1984), 1-15.Trantow, Terry N. Catalogue ofLumber CompanyStore Tokens. Ellensburg, Wash.: Trantow,1978.White, Lawrence H. Free Banking in Britain.Cambridge: Cambridge University Press, 1984.The author is indebted for support and suggestionsto the sponsors and participants of the ManhattanInstitute Monetary Conference of 1986,especially to David Glasner and Anna Schwartz.My colleague, Price Fishback, and Milton Friedmanalso made valuable suggestions, as did HustonMcCulloch and two referees for the JournalofMoney, Credit, and Banking.1. This comparison must be qualified. Many travelers checks,aswell as other U.S. currency, are currently used as hand-to-hand mediain foreign markets. Sometimes travelers checks return fromabroad with more than a dozen endorsements on them. They arecalled "checks," but like food "stamps," they are a quasi currency.2. Scrip was frequently advertised as redeemable only to theworker to whom it was originally issued. This condition applied insome mines. However, for metallic scrip, it could hardly have beenenforced, and would have detracted from the utility of any scrip ifit were enforced.3. I am indebted to Huston McCulloch for this observation.4. I am indebted to Huston McCulloch for suggesting these details.5. In a thought-provoking paper, David Glasner argues convincinglythat governmental assumption of a monopoly role over moneyenabled governments to enhance their fiscal powers, particularlyduring war emergencies (Glasner, "Economic Evolution and MonetaryReform," especially the section: "A Rational for GovernmentMonopoly over Money"). In short, not only is seigniorage animportant revenue to the state, but capital expropriation throughdebasement of money's function as a unit of account may be evenmore lucrative.6. However, the commercial bank clearinghouse system in theUnited States during the second half of the nineteenth century isan example of a private lender of last resort that produced basemoney efficiently at critical times. (TImberlake 1984)

406The Forgotten Rightof Associationby David HoodThe Century Club of New York City, an. all-male social club, was told by city officialsa few years back that it no longercould refuse to admit women members. TheClub, thinking that private clubs weren't subjectto such public regulation, took their caseto the Supreme Court, arguing that the rightsof privacy and association gave them the powerto set their own membership rules. After all,this was the way the courts had always viewedprivate clubs.In 1988, though, the Court decided that itwould begin to make the rules. In a powerfulopinion written by Justice Sandra Day O'Connor,the Court ruled that all-male clubs couldno longer exclude female members, since suchexclusion denied the women access to businessdeals with club members. No longer would theCentury Club, or any similar men's club, be allowedto hang a "No Girls Allowed" sign outsidetheir "clubhouse."No consideration was given to the rights ofclub members to associate with whomeverthey please. Freedom of association traditionallyhas been one of the central foundations ofthe American way of life. This freedom enjoyedsome measure of protection throughoutour nation's history, as an inherent part of ourFirst Amendment liberties. As early as the18308, Alexis de Tocqueville noted this Americantrait with favor in his book Democracy inAmerita. "In no country in the world has theprinciple of association been more successfullyDavid Hood is a law student at the University ofNorthCarolina, where he publishes The Carolina Critic, astudent journal ofopinion.used or applied to a greater multitude of objectsthan in America," he wrote. Unfortunately,our judiciary's support for the right of citizensto associate freely with each other hasgreatly wavered over the years, as "substantivestate interests" have been allowed to supersedehuman liberty.Freedom of association can take manyforms. The doctrine would allow people to organizeformal groups under any mutuallyagreed-upon guidelines, including criteria formembership. It also would allow a person tobecome friends with anyone he chooses, or toinvite any person onto his property. (One possiblylegitimate caveat would be cases of criminalconspiracy.) The obvious corollary to theseliberties is the freedom not to associate, sincestate action to force association between twoparties is as unjust as preventing them fromvoluntarily associating.Modern jurisprudence has taken a curiousview of this right. Associationalliberty hasbeen upheld in some situations. Landmark casesin this century allowed trade unions to organize,for instance, and prevented governmentsfrom outlawing certain political groups like theCommunist Party. Privacy also has been seenas an important value. One 1961 case defended,correctly, the right of the NAACP to withholdits membership list from the State of Alabama.(NAACP v. Alabama, 357 U.S. 449)However, the courts have recently erodedthe rights of private citizens to choose withwhom they will associate. Associational freedomhas lost out to "state interests" like foistingracial or sexual equality upon unwilling

407subjects. In 1964, for example, two cases weredecided that prevented private property ownersfrom deciding who could enter theirpremises. The Heart of Atlanta Motel and aBirmingham, Alabama, restaurant called Ollie'sBarbecue were told that they could nolonger refuse to serve blacks. The fact thatthese businesses were on private property wasnot seen as an obstacle to state determinationof who would be allowed to associate there.A similar intrusion into freedom of associationwas witnessed in 1988 when the SupremeCourt decided that certain private clubs inNew York City had to abide by a city law thatrequired them to admit women.Now, all these decisions were greeted favorablyby the media. I must confess that I myselffind it difficult to suppress· my elation that abunch of racists and sexists were told to shapeup by the Supreme Court. However, we mustnot allow our personal evaluations of other citizens'beliefs to obscure what is really going onin these cases. Even the Nazi has his freedomof speech protected by the First Amendment.The Flat Earth Society is allowed to associateand promote its ideas. Freedom of thoughtnecessarily entails the freedom to be wrong.That is why the above. court decisions can beseen as having fundamentally negative. consequencesfor human freedom, especially that ofassociating with other human beings.The Ideal ofAutonomyWhy is freedom of association so important?Tocqueville championed this right by arguingthat its roots are firmly planted in the ideal ofautonomy: "The most natural privilege of man,next to the right of acting for himself, is that ofcombining his exertions with those of his fellowcreatures and of acting in common withthem. The right of association therefore appearsto me almost as inalienable in its natureas the right of personal liberty. No legislatorcan attack it without impairing the foundationsof society."Thus the right can be seen as central to individualautonomy, or the power of a person tocontrol his own actions. One should be allowedto associate with whomever he wants, just asone should be allowed to think whateverthoughts he wants. Freedom of association isjust as important to individual autonomy asfreedom of speech.Indeed, freedom of association is an integralpart of those liberties more commonly thoughtto reside in the First Amendment. Can we trulyhave freedom of speech if the audience isdetermined by the law rather than by privatechoices? Can we exercise freedom of the pressif the readership is regulated by the state? Canwe have freedom of religion if congregationsare determined by government? The freedomof association sets the stage for the exercise ofall these other freedoms.Another way to think about freedom of associationis under the rubric of contract law.Membership in a private club can be seen as aform of contract between the prospectivemember and the current members. This is howthe right traditionally has been enunciated inEnglish common law. Just as the state cannotviolate freedom of contract between competentadults, so should it be prevented from interferingwith the freedom to form contractualassociations. Also, the state never should havethe power to compel parties to contract witheach other, but it certainly did in 1988 whenNew York's Century Club was forced to admitwomen members.Charles Murray spells out another benefit ofassociational liberty in his book, In Pursuit.Associations, he writes, are an integral factorin one's pursuit of genuine happiness. This isespecially true of church groups, social groups,and neighborhood associations. Murray arguesthat free human interaction as a process ismuch more important to people than any results-orientedform of welfarism. Freedom ofassociation thus can be seen as a bulwark ofthe private sphere, through which most peoplederive their happiness and self-worth.The key issue in legal battles over freedomof association is the definition of "public" versus"private" interaction. It is obvious that arbitrarycriteria like race or gender shouldn't beutilized in governmental decision-making,since laws should apply equally to all. However,it is difficult to see why private decisionsshould be subject to the same rules. Governmenthas neither the ability nor the right todictate how people should conduct their per-

408 THE FREEMAN • OCTOBER 1989sonal lives, providing that private interactionsare conducted by mutual assent among the partiesinvolved.Access to the benefits of association withcertain persons should not be an "overridingstate interest" that justifies abrogation of associationalliberty.Blacks who want somegood barbecue are free to go to a shop thathas a more sensible admissions policy thanthat practiced by Ollie's Barbecue. There certainlywere such places, even 25 years ago.Women who want membership in New Yorkclubs should find ones that don't shoot themselvesin the foot by prohibiting female membership.More fundamentally, though, thestate should not be in the business of providing"access to commercial opportunities" inthe form of possible business deals with certainclub members. The government mightjust as well tell us whom to invite to ourhomes for dinner, or with whom to play golf,since many business deals are· conducted inthese settings as well.Also remember that if the sexist club membersdon't want women there, it is highly unlikelythat they will seek out the new womenmembers to make them business propositions!Coercion is hardly ever the answer whenone is faced with people who make the wrongdecisions. This is especially the case when associationalfreedom is at stake. The correct pathis not to seek state intervention into the makeupof private associations; it is persuasion, orcompetition through the formation of alternativeassociations. Assuming that the "bad" organizationdoesn't enjoy monopoly status (likea bar association), the marketplace eventuallywill lead to the adoption of more legitimate admissionspractices, since the "old boy network"clubs will be missing out on the increased vitalityarid productivity brought to other clubs bytheir female or minority members. Just as itwould be bad business these days to restrictone's barbecue consumers to whites only, it isequally bad business to restrict one's businessdealings to members of an all-male club.The world will not end just because the RotaryClub and Century Club have to admitwomen members. In fact, the clubs themselvesmay be better off in the long run. However, theprinciple of free human interaction itself isending, if government decides it can invade theprivate sphere of its citizens with impunity.Freedom of association is an integral part ofour Constitutional liberty, as well as a primarymeans of pursuing happiness. But in the finalanalysis, it is also an important weapon in thecontinual struggle against "Big Brother"statism. A society not free to associate is notfree to do much else, either.DEducation for PrivacyWe are living in a world and in a time when powerful leaders with millions of fanaticalfollowers are committed to the forcible regimentation of their fellowmen, according to formulas which have no initial authority but that of their ownprivate dogmatism. They not only refuse to recognize the right of private thoughtand a personal conscience to be considered in the management of public affairs,but they have abolished the concept of the individual as a private personality andhave reduced him to the level of the bee in the hive. To restore the individual tohis former dignity as a human being is the urgent need of the day.-MARTEN TEN HOORIDEASONLIBERTY

409Movie-GoersCan Think forThemselvesby Tibor R. MachanBull Durham is a nice little movie, aboutminor league baseball and love and goodtimes and friendship. But it recentlycame in for a strange criticism.This and other movies, including televisionshows, are being charged with a kind of subliminaladvertising. Some charge that these films arebeing used by Hollywood producers to peddlebrand-name products. (In Bull Durham it wasbeer and other products, none of which I rememberedafter I saw the movie or even noticed as Iwatched it.)Of course, films that deal with contemporarylife would be entirely artificial if producers disguisedbrand products used in the course of theaction. I have always felt cheated when someonein· a movie picks up a pack of cigarettes or a canofbeer and hides the label. Mind you, I never remembera visible label, but I do remember whenit is artificially hidden from view.What exactly are these critics complainingabout? They are insulting movie-goers by implicitlyaccusing them of being robots who cannotkeep from going out and buying what is shownon the screen. Imagine it. The viewer is conceivedof, not as a person with a will of his own,nor as someone who knows what he wants, but asa mechanism that responds automatically to subtlestimulation. The movie makers, by implica-Tibor Machan teaches philosophy at Auburn.University,Alabama. He recently edited Commerce and Moralityfor Rowman and Littlefield.tion, are accused of being manipulative and exploitative.The evidence for both these charges is feeble.People aren't robots available for easy exploitation:the advertising industry has learned that youcannot sell things that people don't want. Ofcourse, people may want silly and useless things,but they have to want them before they reallypay attention to brand-name ads. If this weren'tso, advertising campaigns wouldn't flop as oftenas they do. (Even ads we love to see don't alwaysmanage to sell the products we are invited tobuy-we like the jokes, the characters, thethemes, the scenery-but not necessarily theproduct or service.)Furthermore, why must these critics assumethat movie makers have nothing else in mindwhen they include various brand-name productsin their films? Why not assume that they simplywish to be realistic? Why not consider the possibilitythat they see the phoniness of pretendingthat while everything else in the film fits the picture,those disguised products do not?Consider, also, that every movie "advertises"the actors who appear in it, the locales in whichthe movie takes place, the kind of clothing wornby the characters, and so on. Noone, as yet, hascomplained about that.I am confident that this special attack on themovies is yet another way in which the critics expresstheir hatred for the market. These criticsare power-seekers-admittedly for motives thatseem sincere and virtuous to them.But these motives are not virtuous, howeversincere they may be. They are dangerous andshould be exposed as such. They are subtle messagesto the public that consumers are generallyinept, and need the wise guidance of intellectualswho will occupy various seats of power and tellfilm makers and television producers what to do.Let us respond to these folks forcefully, and tellthem to take care of their own problems and leaveus to cope with OUTS. We are able to handle anythingoffered us on the screen-we can even walkout ifwe find something offensively pushy. D

410A REVIEWER'SNOTEBOOKA Critical Examinationof Socialismby John Chamberlain,~ 11 through our childhood they hungaround the houses of our minds, theFour Uncles: Uncle Shaw, UncleWells, Uncle Galsworthy, and Uncle Bennett."The quotation, which is from memory, is fromRebecca West's essay on the Four Uncles, writtenfor the old New York Herald- Tribune.I cite it here because it did much to fix in peoples'minds the idea that Fabian Socialism hadtaken over in England for good. The two Uncleswho contributed to the Fabian essays, Shaw andWells, were powerful voices.Russell Kirk, author of The ConservativeMind, was an early objector to the idea that England,under Fabianism, was lost to the West. Bidinghis time, he has projected the idea of·a seriesof books to be published under the general headingof the Library of Conservative Thought."Our Library of Conservative Thought," hesays, "will not amount to a corpus of infalliblewritings from which zealots might derive a conservativeThirty-Nine Articles; rather, we meanto recognize the diversity of conservativeideas-if you will, the varieties of the conservativeexperience."As the first book in his series, Kirk has pickedA Critical Examination of Socialism by WilliamHurrell Mallock (New Brunswick, N.J.: TransactionBooks, 302 pages, $37.95 cloth). "Thisbook," Kirk writes in his introduction, "grew outof a series of lectures that William Hurrell Mallockdelivered in the United States during 1907.Mallcick was an English man of letters, of an oldDevonshire family; he had risen to celebrity as awit at the age of twenty-eight, when he publishedThe New Republic, or Culture, Faith, and Philosophyin an English Country House. He hadbeen born a year after the Communist Manifestowas published; he would live to see the destructionof the old order in eastern Europe and otherlands this Critical Examination has been selectedbecause the debate into which Mallockentered more than eighty years ago has not yetceased, and because the book is a good exampleofMallock's polemical skill."Mallock crossed swords with all the theoristswho believed in some variant of the labor theoryof value. To him, the theory only accounted formuscle work, not brain work. The principal producerof wealth, according to Mallock, was ability."Ability," he wrote, "is a kind of exertion onthe part of the individual which is capable of affectingsimultaneously the labour of an indefinitenumber of individuals, and thus hastening or perfectingthe accomplishment of an indefinite numberof tasks." It is, adds Kirk, "the faculty that directslabor; that produces inventions, devisesmethods, supplies imagination, organizes productionand distribution, maintains order."Labor without ability, says Kirk in his interpretationof Mallock, "is simply the primitive effortof natural man to obtain subsistence. Recognizingthat mankind cannot prosper by mere labor,society hitherto has endeavored to encourageAbility by protecting Ability's incentives. In destroyingthose incentives, the Marxists wouldbring down civilization. So Mallock told hisAmerican audiences in 1907, and so, in much ofthe world, it has come to pass."Socialists think that men of ability should workout of pure idealism. But the man of ability presumablyhas a family and the prospect or realityof heirs. What chance does idealism toward anabstraction called the State have in competition

411with the family?Kirk finds sustenance for these opinions in avery odd place. Mikhail Gorbachev, in his bookPerestroika, says, "Equalizing attitudes crop upfrom time to time, even today. Some citizens understandthe call for social justice as 'equalizingeveryone.' But society persistently demands thatthe principle of socialism be firmly translated intolife. In other words, what we value most is a citizen'scontribution to the affairs of his country. Wemust encourage efficiency in production and thetalent of a writer, scientist, or any other uprightand hard-working citizen. On this point we wantto be perfectly clear: socialism has nothing to dowith equalizing."Gorbachev, says Kirk, "unlike Shaw, finds itnecessary to take into account the claims of Ability,so strenuously advanced by Mallock eightyyears ago." Maybe "capability" would be a betterword to use when talking about the subject-ithas a slightly broader sound. But it makes no realdifference.There is an implicit bargain between the manof organizing ability and the ordinary muscleworker. Neither can do without the other. The organizermust have someone to organize. Just tokeep things happy the organizer, after his ownfamily has been cared for, will allow a portion ofbrain- work profit to go to the muscle worker.Socialists, according to Mallock, do not havethe mental qualifications to understand machinery."They have never made two blades of grassgrow where one blade grew before. They havenever applied chemistry to the commercial manufactureof chemicals. They have never organizedthe systems or improved the ships and engines bywhich food finds its way from the prairies to thecities which would else be starving.... Theywould never set themselves to devise, as wasdone in the English midlands, some new commodity,such as the modern bicycle, which wasnot only a means of providing the labourers witha maintenance, but was also a notable addition tothe wealth of the world at large. They fail to dothese things for the simple reason that they cannotdo them; and they cannot do them becausethey are deficient alike in the interest requisitefor understanding how they are done, and in theconcentrated practical energy which is no lessrequisite for the doing of them."Mallock does not use such terms as "en-trepreneur," or even "enterpriser." The wordschange; the realities remain the same. Capablemen will seize opportunities without worryingabout definitions of the word "ideology," whichhas some strange uses in the dictionary. Kirkdoesn't like the word, and he offers Mallock'sbook as helpful to freeing us "from the chains ofideology." Whatever those "chains" may be, it isgood to be reminded that the man of ability neednot respect them.DHONG KONGby Jan MorrisRandom House, 400 Hahn Road, Westminster, MD 21157 • 1988359 pages • $19.95 clothReviewed,by Russell Shannon'HongKong," says British writerJan Morris in her new book, "hasalways been the brazen embodimentof free enterprise." Although Hong Konghas existed on the principle of laissez faire as aBritish colony for 150 years, it is only since the1949 revolution in China sent hordes of refugeesto this tiny place that it has truly flourished.That, of course, is ironic. At the same time thatMao Zedong in mainland China was proving thatCommunism simply doesn't work, industriousChinese people in Hong Kong were eagerlyshowing how effectively capitalism does. WhileChina with its vast natural resources stagnated,Hong Kong, with almost nothing to boast of· butan excellent harbor, proved the assertion thatAmerican economist Julian Simon makes so wellin his book, The Ultimate Resource: "Our cornucopiais the human mind and heart," he wrote,"and not a Santa Claus environment." As Simonputs it further on, "The ultimate resource is people-skilled,spirited, and hopeful people whowill exert their wills and imagination for theirown benefit, and so, inevitably, for the benefit ofus all."Ironically, politically speaking, the governmentBritain provided for Hong Kong is scarcely moredemocratic than the one provided for one billionChinese by Beijing. As Morris points out, thepopulation of Hong Kong "enjoys freedom ofspeech and opportunity, but no freedom at all tochoose its rulers."How all this came about is the subject of Morris'sfine book. Skillfully alternating chapters on

412 THE FREEMAN • OCTOBER 1989Hong Kong's historical development with portraitsof its present people, procedures, and problems,she offers the reader both great delightsand much insight.The picture she paints is certainly not all pretty.Initially, Hong Kong was a focal point for theopium trade. Over the years, it has been plaguedby piracy, corruption, counterfeiting, and discrimination.In one particularly poignant tale, the authorpoints out that Chinese coolies were not allowedto use the tram to carry heavy supplies ofitems such as coal and ice to British homes nestledin the upper elevations. "In 1921 a compassionateclergyman discovered that one small laborer,aged six, spent twelve hours a day, six daysa week, carrying fifty-eight-pound loads of coalfrom the waterfront to a house of lofty eminence."Nor is Hong Kong's capitalism pure. Confrontedby massive influxes of refugees in recent years,the government has felt obliged both to establishpublic housing and to provide low-cost medicalcare.But throughout its existence, private enterprisehas been the prevalent factor in this Britishcolony. Most notable, of course, were greatBritish merchants, such as Jardine, Matheson,and Swire. Yet the extent of private enterprise istruly astonishing. A century ago, even "publiclavatories were run by private contractors." Inmore modern times, elements of public transportation,such as the underwater tunnel whichconnects the island of Hong Kong with Kowloonon the mainland, are profit-making enterprises.What will happen when Hong Kong reverts toChinese control in 1997? The question arose onmy own brief visit to the area two years agowhen, with a group of American economists, Ivisited a joint American-Thai feed mill in Shenzhen,one of the flourishing new enterprises justinside the Chinese border north of Hong Kong.In response to this question, the young Americanfinance officer who had been our able and outspokenguide responded that he believed thequestion should be reversed: we really should beasking what will happen when Hong Kong takesover China!The return of Hong Kong to Chinese control,Morris feels, is inevitable, because it was takenunder what the Chinese consider the "unequaltreaties" imposed on a declining Chinese empireby emerging Western empires during the last century.Yet while noting that once-prosperousShanghai, under Communist domination, hasbeen reduced to "dingy impotence," to a largeextent the author echoes the young American financeofficer. Rapid commercial and manufacturingdevelopments not only in Shenzhen btlt alsonorthward to Guangzhou (Canton) already bespeakHong Kong's strong influence on its greatnorthern neighbor.The reader who completes the tour throughMorris's pages will not put the book down with aheavy heart. Rather than lament the plight confrontingHong Kong's residents, one is more inclined-totake comfort from the success of theChinese in Hong Kong (as well as in nearby Taiwan)which amply demonstrates that prosperityis not a uniquely Western phenomenon. Furthermore,the success of the Chinese expatriates mayhave had more than a little to do with turning thepresent regime in Beijing away from the patheticfailure of Marxism and toward the principles ofthe free market. That may well be the most importantachievement of this tiny but remarkablecolony.DProfessor Shannon teaches in the Economics Departmentat Clemson University.THE FATAL CONCEIT: THEERRORS OF SOCIALISMby F. A. HayekThe University of Chicago Press, 5801 South Ellis Avenue, Chicago,IL 60637 -1989 -180 pages - $24.95 clothReviewed by Robert TaylorAt the ripe old age of 90, Nobel LaureateFriedrich von Hayek has loosed one finalcurve ball at the academic world.While intended as a capstone work to summarizehis lifelong contributions to the social sciences,this book takes a somewhat novel tack by examiningthe origin and nature of ethics.Like Marx, Hayek sees an inherent contradictionin Western capitalistic societies. UnlikeMarx, however, Hayek sees this contradiction interms of an ethical dualism, not a materialistic dialectic,and he also feels that this contradiction isboth necessary and beneficial-though nonethelessproblematic.Hayek approaches ethics from an entirely dif-

OTHER BOOKS 413ferent angle from most philosophers. Whilephilosophical ethics usually entail rationalisticsystem-building from certain assumptions abouthuman nature or from bits of empirical data,Hayek's ethics are non-rationalistic and basedupon the historical process. Hayek rejects the explicit,rationalistic construction of most ethicalsystems because such constructions rest upon the"fatal conceit" of human reason. Reason, Hayekargues, is incapable of commanding the informationnecessary to design an ethical system.Hayek believes that ethics lie somewhere betweeninstinct and reason. Ethics-like language,the marketplace, and the common law-are aspontaneous order that, in the words of AdamFerguson, is the product of "human action, butnot human design."Our ethical system was not designed by anyone;it is traditional, handed down from generationto generation, and learned by imitation. Itsprogress and development were achieved by aprocess of social evolution: those cultures whichadopted "good" ethical systems survived andflourished, while those with "bad" ones eitherfloundered or adopted more successful ethicalsystems. This subtle process of trial-and-errorhas produced Western ethics, a highly successfulsystem.In what way do Western ethics contain a "contradiction"?To understand this proposition, onemust examine Hayek's theory of the actual historicaldevelopment of ethics. Hayek holds thatthe original human ethical system was that of thesmall group-the hunter/gatherer tribe. These"small group" ethics were both solidaristic andaltruistic. The primitive tribes at the dawn of humanhistory were each united by a shared purpose-rudimentarysurvival in an uncontrollable,hostile environment-that superseded the differentpurposes of the tribes' individual members.As time passed, agricultural techniques weredeveloped and cities were founded. These eventsprovided a basis for two further developmentsthat made "small group" ethics untenable: economictrade and population growth. Trade placedmembers 9f closed communities in constant contactwith "foreigners" who usually did not sharethe group's purposes or beliefs. Populationgrowth, spurred by relative economic security,made the small group rather large, with the resultthat members of the same group were oftenstrangers to one another and often pursued differentends.These social changes were matched by changesin the ethical sphere. "Small group" ethics werenot applicable to diverse, cosmopolitan communities;groups that failed to adapt became isolatedand economically stagnant. Through the socialevolutionary process, "small group" ethics weregradually replaced by what Hayek calls "extendedorder" ethics. "Extended order" ethics abandonedcommands that sought collective ends infavor of abstract, generally applicable rules thatfacilitated varied individual ends. These ethicsserved as an impersonal mechanism for the coordinationof individual actions and plans, whereas"small group" ethics were dependent upon thehighly personal rule of the tribal leader, who directedthe group to a common goal.While "extended order" ethics replaced "smallgroup" ethics as the dominant system, "smallgroup" ethics continued to exist side by side withtheir more successful counterparts. Families,friendships, and businesses continued to operateaccording to the solidaristic principles of "smallgroup" ethics for obvious reasons. Love, camaraderie,and shared purpose-so necessary to humanfulfillment-are possible only within thesmall group. Thus, contemporary Western ethicsarea heterogeneous mixture: "extended order"ethics tell individuals and groups how to act withinthe larger social order, while "small group"ethics instruct individuals how to behave withinthe confines of the various voluntary organizationsto which they belong.But, as Hayek notes, individuals have only a"limited ability to live simultaneously within twoorders of rules." The dividing line between thetwo ethical structures often becomes fuzzy in application,leaving individuals confused concerningtheir obligations. For instance, one would clearlyhave an obligation to assist a friend or familymember in financial need. But what about aneedy stranger who accosts one on the street? Ora fellow businessman, teetering at the edge ofbankruptcy, with whom one is competing in themarketplace of the extended order?Hayek warns that, as strong as the tension maybe, the balance between the two systems of ethicsmust be maintained. Both systems serve vitallyimportant functions within their own spheres:"small group" ethics provide for warmth and

414 THE FREEMAN • OCTOBER 1989compassion essential to man as a social animal,while "extended order" ethics provide a coordinationfunction necessary to maintain economicsecurity and further growth in both populationand wealth.While no one (with the possible exception ofAyn Rand's followers) is calling for an extensionof "extended order" ethics into the realm of thesmall group, there is an influential intellectualgroup, the socialists, calling for just the opposite:the reconquest of the West by "small group"ethics. Needless to say, Hayek looks upon thisprospect unfavorably. Hayek, while admittingthat such an event might initially satisfy our instincts,points out its long-range consequences:poverty, starvation, and widespread death. "Extendedorder" ethics, Hayek notes, are chiefly responsiblefor making possible our present level ofpopulation and economic well-being; their abandonmentwould lead to chaos and primitive tribalism,a tribalism which, lacking large-scale coordinatingcapabilities, would be unable to sustainEarth's population.The ethical dualism Hayek sees in Western societyis ultimately incapable of resolution. The socialistalternative, argues Hayek, is reactionaryand inapplicable to the complex yet subtle extendedorder of the modern world. Hayek's finalmessage in The Fatal Conceit is wise counsel thatshould be pondered by all: the maintenance of aclassical liberal society, an extended order composedof individuals and voluntary organizationsfreely interacting, is, without exaggeration, a matterof life and death.DRobert Taylor is a junior studying political science andeconomics at the University ofTennessee at Knoxville. Thisreview is adapted from a column in the campus newspaper,The Daily Beacon.ROOSEVELT AND STALIN: THE FAILEDCOURTSIDPby Robert NisbetRegnery Gateway, 1130 17th Street NW, Washington, DC 20036.1988 -120 pages - $14.95 clothReviewed by Richard M. EbelingOnee at a press conference in the 1930s, areporter asked President Franklin Rooseveltwhat his political philosophywas-was he a communist, a fascist, a liberal?Roosevelt seemed bewildered by the question,and after hesitating for a few moments replied,"Why, I am a Christian and a Democrat." Roosevelt'sbewilderment seems never to have lefthim. He just did not think in terms of ideologies.For Roosevelt, Hitler and Mussolini were merely"gangsters," and the law-abiding nations of theworld were using their police to take them off thestreets.The same naivete hovered over Roosevelt's relationshipwith Joseph Stalin. World politicsseemed to be nothing more to Roosevelt than localward politics writ large-a matter of alliances,horse-trading, personalities, and power. Personalloyalties and relationships were the heart of politicsfor the President. The same methods that gotthings done in Albany or Washington wouldwork with Stalin at Teheran and Yalta, Rooseveltbelieved. The absurdity of Roosevelt's view ofhow to deal with the Soviets, and the disastrousresults that followed, are the themes of this book.While the personal relationship of ward politicswas to be Roosevelt's means of dealing withStalin, what were the ends he wished to attain?Nisbet explains that the President viewed himselfas fulfilling the mission Woodrow Wilson beganin World War I: to take upon himself the moralleadership of making the world safe for democracy,of molding the world in his own image ofAmerican freedom. Having given the nation aNew Deal at home, Roosevelt wanted to give theentire world a New Deal. But the attainment ofthis goal was going to require the leadership andprodding of the two great powers, the UnitedStates and the Soviet Union.What made Roosevelt see the Soviets as thenatural partner for this task? In Nisbet's words,"Somehow in Roosevelt's vision all the ugly [ofSoviet brutality] was squeezed out and what wasleft was a system in Russia not extremely differentfrom his own New Deal....the Soviet Union, withall warts conceded in advance, was still constitutionally·pledged to its people to providejobs, medical care, and welfare very much on theorder of his own New Deal....There was also theconstitutional pledge to build a classless society....theSoviet Union was forward-looking, progressivein thrust." Stalin and the Soviets, in otherwords, were just like us, only a bit more uncouth.In Roosevelt's mind, the enemy of peace andorder in the postwar era.wouldn't be Soviet Communism,but the imperialism and colonialism of

OTHER BOOKS 415the European empires, particularly GreatBritain's. This was the threat to a future of Soviet-American"democracy."But Stalin was suspicious of the capitalist West,Roosevelt argued. He had to be coaxed intotrusting the West and working for the worldwide"New Deal." This was the motiye. behind Roosevelt'sinfamous remark that "I think if I give[Stalin] everything I possibly can, and ask nothingfrom him in return, noblesse oblige, he won'ttry to annex anything and will work with me for aworld of peace and democracy." (Roosevelt'sdreams were reinforced by leftist intellectualsand government employees-a handful of whomlater were found to be Soviet agents-who surroundedthe President during the New Deal daysand the war years.)Stalin didn't have to worry about pushing hisown postwar demands. At the November 1943Teheran Conference, where Roosevelt and Stalinmet for the first time, the President held informal,secret meetings with the Soviet dictator.Roosevelt himself suggested that the Baltic statesof Estonia, Latvia, and Lithuania, and the easternportion of Poland that Stalin had seized as part ofhis 1939-1941 nonaggression pact with Hitler,should remain under Soviet rule. All he asked ofStalin was that he remain quiet about it so Rooseveltcould get the Polish vote in the 1944 election.Roosevelt also accepted the idea of postwareastern European governments that would be"friendly" to the Soviet Union. And Stalin waspromised vast territorial gains in the Far East, ifhe. would agree to join in the war against Japanonce Hitler had been defeated. All Rooseveltasked in return was Stalin's participation in thePresident's dream of a peace-keeping United Nationsin the postwar era.As Nisbet demonstrates, the Yalta Conferenceof February 1945 only formalized what Roosevelthad promised at Teheran. The importance of thislater conference, Nisbet explains, was that "Yaltaperformed a service to the Soviets that was almostas important to Stalin as the occupied areasthemselves. This was the invaluable service ofgiving moral legitimation to what Stalin had acquiredby sheer force."·Yalta legitimized and jus-tified the Soviet domination of Poland,Czechoslovakia, Hungary, Romania, Bulgaria,East Germany, and Mongolia. It gave moralstanding to the Soviet Empire.At the Yalta Conference, Roosevelt felt morallybound to legitimize Stalin's claims. As the President'sconfidant, Harry Hopkins, wrote Rooseveltat the conference, "The Russians havegiven us so much at this conference that 1 don'tthink we should let them down." What had Stalingiven? He agreed that in the new United Nations,the Soviet Union would have only threevotes-one for the U.S.S.R., one for the SovietUkraine, and one for Soviet White Russia-insteadof 16 votes, one for each of the Soviet Republics.And what did Stalin think of his own Yaltapromises to work for a new Rooseveltian worldorder, and to guarantee free elections in the easternEuropean nations that the Red Army hadconquered on its way to Berlin? In early April1945, less than two months after the signing ofthe Yalta agreements, a Yugoslav Communistdelegation led by Tito was in Moscow. At a latenightbanquet in their honor, Stalin ruminated onthe postwar era. In his book, Conversations withStalin, Milovan Djilas recounts that Stalin at onepoint explained, "This war is not as in the past;whoever occupies a territory also imposes on ithis own social system." And as for the future,Stalin assured his guests, "The war shall soon beover. We shall recover in fifteen or twenty years,and then we'll have another go at it."Here was the true Stalin, the real "Uncle Joe,"as Roosevelt and Churchill affectionately used tocall him. And was his own postwar vision limitedto eastern Europe? At the Potsdam Conferencein July-August 1945, President Truman went upto Stalin and congratulated him on the successesof the Red Army, successes that had brought Sovietpower to Berlin in the heart of Europe. Stalinglumly replied, "Czar Alexander reachedParis" during the war against Napoleon in the19th century. It appears that Stalin had dreams,~~ DProfessor Ebeling holds the Ludwig von Mises Chair inEconomics at Hillsdale College.

THE FOUNDATION FOR ECONOMIC EDUCATION, INC.Irvington-on-Hudson, New York 10533HIGH SCHOOL DIVISIONFirst prize - $1,500Second prize - $1,000Third prize - $500COLLEGE DIVISIONFirst prize - $1,500Second prize - $1,000Third prize - $500Essaysshould present the positive moral case for a free society. To assist contestants, we haveprepared a packet that includes literature, bibliography, and essay guidelines.Sponsor:The Foundation for Economic Education is publisher of The Freeman, a monthly journal of ideason liberty. Founded in 1946, FEE is a nonprofit, nonpolitical educational and researchorganization offering books, lectures, and seminars that promote an understanding of the freemarket, private property, limited government philosophy.Eligibility:Any high school student may enter the high school division. The college division is open-tocollege students 23 years old or younger. Essays may not exceed 2,500 words in lengthand must be postmarked on orbefore January 15, 1990.

IDEAS ON LIBERTY420 Henry Hazlitt: A Man for Many SeasonsBettina Bien GreavesA tribute in honor of author and economist HenryHazlitt's 95th birthday.429 No Vote for the CandidateTibor R. MachanWouldn't it be refreshing to have a candidate who is really concerned about thiscountry's solvency and credibility?431 The Unspoken Dialogue ofthe MarketMatthew B. KibbeEach of us is continuously engaged in an unspoken dialogue with others simplyby acting and choosing.434 Free Speech: An Endangered Species in IndiaRayasam ~ PrasadCan a country achieve prosperity without a free press?436 Who Is Destroying the World's Forests?Gregory R RehmkeThe answer may be surprising.440 "Lime": E. B. White and Self-RelianceCecil KuhneThe entangling web of government benevolence.441 The Population Bomb ••• DefusedR. Cort KirkwoodPopulation growth statistics really tell observers only one thing: there are morepeople today than there were yesterday.446 Private Property from Soweto to ShanghaiDavid BoazA trip around the world yields some valuable lessons.449 The Market for Low CholesterolMichael WalkerThe market wages war against dietary fat.450 Making Dough in the HeartlandAnn Weiss RogersA rural entrepreneur stumbles against government regulations.453 Book ReviewsJohn Chamberlain reviews Gerald Gunderson's The Wealth Creators.' An EntrepreneurialHistory of the United States. Other books: Lexicon of EconomicThought by Walter E. Block and Michael A. Walker and If Everybody BoughtOne Shoe.' American Capitalism in Communist China by Graeme Browning.CONTENTSNOVEMBER1989VOL. 39NO.11

THEIDEAS ON LIBERTYPublished byThe Foundation for Economic EducationIrvington-on-Hudson, NY 10533President ofThe Board:Vice-President:Senior Editors:Contributing Editors:Copy Editor:Bruce M. EvansRobert G. AndersonBeth A. HoffmanBrian SummersBettina Bien GreavesEdmund A. OpitzPaul L. PoirotDeane M. BrasfieldThe Freeman is the monthly publication of TheFoundation for Economic Education, Inc.,Irvington-on-Hudson, NY 10533 (914) 591­7230. FEE, founded in 1946 by Leonard E.Read, is a nonpolitical educational champion ofprivate property, the free market, and limitedgovernment. FEE is classified as a 26 USC 501(c) (3) tax-exempt organization. Other officersof FEE's Board of Trustees are: Thomas C.Stevens, chairman; Ridgway K. Foley, Jr., vicechairman;Paul L. Poirot, secretary; H.E Langenberg,treasurer.The costs of Foundation projects and servicesare met through donations. Donations areinvited in any amount. Subscriptions to TheFreeman are available to any interested personin the United States for the asking. Additionalsingle copies $1.00; 10 or more, 50 cents each.For foreign delivery, a donation of $15.00 a yearis required to cover direct mailing costs.Copyright © 1989 by the Foundation for EconomicEducation, Inc. Printed in the U.S.A.Permission is granted to reprint any article inthis issue, except "No Vote for the Candidate,"provided appropriate credit is given and twocopies of the reprinted material are sent to TheFoundation.Bound volumes of The Freeman are availablefrom The Foundation for calendar years 1969to date. Earlier volumes as well as current issuesare available on microfilm from UniversityMicrofilms, 300 North Zeeb Road, Ann Arbor,MI48106.The Freeman considers unsolicited editorialsubmissions, but they must be accompanied bya stamped, self-addressed envelope. Our author'sguide is available on request.FAX: (914) 591-8910Cover illustration ofHenry Hazlitt. ©Deborah Melvin Beisner,1989PERSPECTIVEIs Aid Helping Prolong theSudanese War?The government of the Democratic Republicof Sudan has become increasingly dissatisfiedwith the United States and other Western governmentsfor failing to provide sufficient aid. Thiswas never more evident than following last year'sflooding in northern Sudan, when InformationMinister Abdallah Mohamed Ahmed called theU.S. "miserly" and said, "[their response] has letus know who our true friends are." (The DailyNation [Nairobi, Kenya], August 26, 1988)Gone are the days when gifts, regardless ofsize, were gratefully received. Foreign aid hascome to be expected as a right, and provides alarge chunk of many Third World nations' budgets.Many Third World governments limp fromcrisis to crisis, ever promising but rarely deliveringtrue reform. And with the supply taps endlesslyopen, there is little incentive for reform.In fact, why end the current civil war? Timewas when starving people and endless destructionmade it impossible to continue a war. But nowwar simply brings in more foreign aid. So whereis the incentive to stop it?-J. KEITH BATEMANJuba, SudanKnowledge ofthe LawIs No ExcuseThe Dallas Morning News says HUD overchargeshave cost the taxpayers $1 billion in thelast five years.My goodness, a billion dollars. That must be alot of money. But you couldn't prove it by me.It's so far beyond my comprehension that ...well, like a giant star that's a billion miles away, tome it's next to nothing.But let me tell you what I can understand:$165.A friend of mine, who is kind of weird, wastelling me about it. (I say he's weird, but in a niceway. He's a doctor who still makes house calls.)What it is, he has a lawyer acquaintance whoall the time is trying to make him understand he

PERSPECTIVEshould be making more money."He was telling me what a terrible businessman1 am," the doctor said, chuckling. "But 1guess he thought if I was smart enough to knowwhat a doctor knows, maybe I was smart enoughto learn what a lawyer knows."Real estate-that's the ticket, he said. I neededto diversify, invest, to widen my holdings."Well, what do 1 know about real estate? Realestate has nothing to do with medicine."For that matter, I asked him, what does alawyer know about real estate? Real estate hasnothing to do with law."He didn't answer me directly. Instead he startedtelling me about a piece of property he owned,a house that he rents out. It so happened I knewwhich house it was, though I hadn't known heowned it."I said, 'You mean that old falling down housewith the rusty tin roof?'"He said, 'Don't make fun of it. That old houseputs rent money inmy pocket every month.'"I laughed and said, 'How much money can aplace like that rent for?'"Now it was his turn to laugh. 'Would you believe$330 a month,' he said."I said, 'Good night! What idiot would pay$330 for a dump?'"He said, 'No idiot would. But HUD pays halfof it.'"I said, 'Are you telling me that you're notonly making money off poor people, but the taxpayersas well? And you're telling me that's what1ought to do?'"He sort of took offense at that. He said,'Well, it's all perfectly legal.'"I guess he had me there. I'm no lawyer. But 1do know this much, that there can be a big differencebetween legality and morality, and 1 toldhim so."Personally, I haven't seen the property andhave no way of knowing if my doctor friend iscorrect, that it's a bad deal for everybody involved,poor people and taxpayers alike.I do know this much: that half of $330 is $165.Just for the fun of fiddling with figures, let's saythere are 10 such bad deals in this county,amounting to $1,650 a month in HUD money or$19,800 a year.Multiply that figure times the 256 counties inTexas. All of a sudden you've topped $5 million.Take it one more step, $5 million times 50states, and by golly we're at the quarter of a billiondollar mark.In just four years-not five-you have found abillion dollars in bad deals.But like the fellows say, here in Lufkin andthere in Washington, it was all perfectly legal.Far be it from me to suggest otherwise. Aboutthe only legal precept I know is that ignorance ofthe law is no excuse.Too bad it doesn't work the other way as well:that knowledge of the law is no excuse.- JOE MURRAY,writing in the July 3, 1989, issue of The LufkinDaily News, Lufkin, Texas, a member of CoxNewspapers, IncFEE SalutesHenry HazlittNovember 28,1989, marks the 95th birthday ofHenry Hazlitt, noted author and economist. Mr.Hazlitt has served FEE as a Trustee since its beginningin 1946 and was recently voted the designation"Founding Trustee" by his fellow membersof the Board.For a glimpse at Mr. Hazlitt's illustrious career,see Bettina Bien Greaves' article, "Henry Hazlitt:A Man for Many Seasons," starting on page 420.This fall FEE published Henry Hazlitt: AnAppreciation, a collection of essays by and aboutMr. Hazlitt. The booklet also contains Mrs.Greaves' annotated bibliography of Mr. Hazlitt'sbooks.Henry Hazlitt: An Appreciation is availablefrom FEE free of charge with the purchase ofEconomics in One Lesson (paperback $7.95).

420THEFREEMANIDEAS ON LIBERTYHenry Hazlitt: A Manfor Many Seasonsby Bettina Bien GreavesEditors' Note: November 28 marks the 95th birthday ofthe noted author and economist Henry Hazlitt,who has served with great distinction as a Trustee of The Foundation for Economic Education sinceFEE was founded in 1946, and whose personal papers and library are now housed at FEE. To markMr. Hazlitt's birthday, we are pleased to offer this essay by Bettina Bien Greaves, a member ofthe SeniorStaffofFEE, who has known Henry Hazlitt for many years.Henry Hazlitt, author, journalist, editor,reviewer, economist, has written oredited 18 books and countless articles,columns, editorials, and book reviews. He hasgained renown in at least three areas: as a popularizerof sound economic thinking, as a critic ofJohn Maynard Keynes, and as a contributor tomoral philosophy. His Economics in OneLesson (1946), a long-time best seller, is one ofthe finest introductions there is to sound economics.His critique of Keynes, The Failure ofthe "New Economics" (1959), and his explanationof moral philosophy, The Foundations ofMorality (1964), are valuable contributions toknowledge and understanding, to economic theoryand the principles of social cooperation. HenryHazlitt is a man for many seasons. His writingswill live for generations.Early Childhood and YouthHenry Stuart Hazlitt was born in Philadelphiaon November 28, 1894, the son of Stuart ClarkHazlitt and Bertha (Zauner) Hazlitt. His fatherdied when Henry was a baby. His first years inschool were spent at Girard College, a school inPhiladelphia for poor, fatherless boys.When Henry was 9, his mother remarried andtheir fortunes revived. The family moved to*Phrases within quotation marks attributed to Hazlitt aretaken either from his autobiographical notes or from transcriptsofinterviews with him.Brooklyn, New York, and it was there, at PublicSchool 11 and Boys' High School, that Henry receivedmost of his formal education.Henry has apparently always had a gift forwriting. His high school English teacher recognizedhis talent and appointed him "chief critic"of his fellow students' test papers. This was "notan entirely gratifying distinction,"* Henry wrotelater, for it did not endear him to his classmates.When Henry finished high school, he enteredNew York City's free-tuition City College of NewYork (CCNY), but was forced to drop out after afew months. His stepfather had died and he hadto support his widowed mother.An inexperienced high school graduate wasn'tworth much on the job market. The only workfor which Henry was then qualified was as an officeboy at $5 a week. He was fired from his firstjob after only two days. But that didn't faze him.He simply went out and got another job. At thattime there were no legal obstacles to hiring andfiring-no minimum wage with which an employerhad to comply, no Social Security or unemploymenttaxes to pay, no income taxes to withhold,no restrictions on hours or workingconditions. Any would-be employer could hireanyone who wanted to work. If the arrangementdidn't work out, the employer could let the employeego without penalty. Or the employeecould leave, confident that he could easily findother employment.Henry had a succession of jobs at $5 per week.

421When he learned that secretaries could earn $15per week, he determined to learn shorthand andtyping. For several weeks he attended a secretarialschool. With his newly acquired skills, he couldcommand $10 to $12 per week. But again none ofhis jobs lasted very long-he hadn't yet found hisniche. Finally he decided he wanted to be a newspaperreporter. He applied for a job and washired by The Wall Street Journal.The Journal at that time was much smallerthan it is now, and it reported primarily WallStreet news. Hazlitt's bosses at The Journal dictatededitorials to him on the typewriter and reporterscalled in their stories to him over thephone. Gradually he learned through on-the-jobtraining.Although he still knew very little about economicsor the market, he was assigned to be thereporter in charge of following a half dozen smallcompanies. When he attended one annual meeting,he learned how very little he knew. The managementvoted unexpectedly to "pass" its dividend,that is to pass over or to omit it. Hazlittassumed "passing" a dividend meant "approving"the dividend. Fortunately for him, however,when he turned in his report he used their term;he said the dividend had been "passed." His onthe-jobtraining proceeded apace; he promptlylearned the investment definition of that word,and no one was the wiser.The Journal at that time had a "By-the-Way"column, composed of brief quips about currentevents. Members of the staff were encouraged tosubmit entries anonymously. To collect paymentif an entry was used (75 cents per published entry),the author turned in the carbon copy of hisentry. With Henry's gift for expression, he soonbecame a persistent contributor and in time almostdoubled his income with what he receivedfor his short, clever "By-the-Way" paragraphs.Hazlitt's Do-It-YourselfEducationHenry Hazlitt was energetic, ambitious, and industrious.On-the-job training wasn't enough forhim. He was determined to get the education he.had missed when he had to drop out of college.So he started his own reading program. He readabout Shakespeare and the Marlowe controversy.He learned about evolution and the role of thestate by reading Herbert Spencer. He began toread about economics and the stock market. Intime, the depth and breadth of his reading gavehim a broad liberal arts education. A book titledThe Work of Wall Street made him realize theimportance of economics and philosophical reasoning.From then on he read with apurpose-eoncentrating on economics. He read acouple of college texts. Although he lacked sophisticationin economics, his natural good sensewarned him to be on guard against socialist ideas.One book he ran across while browsing in a library,The Common Sense of Political Economy(1910) by Philip H. Wicksteed, a British Unitarianminister, had a profound influence on him.Wicksteed had become acquainted with the Austrianschool of economics, the first school of economicsto recognize that "value" is subjective andthat market prices stem from the subjective valuesof individuals. This insight helped to shapeHazlitt's intellectual development and led him toa firm understanding of market operations andthe marginal utility theory of economics.In addition to reading, young Henry also devotedsome time every day to writing. He set outto write a book on a very ambitious subject,Thinking as a Science, and before many monthshad passed, it was finished. He submitted thebook to five publishers, received five rejections,and got discouraged. Then a high school friendurged him to send it out once more. He did-andthis time it was accepted by the well-known firmof E. ~ Dutton & Co. In 1916, at the age of 22,Henry Hazlitt became a published author.In 1916, Hazlitt left The Wall Street Journaland moved to the New York Evening Post, wherehe put his Wall Street experience to use writing"Wall Street Paragraphs." He was working at thePost in 1917 when the United States enteredWorld War I.World War IHenry wanted to volunteer, as some of hisfriends were doing, but he couldn't afford to doso. The Army paid only $30 per month, notenough for him to support his mother. Then theAir Force announced that it was offering enlistees$100 per month. Henry volunteered, only todiscover that, in spite of their published offer, theAir Force paid enlistees no more than the Army

422 THE FREEMAN • NOVEMBER 1989did. But once in the Air Force, he couldn't getout. Henry's mother had a rough time financiallywhile he was away.The Air Force sent Henry to Texas, to Princetonfor ground school studies, and then back toTexas for flying instruction; he didn't get overseas.Hazlitt was still in Texas when the war ended.A few days after the Armistice was signed, theNew York Evening Post wired Hazlitt that hissuccessor in writing "Wall Street Paragraphs"was leaving. He could have his old job back if hecould be there in five days. Hazlitt took off almostimmediately for New York by train, wentdirectly to the office, suitcase in hand, andworked in uniform his first day back on the job.Hazlitt soon returned to his old regimen ofreading and writing for his own education andedification. Before long he had written a secondbook, The Way to Will Power, published in 1922.At that time, Who's Who had a policy of automaticallylisting any author who had had twobooks published by reputable firms. So at 28,Henry was a two-time author and his name appearedin Whos Who.Benjamin M. AndersonAfter Hazlitt returned from the Air Force, hecontinued his pursuit of economic understanding.Among other books on monetary theory, he readBenjamin M. Anderson's The Value of Money(1917). Hazlitt considered that book "profoundand original" and he learned a great deal from it.Anderson, then teaching at Harvard, later becameeconomist with the Bank of Commerce andthen with the Chase National Bank. WhenHazlitt was financial editor for the New YorkEvening Mail (1921-1923), he occasionally interviewedAnderson in connection with articles hewas writing, and the two men soon becamefriends. Hazlitt wrote the foreword to Anderson'simportant work, Economics and the PublicWelfare: Financial and Economic History of theUnited States, 1914-1946 (1949).In The Value of Money, Anderson had revieweda large number of writers, American andforeign, most of them rather critically, on the subjectof money. But when he came to the Austrianeconomist, Ludwig von Mises, he wrote that hefound in his work "very noteworthy clarity andpower. His Theorie des Geldes und derUmlaufsmittel [later translated into English asThe Theory of Money and Credit] is an exceptionallyexcellent book." This was the first timeHazlitt had heard of Mises, but he rememberedhis name and Anderson's comment. Years laterwhen Mises' works became available in English,Hazlitt made it a point to read them.A Career ofReadingand WritingThroughout his life, Henry Hazlitt has spentmost of his time at the typewriter and with books.From age 20, he wrote something almost everyday-news items, editorials, reviews, articles,columns. By his 70th birthday, he figured he musthave written "in total some 10,000 editorials, articles,and columns; some 10,000,000 words! Andin print! The verbal equivalent of about 150 average-lengthbooks." Hazlitt has also written oredited 17 books. (See the list at the end of this article.)His early works were literary and philosophical,his later books largely economic.After leaving The Wall Street Journal, Hazlittworked in various capacities-as economic commentator,financial editor, book reviewer, editorialwriter, literary editor, columnist, andeditor-for five different newspapers includingThe New York Times (1934-1946), a monthly financialletter, and three magazines, includingNewsweek (1946-1966) for which he wrote the"Business Tides" column. In 1950, while still writingfor Newsweek, Hazlitt and John Chamberlainbecame editors of the newly founded biweeklymagazine, The Freeman, predecessor of thisjournal. (See the note at the end of this article fora list of the publications with which Hazlitt hasbeen associated.) After he left Newsweek in1966, he became an internationally syndicatedcolumnist.Hazlitt's reading and studying over the years tosatisfy his own intellectual curiosity spanned abroad spectrum of subjects. His vast reading, especiallywhen he was a literary editor and bookreviewer, is evident in The Anatomy of Criticism(1933), in which he discussed the critic's role, theinfluence of the critic on the public, and the influenceof the times on the critic. Hazlitt's prodigiousreading and prolific writing throughoutthese years were preparing him for the importantcontributions he was to make to the understand-

HENRY HAZLITI: A MAN FOR MANY SEASONS 423ing of economic theory and social cooperation.As a result of Hazlitt's various assignmentswriting about financial and stock market news,his interests had been gradually directed towardbusiness and economics. He read many books oneconomics, and he became knowledgeable as aneconomist. But he did not write a book on thesubject until 1946.The New York TimesAs a patriotic gesture, The New York Timeshad made a promise not to fire anyone during theDepression. This proved a very costly promise tokeep. It meant for one thing that The Times didno hiring for a couple of years. By 1934 they werein dire need of someone who knew economics.Thus, in the midst of the Depression, Hazlitt washired by The Times as an editorial writer.The Times was then being run by ArthurSulzberger, son-in-law of the fairly "conservative"publisher and controlling owner, Adolph S.Ochs. Management seldom interfered with Hazlitt'seditorials, although Ochs' daughter, Mrs.Sulzberger, would occasionally call Hazlitt andsuggest some "leftist" idea. Hazlitt would explain,"The trouble with that, Mrs. Sulzberger,is . . ." She would reply, "Well, you know best."Thus, The Times pretty much published whatHazlitt wrote-at least until 1944. More aboutthis later.Mises and HayekHazlitt is proud of his role in helping to introducetwo economic giants to readers in this country-Ludwigvon Mises, leading spokesman forthe Austrian school of economics for many years,and Friedrich A. Hayek, also an Austrianeconomist, Mises' protege, and Nobel Prize Laureatein 1974.As mentioned above, Hazlitt first heard ofMises through Benjamin Anderson's The Valueo/Money. Years later when Hazlitt came acrossMises' Socialism, he reviewed it in The NewYork Times. His review appeared in the January9,1938, Book Review Section: "[T]his book mustrank as the most devastating analysis of socialismyet penned. Doubtless even some anti-Socialistreaders will feel that he occasionally overstateshis case. On the other hand, even confirmed Socialistswill not be able to withhold admirationfrom the masterly fashion in which he conductshis argument. He has written an economic classicin our time."Mises was then living and teaching in Switzerland.As a courtesy, Hazlitt mailed a copy of hisreview to the author and the two men exchangeda couple of brief letters. Two years later Misescame to the United States to escape the strife ofWorld War II. Hazlitt was one of Mises' few contactsin this country and Mises telephoned him.To Hazlitt, Mises was a "classic," an author froma previous era. Mises' call, Hazlitt recalled later,was almost as much of a surprise as if he hadheard from such a legendary economic figure asAdam Smith or John Stuart Mill.In 1944, Hazlitt reviewed F. A. Hayek's TheRoad to Serfdom in The New York Times. As ayoung man in his native Austria, Hayek hadcome to know Nazism firsthand. In Englandwhere he was living and teaching just before thestart of World War II, he observed the same interventionisttrends that he had seen on the Continent.In 1944, in a devastating critique ofNazism, The Road to Serfdom, he warned theBritish that they were heading down the samepath.The book stunned academia and the politicalworld. Hazlitt's review, featured on page one ofThe Times' Book Review Section (September 24,1944), compared Hayek's The Road to Serfdomto John Stuart Mill's On Liberty. Hazlitt describedit as "one of the most important books ofour generation." The University of Chicago Presshad printed only 3,000 copies, and when the bookmade the best-seller list the publisher's stock wassoon exhausted, and they had to begin reprintingright away.Bretton WoodsWhen John Maynard Keynes' scheme for theInternational Monetary Fund and the InternationalBank for Reconstruction and Development(World Bank) was under discussion in BrettonWoods, New Hampshire, The Times offeredto send Hazlitt to the conference. But Hazlitt sawno reason to go. He was opposed to the discussions.He said he could learn more by readingabout them than he could by going there andtalking with participants. Besides, if he stayed in

424 THE FREEMAN • NOVEMBER 1989New York he could also write editorials on othersubjects. So he didn't go.While editorial opinion across the nation waslargely favorable to the Bretton Woods discussions,Hazlitt was criticizing them. His editorialswere the only "sour note." When it was announcedthat 43 governments had signed the"marvelous" Bretton Woods Agreement,Sulzberger called Hazlitt to his office. "Now,Henry, when 43 governments sign an agreement,I don't see how The Times can any longer combatthis.""All right," Hazlitt said. "But in that case Ican't write anything further about BrettonWoods. It is an inflationist scheme that will endbadly and I can't support it." After that Hazlittwrote no more editorials on the subject for TheTimes. However, Hazlitt was also writing a Mondaycolumn for the paper's financial page, andthere he continued to criticize Bretton Woods. Atthat point, Sulzberger suggested he might includea line at the end of Hazlitt's Monday column:"The opinions of Mr. Hazlitt are not necessarilythose of The New York Times.""You can do that, Mr. Sulzberger. But," Hazlittwarned, "one consequence of such a disclaimerwill be that, if you don't print a similar line onother columns, the assumption will be that theyare necessarily in agreement with the views of theeditor of The Times." Sulzberger understoodHazlitt's reasoning and dropped the idea.Economics in One LessonFor some time Hazlitt had been mulling overthe possibility of writing a "little book" on thefallacies of short-run economic interests. He discussedthe idea with Mises, by then a close friend.He also told Harper's editor for economics booksabout his idea. The editor offered to publish thebook when it was written. The New York Times,for which Hazlitt was still working as an editorialwriter, agreed to give him every other day offwithout pay to write the book. Economics inOne Lesson was the result.To Hazlitt, writing that book "came so easily,"he said later, "that I couldn't take it very seriously...."[W]riting these chapters was almost likewriting daily editorials.... It took ... about threemonths of alternate days off." On the in-betweendays he was thinking about the book. "Thatmeant one and a half months of actual writing."Reader's Digest published two excerpts beforethe book's publication, and the book promptlybecame a best seller. Hazlitt had suggested thatthe print run be increased to satisfy the additionaldemand anticipated from the Reader's Digestpublicity. Yet the publisher printed only 3,000copies. The first week the book was out it wasseventh on the New York Times best-seller listfor non-fiction; the second week it was sixth; andthen the third week it disappeared from the listaltogether-there just were no more books to besold. After some time, when it had been reprintedand was available once more, it began to sellagain, although it didn't make the Times listagain.Writing Economics in One Lesson may havecome easily to Hazlitt, but its impact has beenenormous. It has been translated into eight languages.By 1977 it had sold 50,000 copies in hardcover, 700,000 in all editions, and it still sells atthe rate of a few thousand per year, attractingnew readers to economics with its delightful styleand its simple explanations and illustrations ofeconomic fallacies.Economics in One Lesson is clearly Hazlitt'smost popular book. It established him as an economicjournalist par excellence, the moderncounterpart of the Frenchman Frederic Bastiat(1801-1850), author of The Law. H. L. Menckenwas quoted on the book jacket of the first editionas saying that Hazlitt was "the only competentcritic of the arts ... who was at the same time acompetent economist, of practical as well as theoreticaltraining, ... one of the few economists inhuman history who could really write." The bookhas introduced countless individuals to soundeconomic theory.Harper & Brothers published the first 1946hardcover edition of Economics in One Lesson.Harper arranged for later paperback editions,and kept the book in print until 1974. Then, withouttelling Hazlitt, it let the book go out of printand canceled the contract with the paperbackpublisher.When Hazlitt learned this, he approachedHarper and asked about reprinting in paperback.They hesitated but said, "If you bring it up todate, we'll publish a new edition in hardback."Hazlitt revised the book. Still "they dilly-dallied,"Hazlitt said, and didn't publish it in either hard-

HENRY HAZLITI: A MAN FOR MANY SEASONS 425back or paperback. According to Hazlitt, "Theysaid they didn't think it would sell in paper.Hazlitt believed their real objection must havebeen ideological, since the book had been sellingseveral thousand paperback copies a year. Intime Hazlitt obtained the rights to the book, andin 1979 Arlington House put out a paperbackedition.Hazlitt left The Times for Newsweek aboutthe time Economics in One Lesson came out. InHazlitt's view his situation was improved; his"Business Tides" columns in Newsweek wouldbe signed; he would no longer be writing anonymously.Critique of KeynesHazlitt had been impressed with John MaynardKeynes' The Economic Consequences ofthe Peace (1919) when it first came out. At thatpoint, Hazlitt took everything Keynes said as"gospel." But in 1923, Hazlitt read Keynes' ATract on Monetary Reform. By that time Hazlitthad done a fair amount of reading in monetarytheory and could recognize economic errorswhen he read them. He was "appalled" by how"bad" a book it was and from that time on, Hazlitt"distrusted every statement Keynes made."B. M. Anderson commented to Hazlitt laterthat when Keynes discussed the quantity theoryof money in A Tract on Monetary Reform, "heeven states that upside down." Which he did!The actual reason prices go up is that the governmentprints new money and distributes it to peoplewho spend it. As the spenders compete forgoods and services by bidding against otherwould-be spenders they make prices go up. YetKeynes had said that when prices go up, the governmentmust print more money to keep pacewith the prices. The great German inflation wasthen raging (1923) and this was precisely whatthe German authorities were saying, that therewas (as Hazlitt later paraphrased the Germans'position) "no real inflation because the presentvolume of currency ... had actually a smallerpurchasing power than the former volume of currencybecause the depreciation per unit wasgreater than the multiplication of units." -Keynesagreed with the Germans "that it was necessaryfor them to keep printing marks to keep pacewith the rising prices."Whether Keynes' success was due to personalcharisma, his prestigious positions with theBritish government, or to the "scientific" sanctionhis works gave politicians to do what theywanted to do anyway-that is to spend withouttaxing-is immaterial. The fact remains that fromthe 1930s on Keynes' influence was enormous.And through it all, Hazlitt continued to beamazed by Keynes' growing reputation.In Economics in One Lesson, Hazlitt demolishedvarious Keynesian programs in a ratherlow-key manner. Then in 1959, in The Failure ofthe "New Economics," he critiqued Keynes' majorwork, The General Theory of Employment,Interest, and Money (1936) in detail, citing chapterand verse. The Failure of the "NewEconomics" (1959) is much more scholarly thanEconomIcs in One Lesson, its market narrower,but it is by no means less important.To refute each Keynesian error, Hazlitt expoundedsound economic theory in a wayacademia couldn't ignore. John Chamberlain,who reviewed the book in The Freeman, titled hisreview, "They'll Never Hear the End of It." Thedean of the Department of Economics at a leadinguniversity questioned Hazlitt's credentials forcritiquing the noted Keynes. Mises came to Hazlitt'sdefense. Hazlitt, Mises responded, was "oneof the outstanding economists of our age," andhis anti-Keynes book was "a devastating criticismof the Keynesian doctrines."Moral PhilosophyHenry Hazlitt was a personal friend of Mises.But he was also a student of Mises in the sensethat he carefully studied his work. He attendedMises' seminar at New York University quite regularlyfor several years. Although Hazlitt washimself an economist and author of note by then,he said about the Mises seminars that he alwaysfound that "no matter how many times I wouldgo, no matter how often I heard in effect thesame lectures, there would always be some sentence,some incidental phrase that threw morelight on the subject."One remark by Mises which impressed Hazlittwas that questions of morality and justice alwaysrefer to social cooperation. Hazlitt agreed. But hethought the statement needed elaboration. Thiswas a subject close to Hazlitt's heart, for he had

426 THE FREEMAN • NOVEMBER 1989Lawrence Fertig, Ludwig von Mises, Leonard Read, and Henry Hazlitt during a visit to FEE in the 1960's.longed to write a book on ethics since he was ayoungster.As he pondered the subject he was struck bythe insight of a statement by Jeremy Bentham(1748..1832): "Legislation is a circle with the samecenter as moral philosophy, but its circumferenceis smaller." This idea became the theme of Hazlitt'sbook on ethics, The Foundations ofMorality (1964).In this book, Hazlitt sought to unify law, ethics,morality, and manners, and to show their relationto social cooperation. Following· Bentham, Hazlittpresented law, ethics (morality), and mannersas three aspects of the same thing. "[B]oth mannersand morals rest on the same underlying principle.That principle is sympathy, kindness,consideration for others. ... Manners are minormorals." Law, he maintained, might be called"minimum ethics" with "the same center asmoral philosophy." Ethics and morality covermore territory than law; they have a "far widersphere [than law].... Morality," he wrote, "certainlycalls for. active benevolence beyond thatcalled for by the law."In The Foundations of Morality, Hazlitt discussedthe literature on ethics and moralitythroughout the ages. And he described the wayethical and moral principles had been put intopractice. He pointed out that the moral codes ofmany religions are similar and consistent withpeaceful social relations. Yet their differences, aswell as the cruelty and suffering inflicted on menin the name of organized religion, raise doubts asto the reliability of religious faith as a guide toethical conduct.Thus, Hazlitt offers a utilitarian basis formorality. The moral philosopher, he writes,should seek a "foundation" for morality thatdoes not rest on a particular religion. "[I]t is notthe function of the moral philosopher~ as such,"Hazlitt concludes, "to proclaim the truth of thisreligious faith or to try to maintain it. His functionis, rather, to insist on the rational basis of allmorality to point out that it does not need any su-

HENRY HAZLITT: A MAN FOR MANY SEASONS 427Henry Hazlitt's Journalistic Career1913-1916-The Wall Street Journalli916-1918-New York Evening Post1919-1920--Mechanics & Metals National Bank (monthly financial letter)1921-1923-New York Evening Mail (financial editor)19-23-1924-New York Herald (editorial writer)1924-1925-The Sun1925-1929-The Sun (literary editor)1930-1933-The Nation (literary editor)1933-1934-American Mercury (editor)1934-1946-The New York Times (editorial staff)1946-1966--Newsweek (associate & "Business Tides" columnist)1950-1952-The Freeman (co-editor)1952-1953-The Freeman (editor-in-chief)1966-1969-Columnist for the international Los AngelesTimes Syndicatepernatural assumptions, and to show that therules of morality are or ought to be those rules ofconduct that tend most to increase human cooperation,happiness and well-being in this our presentlife."Summing UpIn the course of his career, Hazlitt met many ofthe great and near great. As has been mentioned,he knew the economist, B. M. Anderson. Heknew H. L. Mencken personally, and it wasMencken who recommended that Hazlitt succeedhim as editor of American Mercury in 1933. Hazlittwas a frequent guest on the radio, debatingface-to-face such socialist luminaries as formerVice President Henry A. Wallace, the late Secretaryof State Dean Acheson, former U. S. SenatorsPaul H. Douglas and Hubert Humphrey. Heis a Founding Trustee of The Foundation forEconomic Education. He was, of course, a closefriend of Mises and Hayek, but he also knew wellall of the important personages in the libertarian/conservativemovement-Leonard E. Read,Isabel Paterson, Rose Wilder Lane, John Chamberlain,William F: Buckley, Ayn Rand, LawrenceFertig, and others.Over the years, Hazlitt perfected a clear andlucid writing style. Writing so many editorials andshort columns disciplined him to express himselfsuccinctly and simply. Even his most importantand profound books are composed of short, easyto-understandchapters. Everything he writesmay be read with pleasure and profit.Throughout his career, Hazlitt has been an advocateof a minority point of view. He has been aconstant critic of government intervention, inflation,and the welfare state, and he wrote booksattacking them. His anti-Keynes, anti-BrettonWoods editorials, first published in The NewYork Times, also appeared later as a book (FromBretton Woods to World Inflation, 1984).Hazlitt has spoken out repeatedly and untiringlyin behalf of the freedom philosophy, limitedgovernment, free markets, and private property.At a banquet in 1964, honoring him on his 70thbirthday, he spoke of the freedom movement andhis part in it:Those of us who place a high value on humanliberty ... find ourselves in a minority(and it sometimes seems a hopeless minority)in ideology. . . . We are the true adherents ofliberty.... We are the ones who believe in limitedgovernment, in the maximization of libertyfor the individual and the minimization ofcoercion to the lowest point compatible withlaw and order. It is because we are true liberalsthat we believe in free trade, free markets, freeenterprise, private property in the means ofproduction; in brief, that we are for capitalismand against socialism....I will confess ... that I have sometimes repeatedmyself. In fact, there may be some peopleunkind enough to say I haven't been sayinganything new for 50 years! And in a sense theywould be right. ... I've been preaching libertyas against coercion; I've been preaching capi-

428 THE FREEMAN • NOVEMBER 1989talism as against socialism; and I've beenpreaching this doctrine in every form and withany excuse. And yet the world is enormouslymore socialized than when I began....Is this because the majority just won't listento reason? I am enough of an optimist, and Ihave enough faith in human nature, to believethat people will listen to reason if they are convincedthat it is reason. Somewhere, theremust be some missing argument, somethingthat we haven't seen clearly enough, or saidclearly enough, or, perhaps, just not said oftenenough. A minority is in a very awkward position.The individuals in it can't afford to be justas good as the individuals in the majority. Ifthey hope to convert the majority they have tobe much better; and the smaller the minority,the better they have to be. They have to thinkbetter. They have to know more. They have towrite better. They have to have better controversialmanners. Above all, they have to havefar more courage. And they have to be infinitelypatient. ...Yet, in spite of this, I am hopeful. ... [Weare] still free to write unpopular opinion....So I bring you this message: be of good heart;be of good spirit. If the battle is not yet won, itis not yet lost either.D1916/196919221932 (ed.)19331942/197419461947195119561959/19831960/19841960/19651964/19721970/19831973/19861978/198319841984Books by Henry HazlittThinking as a ScienceThe Way to Will PowerA Practical Program for AmericaThe Anatomy ofCriticismA New Constitution NowEconomics in One Lesson(reprinted, 1948/1952; revised, 1962, 1979)Will Dollars Save the World?The Great Idea2nd ed., Time Will Run Back (1966/1986)The Free Mans LibraryThe Failure ofthe "New Economics"The Critics ofKeynesian EconomicsWhat You Should Know about InflationThe Foundations ofMoralityMan vs. the Welfare StateThe Conquest ofPovertyThe Inflation Crisis and How to Resolve ItFrom Bretton Woods to World Inflation: A Study ofCauses and ConsequencesThe Wisdom ofthe Stoics: Selections from Seneca, Epictetus andMarcus Aurelius (Frances & Henry Hazlitt, eds.)

429No Vote for theCandidateby Tibor R. MachanThere was a special election in my Con-, gressional district recently. Our Congress-· man had died, and several candidateswere vying for his office.I received a letter from one of them, greetingme as "Dr. Machan." I surmised from this thatsomeone on the candidate's staff had found myname in the university phone book, and so knewthat I taught there.Most of the letter was pretty routine, promisinghard work and claiming good roots in thecommunity. One paragraph, however, caught myeye. In it, our candidate made the followingpromise:There will be many occasions where the allocationof budgetary resources can be a majorforce in facilitating quality growth anddevelopment. [Your] University, for example,needs additional funding to achieve its potentialfor excellence. I envision a far greater rolein federally-sponsored basic and applied researchin a wide range of areas, many of whichare untapped. My record of 14 years in [your]legislature is well-documented with support forhigher education. I am particularly proud ofsponsoring and providing leadership in thepassage of the Eminent Scholars Bill.... I willbe responsive to the personal needs of my constituents....Now this all sounds nice. We can send someoneto Congress who will be responsive to mypersonal needs! In these days of runaway govern-Tibor Machan teaches philosophy at Auburn University,Alabama. He recently edited Commerce andMorality for Rowman and Littlefield.ment spending, what we need is for one morepolitician to go to Washington and bring back alot of loot for his constituents.And people talk about the need to eliminategovernment waste! That is puny stuff. What isnecessary is to eliminate the power of governmentto ladle out the kind of favors my aspiringCongressman offered. What we need are bills tolimit government growth and spending, not peoplewho make promises they can keep only bymortgaging the wealth of unborn generations orby· spawning massive wealth redistribution asproof of public service.What our country needs more than anythingelse is to cut back the power and influence ofgovernment, to revitalize the energies of the privatesector, to rekindle the spirit of individual initiative.After all, isn't this the message of all thosesocialist countries that are running away fromcentral planning? Are we not learning that blindfaith in the power of government to "facilitate"virtually everything from education to healthcare has led to worldwide bankruptcy?Wouldn't it be refreshing to have a candidatewho is really concerned about this country's overallsolvency and credibility? One might be able tovote for someone like that and feel proud. I amafraid, however, that despite all the hue and cryabout deficits and sacrifice, little is going tochange with our present team of leaders.The politicians seem to have paid off the fewpeople who might have saved us fromthem-those teaching about the political systemwe live in. These politicians will continue to makepromises, and most of our university professorswill continue to be as interested as the next guy in

430 THE FREEMAN • NOVEMBER 1989government handouts. So these professors aren'tgoing to tell us that when we abandon the principlesof limited government and free enterprise,eventually we will go belly up and reach true nationaldisaster.Once again, it was awfully difficult for me tovote. The other candidates were even worseoneof them appealed to the fear of imports, andthe other promised still more handouts. What asad spectacle! Where is the America that madeitself the leader of free people? Where are thepoliticians who serve not special-interest groups,but the genuine public interest--everyone's rightsto life, liberty, and the pursuit of happiness? D

431The Unspoken Dialogueofthe Marketby Matthew B. KibbeOn coming to Paris for a visit, I said to myself"Here are a million human beings who wouldall die in a few days ifsupplies ofall sorts didnot flow into this great metropolis. It staggersthe imagination to try to comprehend the vastmultiplicity of objects that must pass throughits gates tomorrow, if its inhabitants are to bepreserved from the horrors offamine, insurrection,and pillage. And yet all are sleepingpeacefully at this moment, without being disturbedfor a single instant by the idea of sofrightful a prospect. On the other hand, eightydepartments have worked today, without cooperativeplanning or mutual arrangements, tokeep Paris supplied. How does each succeedingday manage to bring to this gigantic marketjust what is necessary-neither too much nortoo little?HOW-FREDERIC BASTIATIis Paris fed? For Bastiat, the answerto this seemingly complex puzzle wassimple: Freedom ensures that Paris isfed. More specifically, an individual's freedom tothink, choose, act, and trade with other individualsprovides the basis for individual prosperityand social cooperation under a system of law. Bystriving to satisfy his own needs and wants, thefree individual helps others-often without everhaving intended to do so.Matthew Kibbe is a doctoral student in economics atGeorge Mason University, assistant editor of MarketProcess, and senior economist at the Republican NationalCommittee in Washington, D.C. This essay wonthe second prize in FEE's 1988-89 essay contest, "WhyChoose Freedom?"This "simple" understanding of the market orderwas by no means originated by Bastiat. In1776, Adam Smith employed the now famousanalogy of the "invisible hand" to describe thesocial process by which the individual, when leftalone, is "led ... to promote an end which was nopart of his intention.... By pursuing his own interest[the individual] frequently promotes thatof the society more effectually than when he reallyintends to promote it."2 The result of this processis peaceful co-existence among millions ofindividuals; or, better yet, "cooperation inanonymity."3However, it was not until after Bastiat's deathin 1850 that a general theory of Adam Smith's"invisible hand" explanation was developed bythe Austrian economists. Carl Menger demonstratedhow social institutions (particularly money)emerge in a society as a result of each individual'sparticipation in the market. The actions of"erring, bumbling man" were in turn guided bythese institutions. 4Ludwig von Mises considered this interplaybetween purposive individuals and social institutionsto be the necessary condition for successfuleconomic coordination in an uncertain world.Money and mOQ.ey prices served as the indispensable"guide amid the bewildering throng of economicpossibilities."5No single man can ever master all the possibilitiesof production, innumerable as they are, asto be in a position to make straightway evidentjudgments of value without the aid of somesystem of computation. The distributionamong a number of individuals of administra-

432 THE FREEMAN • NOVEMBER 1989"On coming to Paris for avisit, I said to myself:Here are a million human~~:'beings who would all die,~.:' lin a few days ifsuppliesofall sorts did not flowinto this great metropolis....How does each succeeding daymanage to bring to thisgigantic market just whatis necessaryneithertoo much nortoo little?"-FREDERIC BASTIATtive control over economic goods in a communityof men who take part in the labor of producingthem, and who are economically interestedin them, entails a kind of intellectualdivision of labor, which would not be possiblewithout some system of calculating productionand without economy.6Each individual, because of this "intellectualdivision of labor," possesses a great deal of informationwhich is known to him alone. The steelworker in Pennsylvania, the securities broker inNew York, the farmer in Iowa, the business managerin California, and every other individualwithin society is privy to "the knowledge of theparticular circumstances of time and place."7 Institutionssuch as money prices allow the individualto communicate this unique, personal knowledgeto the unknown others in society. Throughconstant changes in price, the market enableseach individual to engage in a free, unspokendialogue with other individuals. It is this processwhich allows successful economic coordination totake place.Hayek's ExampleF. A. Hayek, a student of Mises, told the hypotheticalstory about a drop in the market supplyof tin to elucidate this communicative process be-

THE UNSPOKEN DIALOGUE OF THE MARKET 433tween the individual and his unknown fellows.Suppose that either a new use for tin has beendiscovered or that an important producer's abilityto provide tin on the market has declined. Eitherway, tin is now more scarce. Some consumers oftin, because of their proximity to and knowledgeof the impetus of the change, are immediately informedof the new situation. Through their subsequentactions, these few individuals influencethe price of tin. Without anyone intending to helpothers, the information of the new scarcity of tinis spread through the price system. Signaled bythe rising price of tin, the vast majority of tin consumers,not privy to the direct knowledge of timeand place, are "told" that·they must somehoweconomize their own use of tin. "The marvel isthat in a case like [this] of a scarcity of one rawmaterial, without an order being issued, withoutmore than perhaps a handful of people knowingthe cause, tens of thousands of people whoseidentity could not be ascertained by months of investigation,are made to use the material or itsproducts more sparingly; that is, they move in theright direction."8Now imagine the constant flux of a real economy,where changes in tastes, new technologicaldiscoveries, and an almost infinite number of otherchanges-both large and small-occur everyminute. Each individual is continuously engagingin an unspoken dialogue with millions of otherindividuals, simply by choosing and acting. Thesmooth complexity of such a system is both overwhelmingand beautiful.Unfortunately, as Hayek points out, the opponentsof freedom have altogether failed to appreciateor understand the nature of this "simple"insight. "Much of the opposition to a system offreedom under general laws arises from the inabilityto conceive of an effective co-ordinationof human activities without deliberate organizationby a commanding intelligence."9 Without anunderstanding of how the "invisible hand" of themarket operates, complexity is mistakenly seenas chaos.The raison d'etre of Marxism is, and alwayshas been, the replacement of production for exchange,which is directed by the "blind forces" ofthe market and money prices, with comprehensive,rationally coordinated planning by a centralauthority. Freedom and free exchange will be replacedwith direct control over the means of production.Only then will the needs and wants ofthe people be satisfied. Or so the story goes.But how would a central authority ever knowwhat the constantly changing needs and wants ofthe people actually are? Such knowledge canonly exist in a market and in m~rket prices. Politicalorders, no matter how carefully calculated,are no substitute. Without the freedom to act andchoose, there is no basis for producing anything.In a command economy, there can be no dialoguebetween individuals except within the strictly limitedbounds of time and place. As Mises put it,advanced economic production would be "unworkable."What all would-be planners-the mercantilists,the protectionists, and the socialists-fail to see isthat the market process is not chaotic at all.Through the unspoken dialogue of prices, individualsin the market are able to communicateand coordinate their activities in a way that isboth peaceful and prosperous. Freedom works.Or, from Frederic Bastiat's point of view, Paris issleeping peacefully, and Paris is fed. D1. Frederic Bastiat, Economic Sophisms (Princeton: D. VanNostrand Company, 1964), p. 97.2. Adam Smith, An Inquiry into the Nature and Causes of theWealth ofNations (New York: Random House, 1937), p. 423.3. Richard M. Ebeling, "Cooperation in Anonymity," CriticalReview, Vol. 1, No.4, Fall 1987.4. Carl Menger, Principles ofEconomics (New York: New YorkUniversity Press, 1976), pp. 257-85. See also Carl Menger, "On theOrigin of Money," Economic Journal, Vol. 2, 1892.5. Ludwig von Mises, Socialism (Indianapolis: Liberty Classics,1981), p. 101.6. Ludwig von Mises, "Economic Calculation in the SocialistCommonwealth" in F. A. Hayek, editor, Collectivist EconomicPlanning (Clifton, N.J.: Augustus M. Kelley, 1975), p. 102.7. F. A. Hayek, "The Use of Knowledge in Society,"Individualism and Economic Order (Chicago: University ofChicago Press, 1948), p. 80.8. Ibid., p. 87.9. F. A. Hayek, The Constitution ofLiberty (Chicago: Universityof Chicago Press, 1960), p. 159.

434Free Speech:An Endangered Speciesin Indiaby Rayasam ~ Prasad,'The government must have realizedthe folly of making an attempt tosteal through parliament a piece oflegislation that sought to deny 800 million peopleof this land the right of expression," said H. K.Dua, editor of Hindustan Times. He was referringto an anti-defamation bill that came close to becominglaw in the summer of 1988. According toIndia Today, the ruling Congress (I) Party pushedthe bill through parliament with the help of its"brute majority."This bill placed the entire burden of proof onthe accused in defamation suits. If a politician orbureaucrat disliked what was written in a newspaper,he could use poorly defined terms (whichwere included in the bill) like "grossly indecent,""scurrilous," or "intended for blackmail" to cookup charges against the journalist. The bill alsoprovided for summary trials and prescribed aminimum period of imprisonment for journalistswho wrote "defamatory matter."In the past, few Indians questioned whether itwas proper for government to control the flow ofinformation in a democracy. This bill shockedmany out of their complacency. After a monthlongstruggle-which included a three-mileprotest march-the anti-defamation bill waswithdrawn.By their silent acquiescence, the majority ofIndians have empowered their government to attaincomplete control over the broadcast media.The government created the Information andBroadcasting Ministry shortly after India gainedMr. Prasad, who immigrated from India in 1975, is afree-lance writer in Atlanta, Georgia.independence in 1947. This ministry inherited thenation's only radio network, which it has operatedever since. No other radio stations are allowed.When television became the dominantmass medium, the same pattern was repeated. Inaddition, the Indian government produces newsfootage that must be shown in every theater beforethe main feature.Politicians and bureaucrats turned radio andtelevision into propaganda outlets for the government.All India Radio was nicknamed "All-IndiraRadio" during the reign of Prime Minister IndiraGandhi. In arecent interview, KrishnaKumar, Minister of State in the Information andBroadcasting Ministry, said: "The government'sachievements have to be projected. This is the legitimatework of the Information and BroadcastingMinistry."Indian television bombards the viewer with imagesof prosperity. Almost every day, cabinetmembers are shown opening steel mills or switchingon irrigation dams. But if the country is progressingat such a rapid pace, why are so manyIndians living in utter poverty?Officials use the same media to blame uncontrollableforces such as droughts, overpopulation,lack of natural resources, or even plots by foreigngovernments to explain the problems at home.Opposing arguments are not to be heard. Kumaralso claims that Indian television has to emphasizevalues like secularism. At 9:30 each Sundaymorning, this high-sounding ideal acquires a hollowtone. This is when hundreds of millions of Indiansgather around their television sets to watchthe Hindu epic, Ramayan. All the voices thatprotested this governmental promotion of one re-

435Demonstrators protesting the Indian government's control ofmedia.ligion over others have been drowned out.Print media serve the Indian public as an alternativeto government-controlled radio and television.This is not to say that the newspapers areentirely free. The ruling party holds substantialcontrol over the written word through its abilityto allocate newsprint, government advertisingrevenues, and even leases on newspaper buildings.A few journalists have tried to maintaintheir independence. But they are well aware thatdissidents are usually brought into line by privateand public harassments.Indian politicians, however, aren't happy withtheir partial control over the newspapers. Embarrassedby repeated disclosures, such as the recentarms-purchase scandals, the Congress (I) Partytried to pass the anti-defamation bill and incorporatethe print medium into their propaganda machine.Some people argue that India, with its overwhelmingpoverty and illiteracy, has no use forideas like free speech. However, they deludethemselves into believing that surrendering theserights will somehow produce economic prosperityand social equity.In any country without a free press, corporations-whichprovide badly needed capital andtechnology-will be at the mercy of an all-powerfulbureaucracy. In the event of a dispute, governmentofficials can easily prevent investors frompresenting their side of the story. When IndiraGandhi kicked IBM out of India, for example,there was hardly any protest.Newspapers in India, which must compete forreaders, do a much better job of reporting thanradio or television. Literate Indians look to newspapersfor accurate information. Privatization ofthe broadcast media would extend this ability tothe 60 percent of Indians who can neither readnor write.D

436Who Is Destroying theWorld's Forests?by Gregory E RehmkeTime began its January 2, 1989, "Planet ofthe Year" issue with a two-page photo ofa burning Brazilian forest, and declared:"Man is recklessly wiping out life on earth." AFebruary 23, 1989, Rolling Stone article, "TheScorched Earth," shows cattle in the state ofRondonia in western Brazil nibbling at still-smolderingshrubs.Government-sponsored television advertisements,says Rolling Stone, encourage impoverishedBrazilians "to seek their fortune in thefarming, ranching, mining, lumber and hydroelectricprojects under way in Rondonia." The articleexplains that the 900-mile Highway BR-364, financedby. the World Bank, cheaply transportssettlers to Rondonia from urban areas.Nearby, in the western state of Acre, residentsdepend on the Brazilian government for 85 percentof their income. But these subsidies are onlythe latest in a long series of uneconomic policiessubsidizing rain-forest development.The Brazilian military has insisted that buildingroads and settling the Amazon basin is necessaryfor national security. "The Amazon is ours,"declared Brazilian President Jose Sarney, in anApril 6th speech announcing a new internationallyfinanced program he said would "permit therational siting of economic activities" in theAmazon basin.The speech was reported to be strongly nation-Mr. Rehmke heads the Economics in Argumentationprogram for the Reason Foundation, 2716 Ocean ParkBlvd., Suite 1062, Santa Monica, CA 90405. This articleis adapted from the April 1989 issue of Econ Update,published by Economics in Argumentation.alistic, and many Brazilian officials see pressureto limit Amazon development as part of a "campaignfor the internationalization of the Amazon."General Leonidas Pires Goncalves, Brazil'sArmy Minister, recently complained of "that tiresomegrinding on and on" about forest destruction.Meanwhile, Fernando Cesar Mesquita, headof the new Brazilian environmental agency, believes"There is a true danger of foreign occupationof the Amazon."Citing "national security" to justify uneconomicprograms is a popular ploy for special interestgroups around the world and is certainly notunique to Brazil.Subsidizing Rain-ForestDestruction in South AmericaThe cattle-ranching and road-building projectsthat first drew Brazilians into the Amazon wereheavily subsidized with funds from the WorldBank, the Inter-American Development Bank,and the International Monetary Fund. By 1983,the Brazilian government had spent $2.5 billionto subsidize deforestation for large-scale cattleranching that, according to the World ResourcesInstitute, "would not be economically viable inthe absence of the subsidies."After decades of subsidizing cattle ranching inthe Amazon, the Brazilian government apparentlydecided it needed to subsidize farming communitiesto balance the concentrated wealth of cattleranchers. The Polonoroesta plan, a project innorthern Brazil funded by the InternationalMonetary Fund, foreign lenders, and the govern-

437ment, was to develop 100,000 square miles oftropical forest for small farmers. Seventeen percentof the land has been deforested so far.Yet the program, in addition to being environmentallydestructive, has apparently led to aneven greater concentration of land in the handsof ranchers. After a section of forest is burned,nutrients left in the ashes support only a coupleyears of crops. With the nutrients exhausted, thesoil will support only grasses-making the landsuitable for ra;ising cattle.Local cattle ranchers then purchase the landcheaply, and settlers move on to raze newacreage. The burning program continues to redistributeincome from taxpayers (both domesticand foreign) in order to provide subsidized laborand land for cattle interests.In "How Brazil Subsidises the Destruction ofthe Amazon," The Economist (March 18, 1989)cites a new World Bank study outlining a varietyof misguided policies: "Brazil's laws and tax systemhave made deforestation and ranching in theAmazon artificially profitable." High inflationencourages people to invest in land, since moneysavings are wiped out. Agriculture is exemptedfrom taxation, so legitimate farmers are boughtout by those looking for tax havens, and farmersthen move deeper into the forests to clear newland.Land taxes on unimproved land are reduced 90percent when cleared for crops or pasture, thuspunishing private preservationists. Tax creditssubsidize money-losing development schemes,generally benefiting rich cattle ranchers at the expenseof poorer Brazilian taxpayers. Finally, governmentregulations give "squatters' rights" tothose who wander onto private land and beginusing it "more effectively," i.e., clearing theforests and planting crops. However, this last policyseems to work both ways: The New YorkTimes recently reported that the squatters' rightspolicy has allowed rubber-tappers in some areasto delay landowners' plans to clear forests.The Brazilian government, however, isn'talone in subsidizing forest destruction. A programoperated in the U.S. by the Forest Serviceand the Bureau of Land Management (BLM)transforms forests in the Southwest into grazingland for leasing-at below-market rates-to cattleranchers.Chaining: "Engines of thePublic Good"Known as "chaining," this U.S. Forest Servicepractice destroys pinon and juniper forests onFederal lands in the American Southwest. Gianttractors, pulling either end of a 6oo-foot, 60,000­pound anchor chain, rumble across the land rippingout shrubs and trees-"cleansing" the landfor grasses and, later, cattle grazing. EconomistTerry Anderson notes: "Between 1960 and 1972,the BLM chained nearly 300,000 acres in Nevadaand Utah, and the Forest Service, more than80,000 acres. More than 3,000,000 acres, includingland in Arizona and New Mexico, have fallen tothis destructive and expensive practice."1Brazilian burning reduces the diversity ofspecies as tropical forests are cleared and replantedwith single crops. The BLM's chaining programdoes much the same thing. Forest Servicereports, notes Ronald M. Lanner, show thatchained areas contain "about 50 species of fish,66 reptiles and amphibians, 75 mammals, and 140birds in and around the pinon-juniper woodlands."The "twenty-two common shrub species,fourteen grasses, and seventeen forbs [herbs otherthan grasses]" are replaced by the Forest Servicewith a single species of Asian crested wheatgrass.2Calling chaining a "plant control program,"the Forest Service claims it is "rehabilitating"grasslands. The Forest Service, unable to leasescattered pinon-juniper woodlands for logging,has labeled them as "uncommercial forests."Much like burning in the Amazon, chaining is aprocess of converting uncommercial forests intocommercial rangelands. Then, again as in theAmazon, these converted rangelands subsidizelocal cattle operations.Lanner explores the Forest Service logic thatleads to chaining: "active, on-the-ground managementpassed from frustrated timber-orientedforesters to range managers whose professionalobjective is the production of red meat. Trees aremore of a hindrance than a resource to rangemanagers, and chaining is an attractive method ofremoving them." The Forest Service and theBLM so vigorously and imaginatively defend thebenefits of their "plant control program" thatLanner refers to the chain-pulling D-8 class trac-

438 THE FREEMAN • NOVEMBER 1989Cleared land in Brazil's rain-forest region.tors as "veritable Engines of the Public Good."3From the jungles of Brazil to the southwesternU.S., special interest groups fuel forest destruction.Both projects would be unprofitable withoutgovernments' shifting development costs totaxpayers.Subsidizing Rain ForestDestmction in North AmericaThe same is true in the Tongass National Forestin Alaska, one of the world's last temperatezone rain forests. The Forest Service subsidizeslogging operations in the Tongass rain forest,which lose 98 cents for every taxpayer dollarspent. Logging jobs bolster the local economy,but cost U.S. taxpayers an average of $36,000 foreach job created. The benefits are concentrated,creating Forest Service and logging company jobs(and profits) in the area, while the costs arespread out among U.S. taxpayers.In the Tongass National Forest, and in otherU.S. forests, government-built roads subsidizelogging, just as Brazilian government roads subsidizelogging and burning in the Amazon. TheU.S. Forest Service has built 342,000 miles ofroads in the national forests.According to a study by the National Centerfor Policy Analysis: "These roads, primarily designedto facilitate logging, extend into the ecologicallyfragile backcountry of the Rocky Mountainsand Alaska, where they are causing massivesoil erosion, damaging trout and salmon fisheriesand causing other environmental harm. Becausethe costs of these logging activities far exceed anycommercial benefit from the timber acquired,this environmental destruction would never haveoccurred in the absence of government subsidies."4Road building does create jobs, though, andincreases Forest Service budgets. The programsare driven by the logic of special interests-thebenefits are concentrated, while the costs arespread out.Tongass logging, Southwest chaining, andAmazon burning are all uneconomical projects

WHO IS DESTROYING THE WORLD'S FORESTS? 439that probably never would have been startedwithout subsidies. Either the land would havebeen left alone, or other less destructive practiceswould have been developed.Indians in the Peruvian Amazon, for example,have apparently learned how to cultivate the rainforest in profitable and environmentally soundways. The Economist (February 11, 1989) cites aPeruvian study showing "the value of the productsof a natural forest exploited sustainably forits fruit, rubber and timber, exceeded threefoldthe value of beef that the land would produce aspasture."Saving the Wilderness byFreeing the CitiesMany environmentalists, possibly influencedby Malthusian arguments, believe that overpopulationand economic growth alone force settlersinto the Amazon rain forests, and into other tropicalrain forests around the world. But if Brazilhad an open economy, with sound money, freemarkets, and free trade, the opposite would likelyhappen: people would be drawn from the countrysideinto the cities, to take new jobs and sharebetter living standards.Cities can absorb an astonishing number ofpeople, and when unshackled can transform lowcostlabor into rapidly increasing prosperity. Singaporeand Hong Kong are two recent examplesof thriving cities creating wealth for their onceimpoverishedworkers.The mass migration of rural workers to urbanareas has continued since the Industrial Revolution.People take advantage of the better jobs inand around thriving cities, leaving behind theagrarian life in isolated villages. Most LatinAmerican economies, however, are neither freeofinflation nor thriving.Hampered by protectionism, taxes, regulations,and money-losing state-owned companies,Latin American cities have not been able to createthe new jobs and prosperity needed to employand enrich swelling urban populations.Brazilian politicians, instead of deregulating theireconomies, have dreamt up schemes to relieveurban pressure by shuttling the poor out to exploitthe "hidden riches" of the Amazon.Protection Through OwnershipThough eliminating government subsidieswould make the current destruction of the Amazonrain forest (and Alaska's Tongass rain forest)unprofitable, private commercial development ofthe rain forests might someday be profitable.If people want to stop future commercial rainforestdevelopment (rather than just stoppingsubsidies for current unprofitable development),they should be willing to translate that desire intoaction. The Nature Conservancy did just that inCosta Rica recently with a $5.6 million debt swapthat will finance nine local conservation projects,protecting some of Costa Rica's rain forest fromdevelopment. Another debt/nature swap in Boliviaencourages ecologically sound development(rather than just setting aside virgin forests,which does little to enhance the local economy).IfAmericans want more of Latin America's 1.6billion forest acres set aside, they should considerbuying the land, or purchasing long-term leases.In the same way, if Brazilians want to protect oneof the world's last temperate zone rain forestsfrom destructive logging, or protect pinonjuniperforests in the Southwest, they too shouldhave the right to purchase or lease the land.Unfortunately, as it now stands, the Braziliangovernment is no more likely to let Americanspurchase and protect land in the Amazon's tropicalrain forest, than is the·U.S. government to letBrazilians purchase and protect land in Alaska'stemperate rain forest.D1. Terry Anderson, "The Market Alternative for Land andWildlife," in Doug Bandow, editor, Protecting the Environment: AFree Market Strategy (Washington, D.C.: The Heritage Foundation,1986), p. 41.2. Ronald M. Lanner, "Chained to the Bottom," in John Badenand Richard L. Stroup, editors, Bureaucracy vs. Environment:The Environmental Costs of Bureaucratic Governance (Ann Arbor:University ofMichigan Press, 1981), p. 163.3. Ibid., pp. 159, 154.4. John Baden, "Destroying the Environment: GovernmentMismanagement of our Natural Resources," National Center forPolicy Analysis, Policy Report #124, October 1986.

440"Lime": E. B. Whiteand Self-Relianceby Cecil KuhneEB. White (1899-1985) was one of thefinest essayists of this century. Per-• haps best known as the author of thechildren's book Charlotte's Web, White was also asuperb nonfiction writer. His pieces (many ofwhich were clearly tongue-in-cheek) appearedregularly in The New Yorker, where he worked asan editor, and in Harper's, where he submittedmonthly columns as a free-lancer.Eventually White left New York City to live ona farm in coastal Maine, where he did some of hismost brilliant work. A collection of his essays,One Man's Meat, contains a short piece entitled"Lime," written in November 1940. The subjectof this article was the allotment of ground limestonethat White received as a farmer, free ofcharge from the government, under one of themany New Deal programs.White took the three tons of lime, which hesprinkled on the soil of his upper field to improveits alkalinity. But in the process, he admits tosome misgivings for having done so.As he cogently points out in this essay, the limehe received from the government was in effect agift to him from all the taxpayers of the country(whether they liked it or not). He uses theprovocative analogy that as he was spreading thelime on his fields, the federal government wasspreading the cost over its citizens.The well-worn rationale for such a handout, ofcourse, is that the fertility of the soil is a nationalconcern-one that affects everyone-and thereforethe Federal program will benefit all of us.But White sees problems with the logical extensionof this type of thinking: "... 1believe it alsoMr. Kuhne is an attorney in Amarillo, Texas.is true that a government committed to the policyof improving the nation by improving thecondition of some of the individuals will eventuallyrun into trouble in attempting to distinguishbetween a national good and a chocolatesundae."He continues: "I think that one hazard of the'benefit' form of government is the likelihoodthat there will be an indefinite extension of benefits,each new one establishing an easy precedentfor the next."After all, says White, think of the women whowant a permanent wave for their hair. It could beargued that the satisfaction of that need is also anational good. Then the government would providefree permanent waves in the belief that thepublic wants them and that they provide valuableemployment for hairdressers.Government provision of goods and serviceseventually leads to a nation of people who dependon the government for their every want andneed. Even White felt the pressure to demandmore. "I seemed to have lost a little of my grip onlife. 1felt that something inside me, some intangiblesubstance, was leaching away. 1 also detecteda slight sense of being under obligation to somebody,and this, instead of arousing my gratitude,took the form of mild resentment-the characteristicattitude of a person who has had a favordone him whether he liked it or not."White was losing touch with his self reliance-just as anyone does when he comes to dependon government handouts. Self-reliance, a characteristicstrongly valued before the New Deal, hasdeclined in importance as government entitlementprograms have grown. We shouldn't be surprised.D

441The PopulationBomb ... Defusedby R. Cort KirkwoodRepetition is the mother" of learning, andthere are some popular beliefs that haveno basis in fact, but which many Americanssimply accept at face value because the newsmedia has repeated them so many times in somany different ways. One such belief is thatspaceship Earth has too many inhabitants, thatthe developing world's population growth inhibitseconomic development, and that everyone mightrun out of food, water and natural resources ifsomething isn't done to stop Africans and LatinAmericans from having babies.Just a few months ago, the United Nations releasedan alarmist report saying the world's populationwill reach 10 billion by 2025 and 14 billionby 3000 if women everywhere don't start usingII10re and better birth control techniques. Theheadlines were predictable. Ask average peopleon the street whether population growth is aproblem, and they will answer, yes-faster thanthey can tell you what team Mickey Mantleplayed for, or who wrote Huckleberry Finn."The population bogey has been the raresweet issue everyone could agree upon," saysUniversity of Maryland economist Julian Simon,yet a more mythical bogeyman could hardly befound. Though the population controllers such asInternational Planned Parenthood, The PopulationInstitute, and the Population Crisis Committeehave had the media's ear since World War II,thinking economists and demographers have destroyedthe theory that population growth inhibitseconomic growth. How? As the AmericanR. Cort Kirkwood is an editorialist for The WashingtonTimes.Enterprise Institute's Nicholas Eberstadt puts it:"That corpus of knowledge simply does not exist.So what you have is pseudoscience. Modernwitchcraft."The ingredients in the population bombers'brew are as strange as those used in witchcraft:eye of newt, crushed bat wings, and whatever elseit is they toss in the pot, except the populationbombers mix a concoction of Malthusianism, socialism,and economic globaloney that emergesfrom their kettle as an oracle of doom.Says Sharon Camp of the Population CrisisCommittee: "There are too many people tryingto eke out a living at current technology.... Wedon't know what will happen to the natural resourcebase at a population level of 8, 9, 10, 14billion."Without an increase in U.S. assistance forUnited Nations population programs, Nafis Sadikof the United Nations Population Fund warned,"we will continue to experience high populationgrowth, high infant and child mortality, weakenedeconomies, ineffective agriculture, divided societiesand a poorer quality of life for women, childrenand men."Barber Conable, president of the World Bank,said in a September 1988 address to the bank'sBoard of Governors: "The societies in whichpopulation is growing so fast must accept thatmany-perhaps most-of these new lives will bemiserable, malnourished and brief. With today'spopulation growth rates, badly needed improvementsin living standards cannot be achieved,public resources for necessary services are overstretched,and the environment is severely damaged."

442 THE FREEMAN • NOVEMBER 1989Wrote Loretta McLaughlin in .The BostonGlobe, "It is the pressure of the world's burgeoningpopulation-more than any other singleforce-that fuels inflation and economic recession.All nations must compete harder for dwindlingsupplies of the earth's resources; worldwide,more workers must compete for proportionatelyfewer jobs."In the same article she quoted Conable's predecessor,Robert McNamara, who best crystallizedthe population bombers' mantra: "The populationproblem must be faced up to for what itis-the greatest single obstacle to the economicand social advancement of peoples in the developingworld. It is the population explosion, morethan anything else, which by holding back the advancementof the poor, is blowing apart the richand poor and widening the already dangerousgap between them."Is Population Growth the Culprit?It would be truly sad if all these things weretrue, but they aren't. All the available data suggestthat population growth has nothing to dowith economic growth, infant mortality, or any ofthe other ugly conditions in which much of theworld's population lives, especially the ThirdWorld.For example, population planners say toomany people will "deplete our limited quantitiesof food, water and fuel" and other nonrenewableresources. Yet the prices of most commodities(except fuel, thanks to government energy policiesand the OPEC cartel), are gradually fallingin real terms. If prices are a measure of scarcity,then the world's increasing population is hardly athreat. Population growth statistics really tell observersonly one thing: there are more people todaythan there were yesterday.Most of the dire predictions are about Africaand Latin America, where huge populations andmass starvation seem to go hand in hand~ Accordingto The Population Institute, "There is nosimple explanation for why Africa's economic developmenthas been stunted and why Africans todayremain so grievously poor. Lack of capitaland highly skilled personnel is a factor. . . . ongoingcivil strife. . . . staggering external debts....colonial exploitation. . . . degradation of . . . itsnatural resource base.... Somewhere in the mixof these factors is the wellspring of Africa'swoes." But the real "wellspring of the continent'swoes" is never discussed.Warning that Ethiopia's population of 49 millionwill double in 23 years, the Institute reports,"The Ethiopian government acknowledges thatthe country's three percent population growthrate is imperiling its people and their developmenthopes.... There is clearly no way Ethiopiacould support that many people. Ethiopia hasonly two choices: undertake far more vigorous effortsto extend family planning or face even larger-scalesuffering in the near future."But overpopulation is hardly Ethiopia's problem.The Institute and its ideological kin simplyignore Ethiopia's brutal collectivization of agriculture,a throwback to the days of Stalin and theUkrainian famine even the Soviets have advisedthe Mengistu regime to stop. The governmenthas deliberately turned mild droughts into nationwidefamines and killed thousands of peoplein forced relocation programs to deprive antigovernmentguerrillas of crucial rural support.It is widely known that the Communist authoritiesuse relief food as a lure, stationing suppliesnear pickup areas for the relocation program.The ultimate goal is to move 33 million people.Not surprisingly, The Washington Post reportedin 1987, the per capita availability of grain haddropped 22 percent in 10 years, and even thoughstate-owned farms were using 40 percent of allgovernment expenditures, they contributed onlyfour or five percent of total food production. Privatefarmers-the few that there were-weregenerating 40 percent of the country's nearlynonexistent gross national product.Yet The Population Institute says Ethiopianeeds more condoms and birth control pills:"Had Ethiopia launched a family planning programin the mid-1960s and had that programbeen half as successful as many that were begunat that time, the number of births preventedwould have been equal to the number of Ethiopiansdependent upon food relief during the lastfamine." That's what you call pseudoscience.The Institute is also worried about Ghana,"the second fastest growing [population] in westernAfrica" at 3.3 percent, but credits the Ghaniangovernment with a hands-on approach to familyplanning.Yet as Nicholas Eberstadt notes in the Winter

THE POPULATION BOMB ... DEFUSED 4431986 Wilson Quarterly, when Ghana was decolonizedand Kwarne Nkrumah took the reins ofpower, he systematically destroyed the economywith socialist interventions. He "forced the farmersto sell their cocoa, the nation's chief export, ata fixed price to the government, which then soldit abroad at a profit. The proceeds were pouredinto Nkrumah's industrial development schemes.By the late 1970s ... Ghana's small cocoa farmerswere getting less than 40 percent of the worldprice for their crop-an effective tax of over 60percent. Not surprisingly, Ghana's cocoa outputand cocoa exports plummeted."Next Nkrumah "took aim at industry. Shortlyafter independence, he nationalized the nation'sforeign-owned gold and diamond mines, cocoaprocessingplants, and other enterprises. Ghana'snew infant industries were also state-owned. Theresult was inefficiency on a monumental scale.According to one study, between 65 percent and71 percent of Ghana's publicly owned factory capacitylay idle 10 years after independence....By 1978, tax revenues paid less than 40 percent ofthe government's budget. Inflation spiraled,climbing by over 30 percent a year during the1970s.... Black Africa's most promising formercolony had become an economic disaster."But The Population Institute concludes,"where population growth is the fastest­Africa-per capita food production is in thesharpest decline."Some Surprising ComparisonsThe Institute's 1988 report on Africa ignoresSouth Africa, which isn't surprising. Its population,one of the continent's highest, has doubledsince 1960, yet its per capita gross national productin 1986 was $1,850. Ghana's and Ethiopia'spopulations have doubled as well, but their percapita GNP's are $390 and $120 respectively. Peoplearen't Africa's problem, government policiesare. Even South Africa's racialist apartheid systemhasn't done the damage Ethiopia's Communistdictatorship has. In fact, if the government ofSouth Africa ever dismantled the apartheid system,allowing blacks even more economic freedomthan they have now, the contrast would beeven more dramatic ... and more embarrassingfor the population bombers.Africa's story is only a snapshot of a worldwidephenomenon. Comparing other countries in thesecond and first worlds yields similar results. Asshown by the table on page 444, the differencesbetween Taiwan, Singapore, and China, betweenNorth Korea and South Korea, and between EastGermany and West Germany are equallystartling, especially when population density isbrought into the equation. Where China hasenough room to put 285 people per square mile,its economy is a failure next to Taiwan's andSingapore's, whose people are packed in like sardines,but whose economies have become knownas two of Asia's four "dragons." (The other twobeing Hong Kong and South Korea.)These small islands also belie the myth that urbancongestion in "Third World mega-cities"such as Mexico City and New Delhi is a threat topublic health, education, and housing needs.Need we ask why South Korea, which is morethan twice as crowded as North Korea, is doingtwice as well economically? Population plannerstry to explain the differences by saying the successfuleconomies of Asia and Africa benefitedfrom strong, government-backed family planningprograms. But the population growth rates of theAfrican countries, East and West Germany, theKoreas, and the Pacific rim countries were prettymuch the same from 1960 to 1986. That leavesonly one explanation for the differences, one thetable doesn't show, one the population bombersdon't like to discuss: China, Ethiopia, and theother economic failures are controlled by Communistor socialist central planners, whereas Taiwan,Singapore, and the other economic enginesof progress are largely free market economies.As Julian Simon has written, "Populationgrowth under an enterprise system poses less of aproblem in the short run, and brings many morebenefits in the long run, than under conditions ofgovernment planning of the economy." AddsEberstadt, "the overall impact of populationchange on a society seems to depend on how thesociety deals with change of all kinds. Indeed,coping with fluctuations in population is in manyways less demanding than dealing with the almostdaily uncertainties of the harvest, or the upsand downs of the business cycle, or the vagariesof political life. Societies and governments thatmeet such challenges successfully as the littledragons did, are also likely to adapt well to populationchange. Those that do not are likely to find

444 THE FREEMAN • NOVEMBER 1989that a growing population 'naturally' causes severe,costly and prolonged dislocations." (WilsonQuarterly, Winter 1986) In short, free societiesadjust well to population increases, Communistsocieties do not.The population bombers would be little morethan harmless "do-gooders" if their ideas-thatpeople cause inflation, that people consume toomuch food, that people are a drag on economicdevelopment-were not taken so seriously. Butthey are taken seriously, and the consequenceshave been disastrous, anti-natalist, even inhuman.Eberstadt cites a March 1986 Washington Postreport from Kenya: "hundreds of [rural school]children ran screaming, some scrambling throughwindows, with the approach of an unfamiliar car:it was thought to contain population workerswho would inject them with nonreversible contraceptives.The previous year starving Kenyansin drought-afflicted areas were reported to haverefused relief shipments of U.S. corn on the rumorthat the corn had been laced with sterilizants."(Foreign Aid and American Purpose,p.96)Family Planning in ChinaBut the worst application of population controltheory is that of the Communist Chinese government,which has been cited by the U.S. House ofRepresentatives for "crimes against humanity" incarrying out its one-family, one-child policy. Incollecting 92 accounts from eyewitnesses, humanrights activist Dr. Blake Kerr reported the ghastlyresults in The Washington Post (February 26,1989): "In the autumn of 1987," two Tibetanmonks told Kerr, "a Chinese birth-control teamset up their tent next to our monastery in Amdo.The·villagers were informed that all women hadto report to the tent for abortions and sterilizationsor there would be grave consequences....We saw many girls crying, heard their screams asthey waited for their tum to go into the tent, andsaw the growing pile of fetuses build outside thetent."Elsewhere in China, in pursuit of its U.N.­backed family planning program, the results arethe same: forced sterilization, abortion and outrightinfanticide. In many cases, doctors perform"abortions" as a child is moving through the birthEast GermanyWest GermanyNorth KoreaSouth KoreaChinaTaiwanGhanaSouth AfricaSingaporeEthiopiaMozambiquePopulation persquare mile399.0634.5448.01,095.5285.01,385.6142.968.411,608.492.245.8GNPper capita$10,40012,0801,1802,3703003,7483901,8507,410120210Sources: The Heritage Foundation, The World Bank AnnualDevelopment Report 1988; Figures from 1986.canal at term, crushing its skull with a forceps orjamming a hypodermic needle filled withformaldehyde into the fontanelle, killing the childjust moments before it enters the world. Otherswho make it past the doctor are often confrontedby the nurse, and women have heard their child'sfirst cries on beginning life only to see themsnuffed out by that nurse, who is usually armedwith what has become known as "the poisonshot."The justification for this mass murder? Accordingto Chen Muhua, head of China's FamilyPlanning Board, "Socialism should make it possibleto regulate the reproduction of human beingsso that population growth keeps in step with thegrowth of material production."Lest you think such exhortations are suigeneris, look at the words of Friends of the Earthas published in·Progress As If Survival Mattered:"Americans should take the lead in adoptingpolicies that will bring reduced population. Ultimately,those policies may have to embrace coercionby governments to curb breeding.... mereunofficial advocacy and purely voluntary complianceare far from enough ... voluntarism guaranteesbig families for the ignorant, the stupid, andthe conscienceless,while it gradually reduces theproportion of people who, in conscience, limit thesize of their families.... Ifthe less stringent curbson procreation fail, someday perhaps childbearingwill be deemed a punishable crime against societyunless the parents hold a government license.Or perhaps all potential parents will be

THE POPULATION BOMB ... DEFUSED 445required to use contraceptive cheInicals, the governmentsissuing antidotes to citizens chosen forchild bearing."The population bombers cannot imagine thatan Ethiopian mother might love her children justas much the sterilization advocate living at theWatergate, that children provide a source of nonmaterialincome they don't understand. Forthem, there are only "unwanted" pregnancies; asGeorge Gilder put it, "mouths, not minds." Nowonder they can make pseudoscientific statementslike, "500 million women want and needfamily planning but lack information, access ormeans to obtain it." In this view, people aren'tproducers, they're consumers.If such is the case then the effort to preserveman's finite resources must go beyond mere contraceptionand the legal elimination of "unwanted"children by abortion. In allocating our supposedlymeager resources, judicious authoritieswould allow only the most learned, polished, andbeautiful people to reproduce, for it is they whowill use resources most expediently and they whoneed them most. After all, as devoted friends ofthe earth say, a system of "voluntarism" wouldempower the "stupid and ignorant" (the teemingmasses of Latin America and Africa?) to wasteour dwindling resources.Effective population control logically demandsthat we control not only the number of people onearth, but the kind of people who live on it. Andthat is a recipe for tyranny.DThe Ultimate WeaponThe development of the population control movement should notcome as a surprise. For it is, in fact, the logical outcome as well as the• final gasp of the liberal Welfare State of today. Supposedly, the basicpurpose of the Welfare State is to succor those who cannot take care of themselves,the poor, the elderly, the handicapped. But Garrett Hardin tells us thatbecause of the inevitable "tragedy of the commons" in which the "freedom tobreed" inexorably conflicts with equal rights to the common welfare, thisWelfare State goal will bring ruin. So, to save its own skin, the Welfare Statebegins practicing not welfare but "wombfare," destroying rather than nurturingits young.However, the "tragedy of the commons" is not a justification for populationcontrol. It is rather a call for the elimination of the Welfare State. This isbecause the Welfare State is in the long run a way not of helping people butcontrolling them. And population control is the last desperate act and ultimateweapon of a Welfare State whose lust for power and instinct for survivalknows no political or moral limits.What population control boils down to is a blatant and brutal attempt tosolve problems not by alleviating the conditions that cause them, but by eliminatingthe people who have the problems. But the idea of eliminating problemsby getting rid of people is not new. The concept has been with us always.IDEASONLIBERTY-JAMES A. WEBER, Grow or Die!

446Private Property fromSoweto to Shanghaiby David BoazAtrip around the world provides evidenceof just how wrong Harvard economistJohn Kenneth Galbraith was in his influentialbook The Affluent Society. (Granted, oneneed not go nearly so far to find such evidence.)Galbraith observed that everywhere onelooked, privately provided goods andservices-homes, automobiles, factories, "handsomelypackaged products"-were clean, shiny,and of high quality. Yet publicly provided services-schools,parks, streets-were old, overcrowded,and poorly maintained. Galbraithcalled it "an atmosphere of private opulence andpublic squalor."From those accurate if unremarkable observations,Galbraith drew the remarkably misguidedconclusion that the problem was too little spendingon the public sector. It seems astonishing todaythat a brilliant man could have gone so farastray; after all, the economic theory of privateproperty was well known 30 years ago-butmaybe not at Harvard. His book, published in1958, had a great deal of influence on the explosionin government spending over the nextdecade. We are still paying a heavy price-in hightaxes and poor public services-for Galbraith'serror.We are now spending much more on the publicsector than we were 30 years ago-real governmentspending has increased from $528 billion in1958 to $1,64Q billion in 198B-yet governmentservices are still shoddy, overcrowded, and poorlymaintained.David Boaz is executive vice president ofthe Cato Institutein Washington, D. C.The reason-which Galbraith missed completely-isthat shoddiness is inherent in governmentownership because of a lack of incentives.Homeowners generally take good care of theirproperty-they paint the house regularly, fix theroof, plant grass and trees, and call a plumberpromptly when they discover a leak. Why? Becausethey are the sole claimants to the property'svalue. If they try to sell their property, they willreap the benefits of the house's good condition orpay a price for its disrepair. Tenants tend to takeless care of their homes, though landlords generallycheck on the condition of the property regularly.Tenants in government housing show theleast concern for the condition of theirhomes-and because there's no owner whowould pay a price for the declining value of theproperty, no one else has much incentive to improveit. And public housing is always in disrepair,to say the least.Most privately owned stores are clean and welllit with friendly, helpful clerks-at least comparedwith, say, the post office. The Postal Servicedoesn't seek out rude and indifferent employees;it's just that neither its clerks nor theirsupervisors have anything to gain by treating customerswell. On a recent trip around the world, Ifound shop clerks in Shanghai just as indifferentto customers as U.S. postal workers.It is economic analysis and, more important,such observations that have created a worldwidetrend toward privatization. The Thatcher governmenthas sold public housing units to their tenants,sold Great Britain's largest trucking companyto its employees, and sold the telephonecompany to private shareholders. Japan recently

447sold off its telephone company. New Zealand privatizedits national oil company. Nigeria plans toprivatize 160 state-owned companies, and Togointends to sell all of its public-sector enterprises.Even behind the Iron Curtain, privatization ismaking inroads. China has in effect privatizedagricultural land, and Mikhail Gorbachev hasproposed to do the same in the Soviet Union.Cuba has begun allowing tenants to purchasegovernment housing.Private vs. Public OwnershipOn my trip, which took me from South Africato China (with a few stops in between), I sawsome dramatic examples of the differences betweenprivate and public ownership, between privateopulence and public squalor.In many ways, apartheid (particularly in SouthAfrica's black townships) was the purest form ofcommunism the world had ever seen. The governmentbuilt the townships, where urban blacksare forced to live. It built thousands of small,identical brick houses and assigned people tothem with no regard to tribal origin, family relationships,income, or personal preferences. Unlikethe residents of a normal town, they couldnot choose to live near their friends or relativesor people of similar educational or occupationalbackground, nor, of course, did they have propertyrights. Not only could a tenant not sell hishouse, the government could and did take itaway from him at will. Naturally, the unfortunateresidents of Soweto did not see much point intaking good care of the houses.Recently, however, the government quietly beganto allow Sowetans to purchase their homes.The results have been just what one should expect:people are cleaning, painting, and fixing uptheir houses. The first thing they do is make thehouse look different from the government issue.They buy a wooden door to replace the standardmetal one. They cover the brick with stucco--adesign choice that I found strange until I was toldthat the brick symbolizes government housing.They buy decorative windows, put a fencearound the yard, and even add a room or an upperfloor.Buyers must generally continue living in thehouses they already occupy, which leads to thestrange phenomenon of a well-kept, newly en-larged house sitting between two ill-kept governmenthovels. In a freer market, an affluent homeownerwould probably move to a better neighborhood-orsomeone would buy the housesnext door and fix them up-but in Soweto hetakes advantage of the few options he has andimproves his own lot.There is a section of expensive new homes inSoweto. (Yes, there are rich people in Soweto;South African blacks have at least some opportunityto become rich, but their money won't freethem from the requirement to live in the townships.)A visitor can stand in the middle of thisimpressive new development and look across theroad at the government-provided barracks wheresingle men live under truly appalling conditions.It's a striking example of private versus publicproperty.At the other end of the scale from the impressivenew houses are the shanties, built by blackswho migrated to the Johannesburg area becausethere was work there and who were denied accessto government housing. At first the governmentbulldozed the shanties, saying that the occupantswere illegal squatters. More moderatevoices finally persuaded the government that becauseit was not providing those blacks withhousing (or allowing them to live outside thetownships), it should at least leave the shantiesalone. So now the shanties are tolerated, but theyhave no legal right to exist. The residents of theshanties don't bother to improve them-the governmentretains the right to expel the occupantsor bulldoze the buildings at any time-but insideare appliances and televisions for which electricityis supplied by enterprising neighbors. In otherwords, Galbraith could find private opulence andpublic squalor within one small shack; peoplespend their money on the things they can own.Obviously, a civilized South African governmentwould repeal the Group Areas Act and letpeople live wherever they want to live. But theincentives of privatization and property rightscan work even in the interstices of freedom overlookedby a repressive government.China: "One Big Soweto"In many ways, China is one big Soweto. Housingis owned and allocated by the government.Not surprisingly, the housing stock is old, over-

448 THE FREEMAN • NOVEMBER 1989crowded, dirty, and in disrepair. One gets the impressionthat little has been built and nothing hasbeen washed since the Communist takeover in1949.Once again, the market works at the edges.Because of the de facto privatization of agriculturalland, rural Chinese are more prosperousthan city dwellers. I was told that two millionpeople come into Shanghai every day to shop,and the tourist on Nanjing Road or in No.1 DepartmentStore wouldn't doubt it. For obviousreasons, people spend little money on the upkeepof their homes, but many are well dressed, and aShanghai college student spoke disparagingly ofthe unfashionable clothes that "we won't buy" ina state department store. Old habits die hard,though; he explained to me that privately runstores are not permitted on Nanjing Road "becausethis is the main shopping center."Appropriately enough, while I was in Chinafor a conference on economic reform, the governmentannounced plans to begin selling housesto the tenants. The professed reason was todampen demand for appliances, which consumerswere spending too much on; I hope thatwas just a cover story to obscure the fact that thelargest Communist government in the world waslegalizing private property. Presumably the Chinesegovernment has noticed the success of privatizationand property rights in the West; on itsdoorstep in Hong Kong, Taiwan, and South Korea;and finally in its own rural areas.If China does in fact privatize a significantamount of its housing, I fully expect that when Ireturn I will see not only housing that has beenbuilt since 1949, but older housing that has beenrepaired and even washed.From the United States to Soweto to Shanghai,economic forces are the same. Owners havean incentive to take care of their property, butgovernment property is owned by everyone andtherefore by no one. It is no mystery that China'shousing is run-down or that America's infrastructureis falling apart while shiny new office buildingsare going up in every U.S. city.Experience shows that the relationship betweenprivate opulence and public squalor is thereverse of what John Kenneth Galbraith concluded.The public sector will always tend to besqualid, which is why leaders around theworld-from Margaret Thatcher to Deng Xiaoping-aremoving essential services into the privatesector. With a little more of this, the wholeworld could become the affluent society. D*1989-1990*ESSAY CONTEST"Education for aFree Society"HIGH SCHOOL DIVISIONFirst Prize, $1,500Second Prize, $1,000Third Prize, $500For complete contest information call or write:COLLEGE DIVISIONFirst Prize, $1,500Second Prize, $1,000Third Prize, $500FREEDOM ESSAY CONTESTFoundation for Economic Education30 South BroadwayIrvington-on-Hudson, NY 10533(914) 591·7230

449The Market forLow Cholesterolby Michael WalkerJust about every time conversation turns tofood these days, the subject of cholesterolisn't far behind. Saturated fats, so it is said,are the source of fatty build-up in our veins andarteries, causing restricted blood flow and inmany cases premature death from heart attack orother afflictions. During such discussions, evenmy most laissez-faire friends often intone that thegovernment should do something about thisproblem. According to these well-intentionedfolks, producers of prepared or manufacturedfoods, which often use large amounts of shorteningor oil containing saturated fats, ought to faceregulation of what and how much they can use.The problem, they note, is that competitionamong these producers leads them to purchasethe cheapest ingredients they can find. In so doing,they are able to undercut the prices of theircompetitors and attract gullible consumers whocan't even pronounce most of the ingredients onthe package. Here is a case, we are told, whereuntrammeled free enterprise leads to an outcomewhich is in nobody's interest. So, for thesake of their health, even diehard opponents ofbig government say that this is a special case, andtherefore we need a regulation to solve the problem.Until recently, I would have been inclined toagree with that assessment. However, I have beenreading about developments which suggest thatDr. Walker is Executive Director of The Fraser Institute,Vancouver, Canada.there is a market in caring about cholesterol. Infact, the market is working right now to reducethe amount of saturated fats in the foods we eat.It turns out that a principal source of oils inshortening and similar products is tropical vegetablessuch as palm and coconut. Of course, asanyone who has watched the television ads formargarine can tell you, there are alternativesources of oil, such as soy and corn, that do nothave the same problems as palm and coconut.The suppliers of these alternatives are not unawareof the fact that anyone convinced of themerits of eating polyunsaturated fats is a potentialcustomer.These producers, therefore, in pursuit of theirown interests, have been engaging in increasinglyactive campaigns to tout the benefits of theirpolyunsaturated oils and the hidden dangers oftropical oils. For example, a recent Wall StreetJournal story noted that ads in food-industrymagazines have depicted a coconut as a bombwith a fuse ready to explode. The caption reads:"Warning, coconut oil may be hazardous to yourhealth." They have been joined by a new organization,the National Heart Savers Association,that encourages people to eat a healthier diet.The campaign is working. Kellogg, Frito-Lay,Pepperidge Farm, and Hardee's all have switchedrather than fight the polyunsaturated tide. Palmoil imports into the U.S. last year were 44 percentbelow their 1986 level. At this rate, saturated fatswill have been driven from the market, by themarket, in the consumer interest. 0

450Making Dough inthe Heartlandby Ann Weiss RogersPizza shops generally don't crop up besidecorn fields, but in Stoutsville, Ohio, wherethe main drag is a post office, a pizza shopis thriving. What's more unusual than its location,however, is that the business is located in a trailer.My brother-in-law, Randy, is proprietor andsole employee of Randy's Pizza-Subs-Sandwiches.When he purchased a building in that ruralarea several years ago, he envisioned renovatingthe two apartments and converting the third,which was unfinished and used for storage, into apizza shop. But the problems Randy encounteredproved to be both a lesson in how not to go aboutstarting a business and how difficult the governmentmakes it for individuals who start one withlimited capital.Randy had been a hog farmer for 15 years beforehe decided there had to be a better way tomake a living. He thought a steady paycheckwould be the answer to everything he ever wanted,but several years of working for otherschanged his mind. Consequently, when he sawthat building for sale in Stoutsville, Randy didn'tsee a run-down, old structure that needed atremendous amount of work, he saw an opportunityfor self-employment.Since the two apartments were basically set up,Randy's first priority was getting them ready andAnn Weiss Rogers is an attorney living in OrmondBeach, Florida.rented. He had used the equity he had in his farmto purchase the building, and he had given up hissteady paycheck in order to work full time on it.As a hog farmer, though, he was used to living onnext to nothing, and his children also knew thatwhatever money there was would go into thebusiness. And, initially, everything was progressingaccording to his plan; after several months ofcleaning, dry-wall work, painting, and some electricalwork, he had both apartments finished andrented.He then began working on the pizza shop. Ifollowed his progress mostly through phone calls.I heard about the work he was doing at thetime-putting in the counter wall, forinstance-and all the jobs ahead: the plumbingthat had to be done for the work-area sink andthe rest room, the rewiring for the ovens, thefloor he had to lay down, and all the painting andfinishing work. I rejoiced with him when hecalled and said he was ready to move in hisequipment. Then I got his next phone call. Therewasn't going to be a pizza shop, he told me. Hehad talked to the local Health Department theprevious day, and had learned that everything hehad done was wrong. Before he could build apizza shop, the Ohio Environmental ProtectionAgency had to approve his water supply andsewage system; the Bureau of EnvironmentalHealth had to approve his plumbing; the OhioDepartment of Industrial Relations had to ap-

Before Randy could build a pizza shop, the Ohio EnvironmentalProtection Agency had to approve his water supply andsewage system;the Bureau ofEnvironmental Health had to approve his plumbing; theOhio Department ofIndustrial Relations had to approve his buildingplans; he also needed zoning approvalfrom local authorities.451prove his building plans; he also needed zoningapproval from local authorities.for example, to get approval from the OhioDepartment of Industrial Relations, Randy hadto file an Application for Certificate of Plan Approval,which had spaces for him to fill in theOhio Registered Architect, the Ohio ProfessionalEngineer, and the Ohio Sprinkler System Designerhe had·used. For this certificate alone, processingfees were $500 plus an additional charge,based on the square feet of the establishment, foreach of five categories (Structural, Electrical,Sprinkler, Industrialized Unit, Life Safety CodeReview).And all this came prior to dealing with theHealth Department, which had its own set of requirements.In addition to duplicates and triplicatesof the previous approvals, the Health Departmentwanted plans drawn to scale of thelocation of water supply; sewage disposal; totalarea used for food service operation; entrancesand exits; location, number, and types of allplumbing fixtures; lighting, both natural and artificial;general layout of fixtures and other equipment;building materials to be used; outsideopenings; and manufacturer's name and modelnumbers on all equipment. Randy was told to expectthe whole application process to cost a fewthousand dollars.A Change in PlansIt wasn't the cost or the arduous nature of theapplication process that caused Randy to changehis plans. And it never reached the point whereRandy's construction, plumbing, or electricalwork became an issue. Rather, the whole issuecame down to whether his water supply andsewage system could pass the Ohio EnvironmentalProtection Agency's (EPA) inspection.Stoutsville doesn't have a town sewage system.If it did, then its water disposal and sewage systemprobably would already have had EPA approval.The EPA clearance would involve merelytesting Randy's tap. Prospective businesses in biggertowns and cities, and facilities that alreadyhave businesses in them, basically get an automaticEPA nod. But the poorer rural areas, whichhave no businesses in them, stay poor."Isn't there any way to get EPA approval?" Iasked Randy. He said it would be too expensive,and he was afraid even to try. They might questionhis having apartments, and then he'd risklosing his entire investment.His only recourse, he told me, was to convertthe pizza shop into a third apartment. I was disheartened.Randy wasn't a novice in the pizzabusiness. A few years back he had botfght a pizzashop· near his farm in Williamsport, and had soldit a year later after doubling its business. But thatpizza shop was established before all those regulationshad gone into effect. Under a grandfatherclause, it could continue to operate even thoughWilliamsport wasn't much bigger than Stoutsvilleand wouldn't meet EPA requirements either. Sowhat hope was there for the rural entrepreneursyet to come? Were they all destined to leave forthe city?Randy concluded that the individual entrepreneurhasn't got a chance because governmentregulations favor established businesses.The big pizza chains have the money to hire architectsand sprinkler designers and to pay thousandsof dollars for government processingfees-not to mention the real estate costs ofstarting a business in the city. But in the rural areaswherebuildings and land are more affordableto the individual, government regulations makestarting a business unaffordable.The next time I heard from Randy, however,he was jubilant. He had figured it out, he said. Hewas going to have a pizza shop in Stoutsville afterall, but it wouldn't be subject to any EPA orbuilding or plumbing approval. He was going toconvert a trailer and park it behind his building.A trailer is a mobile food service operation,

452 THE FREEMAN • NOVEMBER 1989Randy's solution: "a mobile/oodservice operation,"parked behind his building.which is subject to different rules. And this timehe had talked to the appropriate authorities. Hewould need just a Health Department inspection.And he could get his trailer licensed by theHealth Department in Pickaway County, whichwas where he lived, even though he was going tooperate his business in the adjacent FairfieldCounty. This is because the license for a mobilefood service operation has to be honored in everycounty in the state no matter what county it is licensedin. The license would cost $25 a year.He had discovered a loophole, but like mostloopholes, it carried a price tag. Buying and convertingthe trailer cost $3,000 more than he hadfigured to spend. And it took several moremonths than he had planned. But he had his firstpizza ordered before he had even officiallyopened for business. "It's about time somethinglike this opened up here," the customers tell him.Little do they know just how much it took. 0

453A REVIEWER'SNOTEBOOKThe Wealth Creatorsby John ChamberlainThere is a widely disseminated complaintthat our college faculties are still living inthe Sixties. Maybe the secret opinions ofthe tenured Left remain what they were. Butwhen Ben Hart, a founding editor of the conservativeDartmouth Review, says the campuses aremoving to the Right, we must believe him.Hart 'gets his knowledge from talking to studentswho are going for Ph.D. 'So They are not liberal.William 1. Dennis, Jr., writing on the Americanentrepreneur for Hillsdale College'sImprimis, corroborates Hart. "Students," he says,"flock to college entrepreneurship courses. Academicsproduce scholarly articles on subject matterspreviously confined to 'C' level journals....And the rekindled job generation machineknown as American small business leaves Europeansastonished and envious."A Trinity College professor, Gerald Gunderson,has just published a notable book calledThe Wealth Creators: An EntrepreneurialHistory ofthe United States (New York: E.~ Dutton,278 pages, $18.95). Gunderson has a uniquefaculty for questioning in the middle of summarizing.American entrepreneurs, he says, "are notimmobilized by the prospect of competing withJapanese imports, because their prime function isopening new areas of competition. When Americanswithdrew from serious competition in oceanshipping at the beginning of the nineteenth century,better opportunities were also bidding awayits resources. The current American advantage ininternational trade is the entrepreneurial functionof creating new enterprises or equity. Notonly are Americans unchallenged in creating thenew systems of participatory management, butthey are the world's leader in creating new businessesas well. No other society prompts so manyof its members to take the plunge to fashion theirown ventures." In writing his history Gundersonavoids the quest for villains. He even has goodwords to say for Jay Gould. "The elevation ofGould into a symbol of all that was evil in therobber baron era," he says, "was not an accident.It helped many cope with their deep-seated concernthat society was getting out of control byproviding a personification of a new environmentin which ordinary individuals were losing controlof their lives. A strong indication of the attractionof this approach was that it applied to almost everyfamous entrepreneur of the era, including theone who took up the role of Jay Gould in railroads,Edward Harriman."Like Gould, Harriman became a symbol of developmentsthat worried much of the population."They thought he had too much power. But theability of such people as Carnegie, Rockefeller,Harriman and Gould to control markets wasmuch less than the creative contribution that theymade to their respective industries."Gunderson's calm approach plays down the oftenfractious role of individual writers in riddingthe entrepreneurial scene of myth. It took LouisHacker some 20 years to turn Andrew Carnegieinto something better than a monster. John T.Flynn had to labor long and hard to prove thatRockefeller's rationalization of the oil businesshelped to benefit the consumer. The Rockefellerrebate scheme fell through before it could get going.Rockefeller might have been able to raisekerosene prices above the competitive level often cents a gallon in the Nineties, but, as Gunder-

454 THE FREEMAN • NOVEMBER 1989son says, it "would have required an unimaginableeffort to put them back up to the level ofone dollar a gallon, where they were when he beganoperations in the 18608."It bothers me that the names of Louis Hackerand John T. Flynn are neither in the Gundersonindex nor in the annotated bibliography. It isbothersome, too, to search in vain for the namesof Ida Tarbell and Lincoln Steffens and othermuckrakers of the early 19OOs. Tarbell was certainlyprejudiced in fighting her family's battlewith the Rockefellers, but she is part of our journalistichistory. It is strange, too, that Gundersoncan frequently mention the robber barons withoutlisting the title of Matthew Josephson's bestseller.But Gunderson, after all, did not set out towrite journalistic history. He wanted merely totell a story. He has done it in a relaxed way that isreminiscent of the style of Hendrik Willem vanLoon's The Story ofMankind.An incidental virtue of Gunderson's story is itseconomic insights. For example, the factors ofproduction in economics are usually listed asland, labor, and capital. But many of Gunderson'senterprisers had nothing much to work withother than their brains. So labor has to be expandedas a category to include the ability toforesee and to manage.Sometimes the ability to foresee misfires. Gundersontells some of the market failures that haveresulted. Procter and Gamble couldn't get a profitableshare of the market for its potato chips,Pringles.Du Pont couldn't market Corfam, itssubstitute for leather. But there is serendipity,too. The story of the accidental discovery of penicillincannot be told too often.DLEXICON OF ECONOMIC THOUGHTby Walter E. Block and Michael A. WalkerThe Fraser Institute, 626 Bute Street, Vancouver, B.C.,Canada V6E 3M1 -1989 - 390 pages - $29.95 (U.S.) cloth,$19.95 (U.S.) paperReviewed by Robert W McGeeAs the title states, this book is a lexicon of. economic thought. Each of the severalhundred economic definitions is one tothree pages in length. But unlike other lexiconsand dictionaries, t~is one presents a point ofview-the free market view-rather than just aseries of dry definitions. The definitions and examplestake a Canadian slant (the book is publishedin Canada) but have value to a worldwideaudience.Many of the references contain humor. For example,the entry for "scalpers" starts off: "Nextto husbands, scalpers are the most misunderstoodgroup in our society." The "politics" entry citesH. L. Mencken's famous quote that elections area kind of futures market in stolen property. The"social justice" definition sounds like it couldhave been written by R A. Hayek. Social justicedoes not exist. Only indIviduals can be just or unjust,and only individuals can be treated justly orunjustly. The concept of social justice is used bygovernment as an excuse to justify all kinds of interventionranging from affirmative action to theprogressive income tax."Economic justice" is explained as follows:While entitlements are always expressedpositively, such as, "she has a right to supportfrom the state," the truth of the relationship isquite different. In fact, the only way somebodycan be delivered the right to support is if someother person is denied access to the resourcesthey have earned. In the most prosaic terms,for every person who receives a dollar theydidn't earn, somebody else earns a dollar theydon't receive.Affirmative action means that employers mustlook not only at an applicant's intelligence, character,and experience, but also at whether theperson is a woman, a native Canadian, or handicapped.The American view of affirmative actionwould include other groups as well. The authorsstate that this policy is unjust and give economicand ethical reasons for their view.In the "airline deregulation" entry, the authorsmention George Stigler's position that governmentregulation really doesn't protect consumers,but serves to create a kind of producers' cartel.Airline regulation limits competition, therebyputting up barriers to market entry. This stiflescompetition, so there is less pressure to reduceprices or improve quality, and the consumer suffers.Since Canadian and U.S. airlines have beenderegulated, prices have fallen and more peopletravel by air. The increase in air traffic has caused

OTHER BOOKS 455some congestion because the same number ofairports now must handle more traffic.The authors also debunk the fallacy thatderegulation has caused travel-related deaths toincrease. One study they cite found that lower airfares caused some travelers to take airplanesrather than cars, which reduced auto fatalities.Since air travel is safer than auto travel on a passengermile basis, overall safety has increasedsince deregulation.The entry on "broadcast regulation" debunkssome of the more popular myths about this widelymisunderstood subject. The, authors relate thestory of the hearings that the Canadian Radio­Television and Telecommunications Commissionhas been holding on whether religious organizationsshould be allowed to have broadcasting licenses.They point out that having to ask permissionto broadcast is the same, in substance, ashaving to ask government permission to publishnewspapers, magazines, and journals. Broadcastingis a form of free speech, and just like otherforms of free speech, there should be no need toask government permission.However, the argument goes, broadcasting isdifferent from other forms of free speech. Theelectromagnetic spectrum isn't the kind of thingthat can be privately owned. It is a public good,and as such, must be controlled by government.But this is not so. All that is needed is to insurethat proper boundaries are set on the spectrum sothat one station doesn't encroach on another'swave length. It is a property rights solution.Another common argument is that there aren'tenough frequencies to go around, so governmentmust allocate them. But this argument just pointsout that economic scarcity exists, which is nothingnew. Scarcity is nearly a universal phenomenon.Government isn't needed to allocateother scarce goods and services, so why is it neededto allocate airwaves?Each topic in this book is short and can beread in a minute or so, which makes it attractiveto someone who doesn't have large blocks oftime to devote to reading. The book is also ahandy reference for those who want to take aquick look at the free market position on a particularsubject.DProfessor McGee teaches accounting at Seton Hall University.IF EVERYBODY BOUGHT ONE SHOE:AMERICAN CAPITALISM IN COMMUNISTCHINAby Graeme BrowningHill & Wang, Keystone Industrial Park, Scranton, PA18512 • 1989 • 189 pages • $18.95 clothReviewed by E. Calvin BeisnerChina has been every merchant's dreamfor centuries: a quarter of the world's. population as potential customers. Thepossibilities for profit are staggering. But for centuriesmerchants have dealt with unique obstaclesin trading with China. And after 1949, when theCommunists took over, the dream turned to anightmare. The doors slammed shut, seeminglyforever.Until 1979. Then, with a flourish, China threwopen its doors. It invited foreign businesses to enterjoint ventures with (mostly state-run) Chinesecompanies and to sell (mostly through state-runcompanies) to the Chinese people. The dreamsturned rosy again.But will reality match the dreams? If the experiencesof most American firms operating in Chinain the past 10 years foreshadow things tocome, not likely.Financial journalist Graeme Browning tellsthese firms' stories in fascinating style. The majorityof her book' is built on interviews withAmerican executives who tried-or still are trying-todo business in joint ventures in China.Most of the stories are of high hopes crippled orcrushed by harsh reality. All of them are ofAmerican businessmen meeting obstacles theynever could have imagined in their worst nightmares.The horror stories are impressively consistent:workers so undernourished they can't stay awakeon the job, so undisciplined they won't workwhen they can, so used to being taken care ofthat they figure they needn't work, so unskilledand lacking in tools that they can't work productivelyeven when they want to; bureaucracies sotangled that they're almost impenetrable, bureaucratsso corrupt that nothing gets done withoutbribes; a legal system so infantile that contractsare unenforceable and almost neverfulfilled; an infrastructure so fractured and unde-

456 THE FREEMAN • NOVEMBER 1989veloped that getting from place to place by rail,air, phone, or road takes many times longer thanin almost any other part of the world-if it canbedone at all. One wonders, after reading the book,why anyone bothers to try to do business withChina.The answer is obvious: Even if everybody inChina bought only one shoe, that would be a billionshoes sold. The potential market is so hugethat companies that can afford to look far intothe future almost can't afford to ignore it. Theywant to get in on the ground floor of relationswith China, if they possibly can.But that potential market must not be mistakenfor a real market. For example, the yuan, theChinese unit of currency, isn't exchangeable intodollars on the world market. And even if Chineseper capita annual take-home pay were around$450 (a generous estimate; the real figure is nearlyimpossible to estimate with any degree of accuracy),the resulting $450 billion annual marketwould be only about 15 percent of the size of theAmerican market, with its mere 240 million people.And at that, the vast majority of Chinese incomemust be spent on things necessary to survival-items that now make up only a small partof the total American economy.To make matters worse, even companies thatget in on the ground floor can have no rationalsense of security, because they never know wheneven that will cave in under them. The Chinesegovernment that massacred students in TiananmenSquare could, at any moment, nationalize allinvestments, close the doors to trade, raise taxesto confiscatory levels, and invalidate all contracts.The Chinese market, despite its great potential,is presently incongruously small and frightfullyshaky. There is plenty ofreason to doubtthat it will develop into a major market in lessthan 50 years. Its track recQrd certainly gives noreason for confidence. At best, productivity inChina's state-owned industry grew by 0.7 percentper year during the last two decades, when therest of Asia was booming; at worst, it shrank by0.2 percent per year. (The difference in estimates,both made by the same World Bank economist,demonstrates another frustration of doing businessin China: There's no sound accounting andpricing system, so estimating economic performanceis nearly impossible.) Nonetheless, if,against all odds, the Chinese market does overcomeits seemingly insurmountable barriers togrowth, it will become so huge that many businessmenwill find it hard to resist the temptationto take the risks involved in entering the Chinatrade.If Everybody Bought One Shoe, while not consciouslypolemical, has the interesting side effectof revealing the reasons for the failure of socialistcentral planning to engender a healthy economy.A socialist economy lacks the incentives to getpeople to do more than the bare minimum forsurvival,. the information-processing mechanismto distribute resources according to needs, andthe flexibility to support innovation.The book is informative, well researched (butpoorly documented and with no index), and upto-date.It deals with a country that, for mostAmericans, has been a mystery, yet could becomeone of our major trading partners and competitorsin the next century. Anyone could gain understandingof China by reading it. Certainly anyoneconsidering doing business in China and whoisn't already an expert on the subject could profitfrom reading it.DE. .Calvin Beisner is the author of Prosperity and Poverty:The Compassionate Use of Resources in a World ofScarcity.

THEFREEIDEAS ON LIBERTY460 My Family Life as a SocialistThomas J. BrayLessons from under the Christmas tree.462 Hurricane Hugo: Price Controls Hinder RecoveryRussell ShannonThe market can harness the forces of self-interest to alleviate suffering caused bynature.464 Women and the Market: Are They Made for Each Other?Jean L. BakerEconomic freedom, not coercive legislation, is a woman's best friend.470 Will More Dollars Save the World?William H. PetersonFour decades after its first enunciation, the question is still valid.472 Religion in ChinaGeoffrey KainWhat's behind the apparent openness and tolerance?477 China's Great Leap BackwardDiane D. PikcunasPolitical power can defeat the most spectacular economic advances.481 Ecorse's Grand ExperimentGreg KazaPrivatization saves a city teetering on the brink of bankruptcy.483 The Artificial Inftation of Natural RightsAntony FlewOption rights and welfare rights.485 Basic Rights and Meta-RightsWilliam B. IrvineWaiving and transferring our basic rights.487 "I'm Here to Help You"Stu PritchardSome reflections on prior restraint.488 Argent!na at the CrossroadsRichard A. CooperA return to classical liberalism or venturing further down the road to serfdom?492 Book ReviewsJohn Chamberlain reviews The Survival of the Adversary Culture by PaulHollander. Also featured: Prosperity and Poverty: The Compassionate Use ofResources in a World of Scarcity by E. Calvin Beisner, Economics: BetweenPredictive Science and Moral Philosophy by James M. Buchanan, and Liberty,Property, and the Foundations of the American Constitution edited by EllenFrankel Paul and Howard Dickman.498 Index for 1989Compiled by Bettina Bien GreavesCONTENTSDECEMBER1989VOL. 39NO. 12

THEFREEMANIDEAS ON LIBERTYPublished byThe Foundation for Economic EducationIrvington-on-Hudson, NY 10533President ofThe Board:Vice-President:Senior Editors:Contributing Editors:Copy Editor:Bruce M. EvansRobert G. AndersonBeth A. HoffmanBrian SummersBettina Bien GreavesEdmund A. OpitzPaul L. PoirotDeane M. BrasfieldThe Freeman is the monthly publication of TheFoundation for Economic Education, Inc.,Irvington-on-Hudson, NY 10533 (914) 591­7230. FEE, founded in 1946 by Leonard E.Read, is a nonpolitical educational champion ofprivate property, the free market, and limitedgovernment. FEE is classified as a 26 USC 501(c) (3) tax-exempt organization. Other officersof FEE's Board of Trustees are: Thomas C.Stevens, chairman; Ridgway K. Foley, Jr., vicechairman;Paul L. Poirot, secretary; Don L.Foote, Treasurer.The costs of Foundation projects and servicesare met through donations. Donations areinvited in any amount. Subscriptions to TheFreeman are available to any interested personin the United States for the asking. Additionalsingle copies $1.00; 10 or more, 50 cents each.For foreign delivery, a donation of $15.00 a yearis required to cover direct mailing costs.Copyright © 1989 by the Foundation for EconomicEducation, Inc. Printed in the U.S.A.Permission is granted to reprint any article inthis issue, except "My Family Life as a Socialist,"provided appropriate credit is given andtwo copies of the reprinted material are sent toThe Foundation.Bound volumes of The Freeman are availablefrom The Foundation for calendar years 1969to date. Earlier volumes as well as current issuesare available on microfilm from UniversityMicrofilms, 300 North Zeeb Road, Ann Arbor,MI48106.The Freeman considers unsolicited editorialsubmissions, but they must beaccompanied bya stamped, self-addressed envelope. Our author'sguide is available on request.FAX: (914) 591-8910PERSPECTIVELetter from ChinaEditors' Note:The following letter was received from a studentat The People's University of China in Beijing.In light of current conditions in China, we arewithholding the student's name.August 3, 1989Dear Sir:As a postgraduate student specializing in historyof economic thought, I have been devoting mymind to the causes and development of variousschools of thought for several years; especiallyconcentrating my attention on development ofthought of the Austrian school, from the greatfounder, Carl Menger (1840-1921), to the prominentthinker, Friedrich A. Hayek (1899-). Theextensive and profound thought of the Austrianschool is a great contribution to the world of humanthought in general.It is for me the greatest pleasure that I recentlyhave learned that your foundation is enthusiasticin promoting the study and propagation of liberalismeconomics [free market economics], especiallythe economic thought of the Austrianschool. So I am writing to you to ask your advice.I should be greatly obliged if you could send mesome recent books or materials on the study ofliberalism economics or the thought of the Austrianschool and give me further informationabout your foundation.Thank you very much. I look forward to hearingfrom you soon.Sincerely yours,We responded by letter and sent a packet of materials.Our Friends in ArgentinaFor more than 30 years, FEE has workedclosely with leading classical liberals in Argentina.FEE staff members and Trustees have spokenbefore Argentine audiences, and Argentinestudents travel to Irvington to attend FEE seminars.Thus, we are especially pleased to presentRichard Cooper's article, "Argentina at the

PERSPECTIVECrossroads" (p. 488), which describes the work ofmany of our Argentine colleagues.Fetix Morley Prize WmnersSix young Freeman authors have been honoredin the 1989 Felix Morley Memorial WritingCompetition sponsored by the Institute for HumaneStudies. Congratulations to David Bernstein,Christopher L. Culp, Matthew Hoffman,David Hood, John Hood, and Greg Kaza.The Freedom PhilosophyEvery person has an inherent right to life andliberty, and to the self-enrichment of his life commensuratewith his aspirations, dedication, andabilities.Every person has the right to create, acquire,hold, use, and dispose of his property, limitedonly by the prohibition against infringing therights of others.People have the right to form governmentswhose only responsibility and authority is to protectthe rights of individuals against violence,threats, and fraud.Governments have no right to violate the inherentrights of individuals through majorityvote, legislative power, or other means.Individuals have the right to produce and tradegoods and services throughout the world, unencumberedby government intervention, subjectonly to the prohibition against violating the rightsof others.-G. F: MAUGHMEREscondido, California

460THEFREEMANIDEAS ON LIBERTYMy Family Lifeas a Socialistby Thomas J. BrayThe Christmas season always reminds methat I am something of a socialist.No, I am not a fan of Karl, Vladimir,Mao, and Mikhail. Socialism, and particularly itsvirulent communist form, is crackpot stuff. Whenit comes to family, however, most of us exhibitdistinctly socialist tendencies.Think about it when you're divvying up thepresents under the tree on Christmas morning.The kids, who usually have contributed least tofamily income, usually wind up getting the mostpackages. Mom and Dad usually come out aboutequal with each other, even if one has contributedmore to family income than the other. Relativesand in-laws all get their fair sh~re.In other words: From each according to hisability, to each according to his need-just asKarl Marx advocated. Marx proposed a system inwhich national income would be distributed accordingto need rather than status. He believedthat by eliminating the gap between "rich" and"poor," communism would remove the sources ofclass conflict that supposedly lead to oppressionand war.So if communism or socialism is OK at thefamily level, why not at the community level, thestate level or the national level?The problem is motivation. In a system whereall share equally, irrespective. of their input, nobodyhas an incentive to do much work. That'swhy the Soviet Union, 70 years after the revolution,is such a basket case. The only way MoscowMr. Bray is the Editorial Page Editor of the DetroitNews. This article originally appeared in the December18, 1988, issue of the Detroit News and is reprintedhere with permission.has been able to get any of its subjects to do anywork at all is through liberal doses of fear. If youdon't work, you get five to ten in the Gulag.But that's not a very effective way of gettingpeople to do good work. The family contains afar more powerful motivational tool: love. Notthat abstraction known as love of mankind, inwhose name crimes against humanity are frequentlycommitted. I speak of real love, which ispossible only among individuals and attachesmost powerfully to families. Love between parents'love of parents for children, love of childrenfor their parents.Families are a complex, self-reinforcing web ofrelationships: conjugal relations, parent-childbonding, moral example, shared experiences, andso on. It's within the family that love has the bestchance of thriving. It doesn't always turn out thatway, unfortunately, but family is still the best incubatorof love known to man.Oh sure, when our kids were little we sometimesinvoked the fearsome ritual known as aspanking. Force has a role in family, too, at leastwhen the kids don't seem to be getting the messageabout busting up the furniture, marking onthe walls and sassing the teacher.But a spanking was intended not so much tohurt physically as drive home a message: You disappointedus. The symbolic, temporary withdrawalof love was what gave the message itspower-and made discipline, when properly applied,a loving act in its own right.This love and discipline is one reason thatmothers and fathers can provide large amountsof "welfare" to their children without making thechildren dependent. When the government pro-

461vides welfare, the outcome is frequently the opposite-asour large and growing "underclass"attests.Within the family, parents possess the authority,built on love, to compel their children to becomeindependent-which parents know is theonly way their children can find true happinessand fulfillment. And children, to retain the loveand respect of their parents, are usually just aseager to fly the nest and prove themselves.The family is also a much more efficient mechanismthan the state in figuring out what each little"welfare recipient" requires to make him orher independent. As any parent knows, raisingchildren is, shall we say, a challenging task. Evenwhen we work at it more or less full time, we stilloften botch the job.What chance, then, does a bureaucrat behindsome far-off government desk have to structurepeople's lives in ways that will help them becomeindependent? He knows little if anything aboutthe welfare cases he is handling, and receives littleif any feedback from the individuals involved.Christmas is the time that Christians celebratethe Christ child, the ultimate family story. Christianityhas often been misunderstood as a fable ofcommunal sharing, a sort of mandate for socialism.But Christmas is most directly a story of thetransforming and redeeming power of love,which is why it is natural for families-the basicunits of love-to gather together at this time ofthe year.Love can't be measured by the social scientists,which is one reason the family has received suchshort shrift in 20th-century social policy, with disastrousconsequences. But love is there-underthe family Christmas tree. And that's why I don'tworry about those socialist tendencies that wellup in me from time to time. Family is the properplace for them.D

462Hurricane Hugo:Price ControlsHinder Recoveryby Russell ShannonEditors' Note: The Foundation for EconomicEducation sent this Freeman op-ed to the nationspress shortly after Hurricane Hugo struckCharleston, South Carolina, in September.In Charleston, South carolin.a, many peoplestruggling to recover from the havocwrought by Hurricane Hugo discovered totheir dismay something apparently even moreevil: price gougers.In the face of shortages of food, fuel, and desperatelyneeded tools such as chain saws, manystore owners of questionable scruples jacked upthe prices of these needed provisions, some reportedlyas much as 300 or 400 percent.Responding quickly to the crisis, political authoritiesproclaimed that persons found guilty ofsuch heinous crimes would be dealt with swiftlyand harshly. The tedious delay so common to politicalactions was notably absent in this crucialsituation.To paraphrase a line from a play by Congreve,however, while these politicians "married inhaste, they may repent at leisure." For onceagain, as happens so many times, the advantagesof the free market process they stifled have beensadly ignored.First of all, repressing price increases will obviouslynot eliminate the main problem at hand,which is that there is simply not enough of theseneeded items to go around. So many people willProfessor Shannon teaches in the Economics Department,Clemson University.just have to do without until more supplies can bebrought in.Yet while letting prices go up does have the unfortunateeffect ofputting poorer people at a specialdisadvantage, these higher prices might causesome people to use their ingenuity and seek outsuitable substitutes: some can resort to bicycles,others might have neighbors willing to lend achain saw, others still could be more carefulabout using the food supplies they already have.Then others in greater need could buy the goods.Admittedly, these measures may offer onlymeager help in such an extraordinary crisis, butthey are not apt to be totally negligible.Of far greater impact is the effect of prices onsupply. Given that prices did soar upward, onesuspects that not all the greedy vendors are inCharleston and nearby areas. Knowing that theymight reap large rewards, people with entrepreneurialspirits in Augusta, Greenville, andRaleigh might well stock up their pickups andtruck on down the interstate highways, therebyhelping not only themselves but also the sad citizensof Charleston. And thus the shortages wouldshrink.In short, it's all pure Adam Smith, who wroteback in 1776: "It is not from the benevolence ofthe butcher, the brewer, or the baker, that we expectour dinner, but from their regard to theirown interest." The simple wonder of the pricesystem is that it enlists the efforts of self-interestedpeople in the services of humanity.Nor is this the end of the favorable supply re-

463Destruction in Charleston in the wake ofHugo.sponses that have been thwarted by the pricecontrols. Knowing that the storm was on its way,many store owners may have brought in extraprovisions, at extra expense, anticipating thatthey could make enough extra money to compensatethem for their troubles.Yet what will happen on future occasions,when Hurricane Jonathan or Hurricane Samanthacomes roaring across the waters? Rememberingthe thankless response to their efforts to preparefor Hurricane Hugo, these store owners maysimply greet the news with a yawn.There is a saying to the effect that it isn't niceto mess with Mother Nature. The results of messingwith market forces are apt to be equally dire.Surely the people devastated by the storm deserveour concern and our charity. But imposingprice controls, rather than helping those peopleout, seems more likely to be adding to their misery.We have not yet learned how to harness the viciousforces of nature. But if we will only allowthe power of the free market to work, it canrapidly harness the forces of self-interest to alleviatethe suffering that nature has caused. Becausethey failed to understand these fundamentalfacts of elementary economics, the politicalleaders who are imposing price controls as a humanitariangesture may actually be serving as Enemiesof the People!Is all this idle speculation? Definitely not!We've had experience with price controls rangingback in history to the ancient Code of Hammurabiright up to those established during the NixonAdministration of the 1970s. No doubt manypeople still recall the long lines and frustrationsat our service stations which were the result ofprice controls on gasoline.Economic theory and historical experienceconverge, then, to suggest that patience ratherthan political responses would be the best policyto deal with pricing problems in Charleston. 0

464Women and the Market:Are They Made for EachOther?by Jean L. BakerWe live in an exciting time for women.More than ever before, they areachieving their goals, from fulfillmentin the home to the apex in business, the sciences,and the professions, and many successfully combinefamily and careers.It is beginning to be understood why qualifiedwomen who are so inclined need to have careersinstead of being confined exclusively to their traditionalroles. Women whose creative impulsesimpel them to follow professional or business careersshould have a chance to seek a place in thesun outside the home, and society needs themthere.Three general problem areas must be addressedif women who want that chance are tohave it. These concern discrimination, the needfor satisfactory maternity and child care arrangements,and our dwindling economic freedoms.DiscriminationDiscrimination is not necessarily always bad.To discriminate is to select from among many criteria,to make wise choices based on fine distinctions.It is an art that women themselves canprofitably cultivate. Making choices is what freedomis all about.However, arbitrary discrimination based onMs. Baker writes regularly for national and local trade,travel, and business publications·based in the Chicagoarea.prejudice hurts, psychologically and as a barrierto progress. It yields two victims: the one who isdiscriminated against and the one who discriminates.In the long run, it is bad business, whetherthat is immediately obvious or not.The denial of legal rights, along with the forceof tradition, once made virtual slaves of women.They couldn't own property, couldn't enter theprofessions, couldn't vote, and sometimes weren'teven accountable for their offenses against others,which were, instead, referred to their "owners."Categorical discrimination was institutionalizedby the power of law, and reflected theprejudice, if not arrogance, of the \awmakers.Through the ages, this prejudice resulted in humantragedies, injuring the self-image and mentalhealth of those affected, and depriving the humanrace of almost half the available, but untapped,human creativity.It is still believed by many diehards that womenare not equipped physically, mentally, or temperamentallyto be anything other than helpmatesto men, whether as wives or in occupationsthat, worthwhile as' they may be, are not alwaysconsistent with either their abilities or their ambitions.This is not meant to disparage those womenand men who voluntarily choose to be housewivesand househusbands, are happy in that role,and are well suited to it. It is unfortunate thatsome of the rhetoric coming out of the women'smovement has made many homebody types feel

465they are undervalued. It can't be emphasized toostrongly that homemaking and child nurturingrank high in societal importance. But, they arenot appropriate jobs for everyone.There's no denying that some women are unableto do some jobs that are thought of as"men's jobs." Some men can't either. Humans, regardlessof sex, are as varied in their capacitiesand their ambitions as the design patterns ofsnow crystals. There have always been womenwho dig ditches and men who knit; women whoare heads of state and men who rock the cradle.Each of us has to find his or her niche, discoveringand taking into account our individual abilitiesand limitations.Women who defy convention and follow careerstraditionally reserved for men often musteither give up marriage and children altogether,or they must contend with a host of problems relatedto what are considered their sole responsibilitiesas wives and mothers. Unless they receivethe help of devoted husbands, friends, or relatives,and the cooperation of their employers,they carry the burden of two full-time jobs.Many of today's wonder women are valiantlycoping with this situation, but it takes a heavytoll. Women who work at outside jobs whenthey'd rather be at home, but feel their help isneeded for the family to survive, are usually especiallyhard hit by these problems.Economic Issues and WomenOne ofthe avenues of advancement for victimsof discrimination has been the opportunity forthem to form their own businesses and institutionswhen they were barred from the existingones. Negro- and Jewish-owned and operatedcolleges, hospitals, and businesses come to mind,such as Tuskegee Institute in Alabama, ProvidentHo~pital in Chicago, Brandeis University in Massachusetts,and Johnson Enterprises in Chicago,to name a few. Ironically, or perhaps it would bemore accurate to say "predictably," many ofthese have failed even though they've receivedgovernment help, while others have been enormouslysuccessful far beyond the dreams of theirfounders, without ever asking for or receivingstate aid. In recent years, womeR~OO 'have begunto take this route. The Women's Bank in Denver,Colorado, is an example of a women-foundedand operated institution, in contrast to the women'scolleges of the last century which were primarilyfounded and operated by men.Opportunities still exist for entrepreneurs, andwomen are no longer barred from the marketplace.However, the marketplace is less accessibleand less free than it once was because of government'sexpanded role in the economy, and women,as well as men, are the victims. The hindrancesare well known to freedom champions:oppressively high taxes, excessive regulation, andrestrictive licensing, among others. Economicfreedom is surely womankind's greatest need.Old and New ApproachesThrough necessity, women have been brilliant­1y resourceful in the face of barriers, and their solutionshave been as individual as themselves."Individual" is a key word, for it is as individualsthat women have gained their greatest successes.History is replete with stories of womenwho have distinguished themselves in what werefor their times unconventional endeavors. Thefacts of history prove what women can do, individuallyand in groups.Banding and working together, and aided bymen for whom the denial of woman's genius andher humanity were anathema, women have advancedthemselves by removing the most flagrantviolations of their human rights. In the process,they have changed minds because while somewomen expend huge amounts of time and energyproclaiming their equality, others spend theirtime proving it. They ignore discrimination orthey circumvent it, following the example of generationsof ethnic group members and otherswho have succeeded, and continue to succeed, inspite of discrimination.Acknowledging the premise that the innateabilities of men and women are equal, whatabout those women who are effectively shut outof, or denied advancement in, occupations inwhich they could make important contributions?Those with brains and talent do not necessarilyalso have the stamina, courage, and aggressivenessto forge ahead in the face of discrimination.These are the people who usually turn to politicalsolutions. But, let's consider a few of the reasonswhy legislation against discrimination createsmore problems than it solves.

466 THE FREEMAN • DECEMBER 1989The very sound of the phrase"Affirmative Action"falls on the ear as a not-so-veiled threat. It'sthe sound of a stem school teacher lecturing a recalcitrantstudent. (It happens that the phrasewas coined by ex-teacher Lyndon Johnson.) AffirmativeAction is also the angry stamp of impatientfeet, and a brandished fist that smacks toomuch ofrevenge.Affirmative Action stigmatizes women becauseit gives the sanction of law to the mythsabout women which have been so damaging tothem. It denies that women are capable of competingon an equal basis and, therefore, theymust have a "handicap," an artificial advantage tomake up for what they lack. Even those womenwho are indisputably highly qualified must, nevertheless,wear not one scarlet letter, like Hester,but two AAs upon their breasts proclaiming theinferiority that Affirmative Action (AA) implies.Robbing Peter to Pay PaulaAffirmative Action focuses on results ratherthan on the equal right to compete. It demandsthat unqualified people be hired if, as in the areaof our concern, they happen to be women, whilehighly qualified candidates for jobs are rejected.In other words, it amounts to reverse discrimination.Men have every reason to feel bitter aboutlaws that favor women, and women should understandthat bitterness very well.Barry R. Gross, who discusses reverse discriminationfrom a philosophical point of view, succinctlystates the essence of the case against reversediscrimination as it applies to blacks. It is,he says, "an attempt to correct one sort of injusticeby producing another."1 He rightly points outthat those who are to benefit from such a policyare not the original victims, and those who willsuffer from it are not the original perpetrators ofthe crime. In seeming contradiction, however,Gross views reverse discrimination as an abuse ofan otherwise well-intentioned policy. Well-intentionedit undoubtedly is, but surely any policythat mandates a double standard is an abuse in itself.Finally, and most important, Affirmative Actionopposes our national commitment to freedom.Women's place in the United States has seldombeen consistent with the principles on whichour country was founded, but that's no excuse tocontinue the hypocrisy. To rectify past wrongs byturning to the quick fix of discriminatory legislationis to flirt with totalitarianism. Ultimately,that means an exploitation that is all-encompassingand unalterable for everyone. As Milton andRose Friedman have so aptly put it: "A societythat puts equality-in the sense of equality ofoutcome-ahead of freedom will end up withneither equality nor freedom. The use of force toachieve equality will destroy freedom, and theforce, introduced for good purposes, will end upin the hands of people who use it to promotetheir own interests."2Who Needs It?Women don't need Affirmative Action, or setasides,or any of the laws that demand specialprivileges for them. They're not in their presentstraits because they've been denied special privileges,but because others have had special privilegesover them. Victory gained at the expense ofothers is no victory at all. Recent gains for womenhave come about more from the propagationof ideas and a reasoned call for justice than fromdiscriminatory legislation. And yet, at the firstsigns of progress in human affairs, a clamor arisesfor laws to speed the process.In the case of women, statistics are trotted outthat show there are only so many women NobelPrize winners compared to men, or only so manywomen symphony conductors, lawyers, bricklayers,truck drivers, or whatever, compared to thenumber of men in these positions, and this becomesa justification for "action." They miss thepoint. The wonder of it is that there are anywomen at all who fit into these categories in aworld that has placed every conceivable obstaclebefore them. It is a wonder and a cause for optimism.Passing laws which favor women has notcaused, and cannot cause fully-formed female geniusesto erupt spontaneously into being like Hydra'sheads.How ironic, and even tragic, that women havereleased themselves from bondage to their fathers,brothers, husbands, and sons only to findthemselves in bondage to the state. And in thelatter, they find common ground with men, forthe enemy that stands in the way· of both sexes isCongress, and Congress' counterparts on the localscene.

WOMEN AND THE MARKET 467Too many members of Congress are spiritualdescendents of those who once gave husbandsthe power to control women's lives and possessions.Today, we have thousands of state and Federalprograms and regulatory agencies, and hundredsof thousands of government workerswhose primary responsibility is to tell otherAmericans, men and women alike, whatCongress and/or state and local governmentshave said they mayor may not do. As a result, wehave become polarized into self-seeking factionsthat, like jealous children, clamor for the attentionand favor of an all-powerful parent, pushingtheir brothers and sisters out of the way as theygrab at the apron strings of the state.How much better to unite in a fight for freedominstead of fighting each other. Wise women,like wise men, perceive that to the extent that wehave become a collectivist society with inefficientand wasteful central planning, we are less free. Alook at just a few of the ways in which collectivismadversely affects us, as human beings andas men and women, should convince us that wemust not wait until we hit rock bottom before wedig out the root cause of our discontent.The State vs. the Free MarketOne woman's need for child care is anotherwoman's opportunity. That's a simple truth, untilgovernment enters the picture. What could bemore efficient and mutually advantageous thanfor the woman who elects to stay home with heroffspring also to take care of the working woman'schild for a fee? It's a proven system that isentered into voluntarily by both parties. Everyoneis satisfied, or the deal's off. Although thereare no statistics available, it is believed that verylarge numbers of small-scale versions of th~s systemexist. Others who need day care depend onrelatives, and some couples work split schedulesso that one or the other is always home to carefor the children.Licensed day care centers are another story.Restrictions vary across the country, but theirgrand design seems to be to put day care entrepreneursout of business. Typically, permits arecostly and complicated; one's house and yardmust be a certain size according to the number ofchildren; health and safety rules are unreasonable,exceeding what exists in most homes; specif-ic routines must be followed; and much more.Regulations multiply, more people are needed toenforce them, day care operators give up, and inmany cases children are then left home alone inspite of the regulators' declared concern for childwelfare. The larger day care centers also find itdifficult to hang on under these conditions, andtheir fees rise accordingly. When this happens, itis then proclaimed that there is a shortage of daycare, and we end up with government filling thevoid. We all know what that means.In the meantime, the unlicensed homes go underground,perhaps accepting fewer children,which deprives those who need them. There is noneed to go into all the ramifications of this familiarseries of events common to many of our endeavors,except to answer the frequently expressedfear that unlicensed homes are unsafe.There is no more reason to fear unlicensedhomes than licensed ones. Experience has shownthat sacrosanct governmental agencies cannot berelied upon to verify the safety of a day carehome. Only a caring, responsible parent can dothat to his or her own satisfaction, unless we areto become like children ourselves, unable to investigateand make judgments.Resourceful women who want to start businessesin their homes-computer technicians,seamstresses, caterers, hairdressers, and others-facethe same problems as day care operators.If the government finds out about that onechairbeauty shop in your basement, you'redoomed.Robert L. Woodson, president of the NationalCenter for Neighborhood Enterprise, concernedabout the situation as it affects black Americans,says, "Home occupation ordinances are playingan increasingly significant role in keeping blackspoor."3 Woodson also addresses the subject ofhigh licensing costs which in some areas keepblacks out of certain occupations. He cites the$70,000 price of a taxicab medallion in New YorkCity, one example out of many that affect anyonewho can't afford the price of admission to thetrade or vocation of his or her choice.Humble beginnings have had a way of burgeoninginto empires, as Mrs. Fields of Mrs.Fields' Cookies can tell you. But, larger capitalists,men and women who've built their enterprisesfrom the ground up, assuming all the risks andresponsibilities, hard work, and long hours that

468 THE FREEMAN • DECEMBER 1989are involved, discover sooner or later that they'renot operating profit-making enterprises for themselves,their employees, and stockholders somuch as they have become an arm of the government,and are operating social agencies to promotethe general welfare. They must serve as thegovernment's accountants and tax collectors, notonly contributing monetarily to their employees'social security, but also taking care of the paperworkat their own expense. They must contendwith OSHA, EPA, DOE, FTC, ICC, and on andon endlessly in a veritable minefield.Jerry Pournelle, writing in Infoworld aboutthe effects of protectionism and regulation onthe computer industry, says that FCC regulators"... have created a byzantine obstacle course ofpaperwork and delays that start-up companiesmust negotiate before they can do business. Theresult is that if Steve Wozniak and Steve Jobswanted to start Apple Computer today, theywouldn't be able to do it." Referring to the costsof the required testing and certification, he says,"They wouldn't have the capital to pay the tributedemanded by the FCC."4 This should giveuneasy pause to ambitious women everywhere.Women and the Free MarketEconomic freedom is the crux of the matter.Assure economic freedom for women, and withbrains, hard work, determination, and imaginationwomen will catch up. But, not overnight.Their victories will be the building blocks of reform,leading to a renovation in many hearts andminds that will gradually overcome the prejudicesof centuries.Women will become tough enough to face discriminationwith the dignity and courage of freepeople who know their own worth. They will facethe fact that some people will never give up theirprejudices, but they will know that the power ofdiscrimination to injure is lessened in a climate offreedom. And, they will understand that we can'tall be leaders and successful entrepreneurs nomatter how smart we are. These are facts of lifefor men as well.Working in a market that is free, career womenwill more easily find safe, dependable, affordablechild care; the equal pay for equal work situationwill resolve itself; and.imbalances accordingto race, sex, and national origin will adjust automatically.Women will become captains of industryand leaders in the sciences, taking their placesside by side with men, and we will no longer travelin this world like a jetliner with half its enginesblown out.Equality Begins at HomeAs long as men and women freely unite inmarriage or any other association, women will increasinglyinsist upon equality in their privatelives. They will respect themselves, and they willdemand respect from others. The extent of peaceand harmony that is achieved in any union is determinedby the qualities of character each person,regardless of gender, brings to it, and thosewho achieve mutually satisfying relationshipsserve as an example for others to emulate.In freedom, ideas change and conditionschange. Freedom releases human creative energy.It fosters diversity and cooperation. It gives individualsthe best possible, chance of realizing theirambitions, and it results in greater levels of prosperityfor the general population. It does all thisfor people, not just for men or just for women, orjust for those of a particular race or ethnic background.Making choices and assuming responsibilityfor our lives, while often difficult, are the privilegesof a free people. The outcomes of ourchoices, good or bad, enable us to grow and mature.We become stronger and wiser because ofthem.Women have everything to gain from focusingtheir efforts on reforms that emphasize freedom,rather than on legislation that restricts others.Shall they waste their energies and their resourcescalling upon Congress to rectify everyreal or imagined wrong to themselves when theirprecious liberty is at stake? Why not go for thegrand prize instead?At the same time, we must not presume thatachieving a truly free society will bring aboututopia. Utopia is unattainable because it cannotexist in this imperfect world. Tradeoffs come withfreedom: some succeed and others fail; socialprogress is slow; disappointments are inevitable;personal sacrifices are called for at times; corruptionis possible; and some exploitation can andwill exist. However, these scourges of the humancondition can more successfully be combatted in

WOMEN AND THE MARKET 469a free society. It is not so easy, however, to breakthe chains of oppressive governments, in whichthese conditions exist in abundance.It is better to reaffirm and give new meaningto the traditional values of self-reliance and individualismnow, asserting our willingness to acceptresponsibility for our destinies and resist government'sinvasion into our private and public lives,than to wait until we no longer have the righteven to voice our concerns.D1. Barry R. Gross, Discrimination In Reverse: Is TurnaboutFair Play? (New York: New York University Press, 1978), p. 93.2. Milton and Rose Friedman, Free to Choose (New York: HarcourtBrace Jovanovich, 1980), p.148.3. Robert L. Woodson, "Building a New Base for Black Prosperity,"The Atlanta Constitution, July 31,1988.4. Jerry Pournelle, "Be Prepared for Government to Block PredictedMegatrends," Infoworld, April 24, 1989, p. 50.THE FOUNDATION FOR ECONOMIC EDUCATION, INC.Irvington-on-Hudson, New York 10533- ~j 1989-90 f~ ­ESSAY CONTESTHIGH SCHOOL DIVISIONFirst prize - $1,500Second prize - $1,000Third prize - $500COLLEGE DIVISIONFirst prize - $1,500Second prize - $1,000Third prize - $500Essaysshould present the positive moral case for a free society. To assist contestants, we haveprepared a packet that includes literature, bibliography, and essay guidelines.Sponsor:The Foundation for Economic Education is publisher of The Freeman, a monthly journal of ideason liberty. Founded in 1946, FEE is a nonprofit, nonpolitical educational and researchorganization offering books, lectures, and seminars that promote an understanding of the freemarket, private property, limited government philosophy.Eligibility:Any high school student may enter the high school division. The college division is open tocollege students 23 years old or younger. Essays may not exceed 2,500 words in lengthand must be postmarked on or before January 15, 1990.

470Will More DollarsSave the World?by William H. Peterson, , Stingy" is the word critics hurl at PresidentBush's initial foreign aid offerof $100 million to Poland and $25million to Hungary. Some critics go further andinvoke the idea of a new Marshall Plan-thistime including the support of Japan and the Westgenerally-for Eastern Europe and, perhaps, anotherfor the Third World as well. The idea bringsto mind a variation on an old question: Will hardcurrencytransfers save the world?The old question: "Will Dollars Save theWorld?" That was the title of a 1947 Foundationfor Economic Education study, later condensedin Reader's Digest, by Newsweek economiccolumnist Henry Hazlitt. Hazlitt questioned thepremises of foreign aid in responding to a speechon June 5, 1947, at Harvard University by Secretaryof State George Marshall. Marshall hadcalled for vast, coordinated dollar transfers tostagnating war-torn Europe (which was alreadyreceiving substantial U.S. war relief). DeclaredSecretary Marshall:"The truth of the matter is that Europe's requirements,for the next three or four years, offoreign· food and other essential products-principallyfrom America-are so much greater thanher present ability to pay that she must have substantialadditional help, or face economic, socialand political deterioration of a very grave character."Hazlitt wondered about Marshall's "ability topay" perspective on Europe. He took note of theKeynesian pattern of postwar European protec-Dr. Peterson, an adjunct scholar at the Heritage Foundation,is the Lundy Professor of Business Philosophyat Campbell University, Buies Creek, North Carolina.tionism, inflation, rationing, exchange rate controls,huge public spending, deficit financing,heavy taxation, and wage and price controls. Hewondered if dollar aid would hence but temporizethe thick jungle of interventionism and notget at the root causes of postwar European stagnation.Hazlitt contended, long before the advent ofthe supply-siders, that purchasing power growsout of production, that production is frustratedby government controls, that it thrives on freemarkets and stable currencies, that the great producingnations are perforce the great consumingnations, that, in essence, supply creates demand.This basic economic truth, the perception of19th-century French economist Jean-BaptisteSay, had been challenged, at first rather successfully,by John Maynard Keynes. In his The GeneralTheory of Employment, Interest and Money(1936), Keynes promoted his own idea of demandmanagement, mainly through governmentspending, to achieve "full employment." The1940s (and, indeed, the 1950s and 1960s) were theheyday of Keynesianism, it should be noted, andMarshall's speech and the ensuing era of foreignaid had this going for it.In any event, after the enactment of the MarshallPlan, the Hazlitt contention was soon put tothe test. In 1948, on a June Sunday, without theknowledge or approval of the Allied military occupationauthorities (who were of course awayfromtheir offices), West German EconomicsMinister Ludwig Erhard unilaterally and bravelyissued a decree wiping out rationing and wagepricecontrols and introducing a new hard currency,the Deutsche-mark. The decree was effective

471immediately. Said Erhard to the stunned Germanpeople: "Now your only ration coupon is themark."The American, British, and French authorities,who had appointed Erhard to his post, wereaghast. Some charged that he had exceeded hisdefined powers, that he should be removed. Butthe deed was done. Said U.S. Commanding GeneralLucius Clay: "Herr Erhard, my advisers tellme you're making a terrible mistake." "Don't listento them, General," Erhard replied, "my adviserstell me the same thing."The advisers were wrong. The German peoplerolled up their sleeves as never before, and thedecontrol action brought about what has sincebeen called "the German Economic Miracle."The moribund, ravaged West German economysnapped back to life, a phoenix soon becoming,ironically, the most prosperous in Europe.Erhard, who had earned a doctorate in economicsfrom the University of Frankfurt in 1924,who had witnessed the catastrophe of the Germansuper-inflation of the early 1920s, and whofollowed Adenauer as West Germany's chancellorin 1963, conceded that Marshall Plan dollarshelped the German recovery but held that thegreater factor by far was the introduction ofsound money and the deregulation of the economy.As he wrote in his Prosperity Through Competition(1958), a book describing West Germany'srather radical system of Soziaie Marktwirtschaft(Responsible Free Market Economy):"What has taken place in Germany ... is anythingbut a miracle. It is the result of the honest effortsof a whole people who, in keeping with the principlesof liberty, were given the opportunity of usingpersonal initiative and human energy."With the further successful examples of Japanand the "four tigers" of Singapore, Hong Kong,Taiwan, and South Korea, are not other economicmiracles in Eastern Europe and the ThirdWorld awaiting non-dependency on foreign aidand a return to freedom and free enterprise?In this light, does foreign aid really aid? Can itbe that U.S. bilateral economic and military support(see accompanying table), along with U.S.multilateral support of international agencies likethe World Bank and the International MonetaryFund, act as a net drag on a goodly number of recipientcountries-some of which lack even a basicsystem of private property rights let alone acapital market?Such support often does a disservice both tothe donor and to recipient countries as the interventioniststatus quo is preserved and precioustime and financial resources are wasted. Nationalexamples of that waste on all five continents arelegion, as Peter Bauer has long demonstrated.Even politicians occasionally spot the waste.As Secretary of State James Baker observed at apress conference in Warsaw last June: "In the1970s, we and our allies and Polish people madea mistake. We shoveled a lot of money into thiscountry with no requirement for economic reform."So notwithstanding more than four decadessince its first enunciation, the Hazlitt question isstill relevant: Will dollars save the world?An answer may lie in a further quotation fromthe Erhard book: "If the German example hasany value beyond the frontiers of this country, itcan only be that of proving to the world at largethe blessings of both personal and economic freedom."DCountries Getting 10 Biggest Sharesofu.s. BilateralEconomic and Military Aid(estimates in millions of dollars in fiscal 1989)1. Israel $3,0002. Egypt $2,4003. Pakistan $6274. Thrkey $6245. EI Salvador $3896. Greece $3517. Philippines $2708. Honduras $2099. Portugal $16310. Guatemala $146Source: Congressional Research Service,House Foreign Affairs Committee

472Religion in Chinaby Geoffrey KainWhile playing with our son Julian at asmall park in our "home" city of Xiamenone January day, my wife Lisaand I met an American couple in their late 30sand their child who had come to the balmy southfrom their home in Beijing. Larry was a professionalphotographer and a painter, and his wifeMarilyn had been a teacher of English as a SecondLanguage on a California campus. They hada 9-year-old son, Max, and no plans to return toCalifornia or to move anywhere else, for thatmatter.Max was being educated at home, his motheracting as teacher. Max looked unhappy. His fatherwas painting, hoping to sell some of his workin Hong Kong soon, and his mother was teachingEnglish at a Beijing college, receiving grant moneyfrom her California school. They claimed tohave sold their California home and nearly all oftheir belongings. Larry had quit his lucrative joband here they were-an American family in China.China had its own problems, they admitted,but at least in China you didn't have to worryabout having your child abducted from a· shoppingmall. This remark caused Lisa and me tolook again at the apparently lonely 9-year-old inthe California Angels baseball cap.As we shared with them our motivations forliving a third year in China and offered some reflectionson various places we had traveled, wecame to discuss some distinctions between life inthe south and life in the north. One of the aspectsof our lush Fujian Province that had struck theCalifornia couple as being strikingly differentfrom life in dry, dusty Beijing and some othernorthern cities was the obvious prominence ofProfessor Kain teaches English at Embry-Riddle AeronauticalUniversity, Daytona Beach, Florida.Buddhism in the south. They had visited severaltemples in the Fujian cities of Xiamen,Quanzhou, and Fuzhou, and they were startled tosee the number of people who came to the templesand worshipped openly. They were not surewhether to ascribe this to a traditionally strongerBuddhism in the south, a less stringent politicalcontrol in the south, or some combination of thetwo. Whatever the causes, the temples of thenorth are typically almost devoid of worshippers,and there are far fewer Chinese who visit thenorthern temples as tourists or apparent tourists.They simply stay away.Without question, the temples of the northgenerally suffered more devastating damage duringthe most violent years of the Cultural Revolution(1966-76) than did the temples in the south,and many of the northern temples remain gutted,even if their fac;ades have been renovated in thepast several years. Nevertheless, it would be a seriousmistake to assume that a great many of thesouthern temples somehow escaped the ravagesof the late 19608. They did not.Temple renovation in China is widespread andjust one manifestation of the building and reparationboom that has turned much of the nationinto a vast construction site. I recall the extensiverepairs underway on the Lichee Garden Templein Fuzhou, next to Fuzhou University, when wearrived there to teach in 1984. The temple was inmany ways typical. A large monastery, it housedmore than 100 monks and had a large library ofvaluable texts. It had stood on this ground formore than 1,000 years.During the Cultural Revolution, this templewas battered by Red Guards, swept out, and thenconverted into a transistor radio factory. On itsgrounds was constructed a scrap iron salvage

473yard, distinguished by its nondescript gray brickchimney rising above the red temple walls andchurning thick black smoke over the swarms ofbicyclists moving slowly along Industrial Road.The monks from this temple, and from severalother smaller temples in and around the city, fledto the enormous monastery atop Drum Mountainseveral miles outside of the city. They remainedthere for 10 years before returning (atleast some of them) to their old home, now a decrepitshell.Lichee Garden TempleSince 1979 the government and many OverseasChinese have appropriated an enormousamount of money, materials, and skilled labor forthe refurbishing of temples like this one. Skilledstonecutters (some as young as 14 or 15) and carpentersrepair ruined statuary, elaborate doorsand beams, and whatever else is in need of work.Repairs were in full swing when we enteredthe Lichee Garden Temple. New statues were beingmolded in clay over large wood and strawframes, some of them as tall as 20 feet. New roofbeams and decorative corner posts were beingcut·and planed and carved, and the smell offreshly sawed pine permeated the grounds. Wallswere being whitewashed and ceiling beams paintedbrilliant red, green, yellow, and blue in intricatelydetailed patterns. The temple had receiveda large bronze incense burner from a wealthyOverseas Chinese from Burma, while anotherwealthier Overseas Chinese Buddhist from Thailandhad presented a large white jade recliningBuddha. White jade is most precious. This pricelessBuddha had become the pride of the temple,and a new pavilion was being constructed just tohouse it.Shortly after the white jade reclining Buddhahad arrived, Lisa and Julian and I strolled over tothe temple to have a look at it. The pavilion wasstill under construction and we had to yell to thelaborers on the roof so that they wouldn't showerus with debris, evidence of which lay all about thebase of the building. The pavilion itself was madeentirely of concrete, though the roof was made tolook as if it were covered with slate tiles, and thecolumns painted red so they might pass for traditionalred-painted wooden pillars. Here andthere, concrete was formed to look like bamboo.The jade Buddha was held in an upstairs roomand was still in its shipping crate. The cover andfront panel were pried off so that the curiousmight have an early peek. The jade was startlinglybeautiful, but the Buddha wore a very loudyellow synthetic cape and had bright red lips andfingernails.The temple was not only under repair, but wasexpanding, and the monks who once had to fleeto safety now had enough influence to insist thatthe scrap iron facility be torn down because itstood on ground under control of the temple.The monks also managed to have another buildingdemolished so that they could build a gate onthe other side of their circular pond, facing southas it should to absorb the best possible energies.As work progressed, the temple attracted anincreasing number of visitors. Eventually, themonks began charging admission (10 fen, orabout the equivalent of three American pennies)and opened a small shop near the center of the

474 THE FREEMAN • DECEMBER 1989temple next to the drum tower, selling everythingfrom handmade black cloth monk shoes, porcelainfigurines, incense, and prayer beads to orangesoda, sea shells, and flour-coated peanuts.Pasted on the wall not far from the entry to thesouvenir shop was a poster of a Red Army officer,saluting a distant flag.Despite all the renovation and increasedtourism, the temple was a peaceful place. Monks,some very old and some as young as 12, movedslowly about the grounds or quietly tended tochores such as sweeping a set of stone stairs ortending the altars. A couple of expansive gardenscontained a profusion of flowers and otherplants, healthy and well cared for.There was always a commingling at the templesof the quiet, slow-moving monks themselves,a large number of Chinese tourists who seemedunfamiliar with and amused by the sacred world(judging from their accents and their facial features,many of these visitors were from thenorth), and the smaller number of Chinese whocame to worship. The worshippers will unabashedlydrop to their knees in a crowd, hold upa cluster of smoking joss sticks, and kowtow beforea statue of a holy figure. Some enter thetemples with commitment; many enter with perhapsa shade of embarrassment and guilt, afterpaYing a small fee.The Communist Party continues to discouragereligious worship in all forms, of course, and topropagate atheism. That the government is responsiblefor repairing many churches and templesis consistent with its professed practice of allowingreligious freedom, but the burst of repairwork is also without question part of the government'soverall effort to promote tourism and togive itself a face-lift by offering this most obviousshow of its new openness and increased tolerance.China thirsts after foreign capital, which itbadly needs to fuel its modernization (to whicheverything is subordinated) and, until the recentatrocities in Beijing, the central government hasexhibited some surprising (though generally superficial)leniency in order to stimulate increasedtourism and foreign investment.Memories and FearsReligious belief itself is not in accord with theprinciples ofcommunism, and most fear that sucha political failing may well be cause for sufferingone day-not only for themselves, but for theirfamilies, as well. The purges following the "HundredFlowers Movement" of the late 1950s (callingfor free and open criticism of the Party, thenfiercely retaliating against the critics) and theoutrageous violence of the Cultural Revolutionremain very fresh and bitter memories in the collectiveChinese consciousness.During our two and a half years in the south ofChina, we met a number of "underground" (thatis, not officially registered) Christians, many ofwhom automatically assumed that because wewere Westerners we were Christians, and thenmade it a point to inform us in confidence, withsigns of both elation and hesitation, that theywere Christian also. The admissions made to mewere always private and unsolicited.Christianity is the "Foreigners' Religion."Buddhism is generally regarded as the superstitionof the peasants and the uneducated workers,and is a vestige of "feudal society." The Partyholds that much work remains to be done to fullyeducate these people and liberate them from thebondage of the fanciful and absurd. Humanprogress-that is, material progress-is retarded,says the Party, by those who stubbornly cling tooutmoded ideas and illusions.There are Christian churches in China, but notmany. The first I came across was in an especiallyold street in Fuzhou (the 2,400-year-old capitalcity of Fujian Province). It is a small brick structurewith a characteristic steeple, stereotypicalgothic windows, and a Latin inscription over themain entrance. I was startled when I saw it becauseit looked so strangely out of place ... like amosque in a Midwest town. Right in the middleof the usual squalor of food stalls, endless leantos,a street swarming with people on foot and bicycle,there it stood, nearly engulfed in the profusionof the city so that you could conceivablyoverlook it in the midst of all this busy detail. Iwanted to go in and have a look, but it stood behinda locked black iron gate. No hours posted.No one I talked to was willing or able to get anyinformation about when it might be open for servicesor otherwise. Every time I passed it, it waslocked.We heard of another Christian church in thecity, just which denomination no one was certain.We made arrangements to go to the Christmas

RELIGION IN CHINA 475service, Christmas Eve 1984. One acquaintanceof ours said, "Oh, you would like to go to church.I know of a church and I have met its director. Iwill ask him when the service is and inform himthat you are coming." We were not especiallycomfortable with the formality, but we had noidea where the place was-and that year inFuzhou, a city of about two million souls, wewere the sum of the foreign population (the cityhaving "reopened to the outside world" in 1982),so in situations like this we were dependent uponthe efforts of our Chinese hosts.This man booked a university car for us, hadtold us the service would be at 7:30 P.M., andplanned to accompany. us. By mid-afternoon onChristmas Eve, however, he decided that hewould not come with us; he felt that he was steppingin where only our assigned guide/interpretershould tread and told us that he had better retreatbefore he stirred up any animosity. Somethinghad apparently been said to him. "I'll leave instructionswith the driver and see whether or notyour interpreter is available to accompany you."When the time came, our interpreter, Yan Li,appeared to guide us to the church. We told himthat as long as the driver knew where to go, itwasn't necessary for him to come along. Heclaimed that the driver probably didn't know exactlywhere the church was, but that he knew everysquare inch of the city, his hometown. So wewalked together to the car garage, met our driver,and rolled off to church.Somewhere in the heart of the teeming city, weturned into a narrow lane or alleyway and pulledup in front of a doorway that looked like it mightlead anywhere but into a church. Yan Li hoppedout, ran to the door, opened.it and entered. Aftera couple of minutes he returned, claiming thatthe service was over. Sorry. "But it's only 7:15.When did it start?" "Five o'clock." "Are you surethis is the right church?" "Of course this is theright church. The other man was just confusedabout the time." "Is there another church?" "Notthat I know of." We sighed, rolled our eyes, andheaded toward home.Several days later we met the fellow who hadmade the arrangements, and he asked whetherwe had enjoyed the Christmas service. We explainedwhat had happened and he was astonished,certain that we had gone to the wrongplace. We left it at that.The Churches ofChinaNot all Christian churches in China are so elusive,however. After our initially frustrating closeencounters in Fuzhou, we found our way into anumber of churches in various cities. InGuangzhou (Canton) in 1986 we visited the largealmost cathedral-size Catholic church famedthroughout the country. This church has a strikinglight-colored stone facade, a lofty spire, alarge rose window, and a number of stained glasswindows-or what used to be stained glass windowsbut are now clear glass windows since thestained glass was all smashed or shot out duringthe Cultural Revolution. Only small fragments ofcolored glass remain in a couple of the windows.The pews had apparently all been destroyed andhad been replaced by rickety benches. We couldsee where the lights had once hung from the ceiling,but they were gone too. The altar area wascleaned out and the altar itself was nothing morethan a large table with a white linen cloth drapedover it. There were a few people here and there,praying.We came upon a very attractive dark brickchurch in Shanghai in 1987 and decided to have alook inside since the iron gate was unlocked. Afew passersby stopped and stared as we enteredthe church. We were met by the Chinese pastorwho gave us a brief and muted tour, pointing outwhat had been repaired, what was currently undergoingrepair, and what was still in need of repair.His church, too, had been almost completelydestroyed by Red Guards during the CulturalRevolution. The pointed arches which cappedthe ends of pews had been knocked off andburned. The altar, the colored windows, and thestatuary had all been smashed. The entire interiorof the church had been ruined. Now there wasa beautiful new wood floor; the pews had notbeen replaced, but the ends had been sanded andvarnished to conceal the damage; the coloredglass had been replaced with clear. The altar wasstill under construction, and there was a series ofnew lights hanging on long chains from the ceiling.The pastor briefly mentioned the fear andsadness he experienced when the church wassacked and expressed his firm hope that it wouldnot happen again.Another apparent sign of religious resurgencein China is the surprising appearance of a host of

476 THE FREEMAN • DECEMBER 1989new missionaries. A number of religious organizations,primarily fundamentalist and almost exclusivelyAmerican, are sending groups or"teams" to China to work as teachers (since missionariesas missionaries are forbidden). There isa surprising number of these teams throughoutthe country.At first I wondered how an authority thatpropagates atheism could turn around and invitegroups of a dozen or more evangelical Christiansto enter the universities and high schools toteach. I realized before long that the governmentis fully aware that the groups are Christian, butcontracting with groups like these simplifies thehiring process. The department heads at theschools don't have to weary themselves with asmany screening processes or have to carry on asmany correspondences with independent instructorscoming to China to teach. By contractingwith a group, the Chinese get a package of hardworking,well-behaved native English-speakingmodels willing to work for relatively low wages.Although the missionaries/teachers are forbiddento proselytize, they do incorporate some biblicalmaterial into their courses. But, since Englishcompetence is deemed necessary fornational modernization and because the authoritiesclearly feel that the impact of this relativehandful of religious teachers is negated by thepolitical instruction and social coercion that everystudent is subjected to, no one bothers to interferewith their teaching methods.The new missionaries do manage to convertsome of the students. Most of the converts remaindiscreet about their religious conversion, butthere are always some who make no attempt toconceal their new faith. One example should suffice.I recall in particular one very likable youngman who had befriended several of the Christianforeign students at Xiamen University, had embracedthe Christian faith, and had become an advocateof many Western ideas, Western styles (hehad his hair curled and liked to wear bell bottoms,T- shirts with messages printed in English, anddark glasses) and, less vociferously, Christianity.We were concerned about him.In my class one day he had given a presentationon Western manners and English customs,then extended his discussion to conclude withsome forceful remarks about how wise the Chinesewould be to adopt more Western ideas andpractices-like true freedom of religion, democraticelections, and more student freedom in determiningwhat courses to take, and what instructorto have for a particular course. This appealwas offered with innocent exuberance, but itcame at a bad time-during the student protestsin Beijing and Shanghai in early 1987 calling formany of the same things. Students at XiamenUniversity, as at other universities, had beenwarned not to organize any protests, and openlyexpressing views sympathetic with those espousedby the protesters could result in expulsionfrom the university and a political labeling whichwould prove troublesome for a lifetime.By the time of his classroom oration, he wasbeginning to attend the church services providedby a group of foreign students. On a couple of occasionswhen I met him he was carrying a Bible.He was a diligent student, well liked by his classmates.Although he did not speak openly togroups of Chinese about his conversion, it waswell known that he was a Christian. Interventionfinally came in June, during the strongest wave of"anti-bourgeois" activity in the south, during the"Campaign Against Bourgeois Liberalism" of1987.As he passed down a staircase one morning, aParty official at the university called him into hisoffice. The official explained to him briefly andsimply that while he was free to worship as aChristian if he chose, the Chinese Christianchurch and the foreign Christian church were toremain separate. No Chinese student would beallowed to attend church services on campus withforeign friends and, further, Chinese studentswere no longer being allowed to visit the foreignChristian students in their dormitory rooms withoutfirst registering their names in a guest bookleft with a receptionist at the entrance.The message was clear, and its implications-thoughpowerful then-have becomemuch more poignant to me now, following thebrutal assault on dissidents in Beijing. Those whoknow China are aware that there is a rigid distinctionbetween what the foreigners may thinkand do and what the Chinese citizens will be allowedto say and do. Nominal freedom hasproven to be desirable and even profitable, to apoint. But no people, I think, are so often and sovividly reminded of the disparity between thenominal and the actual as are the Chinese. D

477China's Great LeapBackwardby Diane D. PikcunasChina is a fascinating country, and many. remnants of the age-old Chinese civiliza-. tion still remain despite 40 years of Communistcontrol. I visited this land in December1988, six months before the Tiananmen Squaremassacre.As I walked along the streets of Beijing andShanghai, I noticed the many shops-rangingfrom noodle stands to bicycle parts shops to camerastores-lining the streets with entrepreneursbusily selling their wares. Deng Xiaoping's "FourModernizations," aimed at improving agriculture,industry, the military, and science and technology,had clearly helped propel the Chinese people towarda market economy.The taste of economic freedom, however,whetted the Chinese appetite for political freedom-theright to speak out against individualsand programs hampering China's development.In 1988 the central bureaucracy began limitingthe market incentives, with resulting backlogs,shortages of raw materials, unemployment, andinflation. The link between economic and politicalfreedom was becoming clear.New Economic PolicyThe shift in China's economic policy is a majorturning point in the country's recent history.When Mao Zedong's troops conquered Chinain 1949, he set about to build a Marxist-Leninistsociety. One of his first priorities was to eliminateDr. Diane D. Pikcunas is Principal of Komensky ElementarySchool in Berwyn, Illinois, and adjunct professorof education. at the National College of Educationin Lombard, Illinois.all opposition. Chinese by the thousands were arrested,subjected to public trials, jailed, and somewere executed. Businessmen and large landownerswere particular targets for persecution. Thegovernment took over businesses and land, andabolished the right of private ownership.Mao aimed to transform China into an industrialnation overnight, despite the human costs. Inthe "Great Leap Forward," begun in 1958, hepushed for rapid development, and encouragedChinese citizens to make steel in backyard furnaces.After a few years, it became clear that thispolicy was a failure, and China's industrial productionfell. Mao's agricultural communes alsofailed to increase output. The centralized economyhelped Mao gain absolute control over thepopulace, but brought disaster to the Chinesepeople and crippled the nation's economy.Mao's death in 1976 led to a struggle for successionthat brought Deng Xiaoping to power.Though a Marxist-Leninist, Deng witnessed thefailures of Mao's centralized economy and sawthe need for economic revitalization. Even Leninhad recognized the failure of War Communism(1918-1921) and initiated some market incentivesin his New Economic Policy of 1921-1928. Dengtried a similar 'approach, introducing some marketincentives as part of his Four Modernizations,which were designed to make China a great economicpower by the early 21st century.Mao's Great Leap Forward proved a disasterfor China, and Deng now envisioned a GreatLeap Outward. While Mao had shut out foreigninfluences, Deng opened China's doors to cooperationwith capitalist nations, welcoming jointventures and foreign investment. Tourism was

478 THE FREEMAN • DECEMBER 1989Dr. Diane Pikcunas visited Tiananmen Square in December of1988, six months before the brutal suppressionofChinese students by the Chinese Communist militaryforces.encouraged. Economic incentives were added toattract foreign capital. Industrial decision-makingwas decentralized, giving a reduced role to Beijingbureaucrats and more autonomy to provincialand local officials. Farmers were allowed tocultivate "side-line" plots and to sell their cropsfor their own profit. So successful was this latterexperiment that, despite the small amount ofland involved, the side-line plots were soon accountingfor 25 percent of agricultural production.lFree Market Brings ProsperityDeng's reforms brought prosperity for both ruraland urban Chinese. One of his most successfulreforms made businesses responsible for theirown profits and losses. The result is a familiarone in all free market economies-production ofmore goods and services.Throughout history, the Chinese have beengreat entrepreneurs, and Deng's market reformsallowed Chinese merchants and shopkeepersonce again to demonstrate their skills. Prior toDeng, state-run shops offered limited variety,poor quality, and government employees whotook a hostile attitude toward customers-"buy itor leave it." The private businesses encouragedunder the Four Modernizations, in contrast, haveto compete for consumers. Their owners operateas their own bosses freed from the "work unit"which dominates almost every aspect of Chineselife. Under Deng's rule, the number of independentChinese businesses has risen from 1 millionin 1980 to almost 15 million in 1989. 2The free market brought prosperity to rural areasas well. Guangdong Province in southernChina registered an economic growth between1984-1987 of 23.5 percent while the rest of Chinarecorded an impressive national average of 16.8percent. Guangdong freed 80 percent of its commoditiesfrom central government control. Newmarkets were created in labor, real estate, and alarge number of commodities. Hundreds of newfactories were built in the Pearl River Delta, theheart of the province's economic boom. An importantlink has been made to a neighbor andmodel of free enterprise-Hong Kong. HongKong investors account for 90 percent of the foreigninvestment in Guangdong Province and receive60percent ofits exports. 3Even in rural and isolated areas such as

CHINA'S GREAT LEAP BACKWARD 479Zhuozi, located in Inner Mongolia, the free markethas operated successfully, as the economicrole of the central government has been reduced.Commodity prices were freed from governmentcontrol. The economic commission that controlledinvestment was abolished. All urbanhousing was privatized, and most state enterpriseswere dismantled. The farmers experienced anew prosperity, as they no longer were requiredto sell their grain and oilseed to the state at afixed price. Zhuozi has become a model of thesuccess of free enterprise. While much of the attentionon economic reform in China has focusedon coastal and suburban areas, the impressive natureof the success in Zhuozi is that the free markethas proved an amazing success in an areaconsidered poor in a poor region. 4This remarkable success encouraged Chineseeconomists to take a closer look at what was happening.They were able to report their findings ina political atmosphere freer than in the days ofMao. For example, three young economists-Hua Sheng, Zhang Xuejun, and Luo Xiaoping-haveurged a major restructuring of theChinese economy with an emphasis on individualproperty rights rather than on collective ownership.They have criticized policies such as thegovernment's "price reform" which leave in placemany of the elements of a centralized economy.They also have advocated a dismantling of thestate-controlled assets, and charge that the reformshave been so limited that the preconditionsfor truly independent profit-maximizing enterpriseshave not been created. They have pointedto the success of the rural enterprises which haveoperated outside the government's economicplan and have consistently outperformed thestate-owned enterprises. The enlargement of theprivate sector, they have stressed, will enableChina's economic growth to continue. 5Economic RetrenchmentThe economic crisis in China came before thepolitical crisis. Partial repeal of the economic reformsunder the name of an "austerity program"appeared in September 1988 and were officiallyconfirmed at the meeting of the National People'sCongress in March and April of 1989.The leadership struggle has taken its toll oneconomic reforms. Zhao Ziyang served as Premierand later as the Communist Party Secretaryand was architect of much of Deng's economic reform.He pointed to Guangdong Province as amodel area and urged more economic and politicalliberalization. Li Peng, who succeeded him asPremier, was trained in the Soviet Union and isviewed as a technocrat; he has been less enthusiasticabout these reforms and favors more centralization.In the political crisis in June, Zhaolost power and was purged; Li emerged in astronger position.In light of these events, Li Peng's report to theNational People's Congress in the spring of 1989takes on a greater importance.The "austerity program" Li announced gave agreater role to central planning and imposed newtaxes on the more productive sectors of the Chineseeconomy. Chief among the new program'svictims are the rural enterprises which havedemonstrated the success of decentralization. Thenew budget placed a tight squeeze on these enterprises.While the rural enterprises have beengrowing at an annual rate of 30 percent, the newprogram limited annual growth to 15 percent.The new tax program was designed also to targetthe farmers who proved the success of thefree market-farmers who raised fruit and vegetablesand sold them for profit would now haveto pay new taxes ranging from 5 to 15 percent.And in a reverse of incentives, the proposednational budget would increase the salaries ofgovernment workers and employees in the lessproductive,state-owned enterprises. A surchargewould be levied on those enterprises that werenot state-owned-those owned privately or bycollectives. 6The increased centralization is sure to hurt theeconomic performance of the model province foreconomic development-Guangdong Province,China's biggest exporter. The cutback on consumergoods nationwide especially hits thisprovince whose prosperity has been largely builton the production of these goods. The move towardcentralization of raw materials also will deala blow to Guangdong's economy, which will havegreater difficulty purchasing the coal needed tokeep its factories running. 7The political crackdown in June has made foreigninvestors wary of the Chinese government'spromises and its commitment to further reforms.The Special Economic Zones, which China creat-

480 THE FREEMAN • DECEMBER 1989ed to attract foreign investment, are especiallyvulnerable as foreign businesses withdraw andother nations consider a cutoff of trade or sanctionsagainst China. In an economic zone such asShenzhen, which during the past decade has seenan enormous growth in the value of the goodsand services it has processed, the government'salteration of foreign exchange rules in late 1988has created particularly vexing problems, cuttingexports and reducing 1989 investment by as muchas 30 percent. The uncertain investment climatewill create additional difficulties. The SpecialEconomic Zones, where the Chinese have developedmodel arrangements for the operation offree enterprise companies, may soon experiencea serious decline. 8ConclusionThe Chinese free market experiment has sufferedan enormous setback since late 1988. Andthe experience serves to remind us of the dangersof political power exercised over an economy, forgreat economic benefits may fall victim to politicalconsiderations. A number of experts havewarned us of such developments. Arch Puddingtonnotes that even when they experiment withfree market mechanisms, Communist nations areusually drawn to restrict entrepreneurial activity,since capitalism represents a humiliating refutationof the promise of abundance made by Communistofficials. 9The Chinese economy is proving that politicalpower can defeat even the most spectacular advancesof an economy based on free market principles.In 1988, Milton Friedman warned thenParty Secretary Zhao that China would not continueto succeed economically if it attempted toorganize its economy from the top down. Hestressed to Zhao that government is organizedfrom the top down, while the free market is organizedfrom the bottom up.loAnd perhaps one of the more perceptive observationscame from political scientists James T.Myers and Donald J. Puchala, who assessed economicdevelopment in China and concluded:Some analysts base their positive projectionsregarding Chinese modernization on the presumptionthat Deng Xiaoping and his colleaguesare moving China away from socialistcentral planning and toward something thatlooks like a market economy. The conclusionof these analysts is that if it looks like capitalismit will surely work well for the Chinese,and all that is really required to transform a socialist,centrally planned less developed countryis the introduction of a system of reliablyprice-cued transactions among entities thatlook like autonomous producing and consumingunits.... It is inconsistent with almost everythingwe know about the requirements forand the course of economic development. ...Whether or not China can modernize economicallyis an interesting and debatable question.But the answer is certainly not as simple asDeng Xiaoping and his colleagues turning a"capitalist" face to the outside world. llThe Chinese people have proved that they canmake the free market work if they are unhamperedby government controls. In the monthssince I left China, I have thought about the lessonthat China offers for other nations, as well as forindividuals who feel they can turn economic andpolitical freedom on and off like water from aspigot. The lessons of the free market work wellfor all people, but centralized control can retardeven the most promising prosperity and bring anation back to economic bankruptcy. D1. Immanuel C. Y. Hsu, China Without Mao: The Search for aNew Order (Oxford and New York: Oxford University Press,1983), pp. 91-118; Donald J. Senese, Sweet and Sour Capitalism:An Analysis of "Socialism with Chinese Characteristics," (Washington,D.C.: The Council for Social and Economic Studies, 1985).2. Michael Weisskopf, "Chinese Entrepreneurs Expect Customersto Return," The Washington Post, June 18, 1989.3. Louise do Rosario, "Asia's Fifth Dragon," Far EasternEconomic Review, December 8, 1988, p. 62; Daniel Southerland,"In South China, Profits Keep Their Lure," The Washington Post,June 29,1989.4. Robert Delfs, "County Capitalism," Far Eastern EconomicReview, April 27, 1989, pp. 27-28.5. Robert Delfs, "Property to the People," Far Eastern EconomicReview, December 20,1988, pp.12-13.6. Daniel Southerland, "China Seeks To Rein in Economy,"The Washington Post, March 22,1989.7. Louise do Rosario, "Business as Usual," Far EasternEconomic Review, December 8; 1988, pp. 60-61; Southerland, "InSouth China, Profits Keep Their Lure."8. John Burgess, "China's Economic Zone Innovators ReassessAfter Beijing Thrmoil," The Washington Post, June 29,1989.9. Arch Puddington, Failed Utopias: Methods of Coercion inCommunist Regimes (San Francisco: ICS Press, 1988), p. 15.10. "Friedman Says Mainland Needs Freedom," Ching MingMonthly (Hong Kong), February 1989, p. 42; reprinted in InsideChina Mainland, April 1989, p. 24.11. James T. Myers and Donald J. Puchala, "Some DemographicConstraints on Chinese Economic Modernization." Paper presentedat the Seventeenth Sino-American Conference on Mainland China,June 5-11, 1988, Institute of International Relations, NationalChengchi University, Taipei, Republic ofChina on Taiwan, p. 2.

481Ecorse's GrandExperiDlentby Greg KazaAt first glance, Ecorse, Michigan, appearsan unlikely place for a grand experiment.Aging steel mills dominate the landscape inthe 2.2- square-mile community of 11,000, locatedin a region known as Downriver Detroit. Downriveris typical of many of the "Rust Bowl" areasthat dominate America's once-great industrialheartland. Row after row of small, wood-framehouses stand in the shadows of the mills, home tothree generations of steelworkers. Along WestJefferson Avenue, the bars and fast-food establishmentsare fighting a battle against creepingblight. Crack cocaine dealers have invaded fromDetroit, decimating several surrounding neighborhoods.But look beneath the surface and you will findevidence of a grand experiment unique in recentAmerican history. Three years ago, Ecorseteetered on the brink of economic bankruptcy,the result of a $6 million budget deficit caused bywasteful local spending.Today, the deficit has virtually disappeared,along with most of the Ecorse city government,which has been privatized to the point of near-extinction."We have created a model city that nobodyelse in the country has," explains LouisSchimmel, the man responsible for Ecorse'sgrand experiment. "Some communities have privatizedcertain functions. I've privatized justabout everything. Everything that I could legally."Greg Kaza is Vice President for Policy Research at theMackinac Center, a Midland, Michigan, public policythink tank.Ecorse was unique before Schimmel's appearanceon the scene. It was the first Michigan communityto be placed in receivership. Chief WayneCounty Circuit Court Judge Richard Dunn appointedSchimmel receiver for the troubled communityon December 3, 1986, after city officialsfailed to comply with repeated court orders tobalance the budget.Symbolic of the budget crisis was Ecorse's animalcontrol officer, paid $45,000 annually. "That'san awful lot for collecting dead dogs," Schimmelsaid. "I told Judge Dunn 1 didn't want the [receiver's]job if 1 had to do what the typical politicianhas to do, which is make promises and thenchase the taxpayer's money to keep them. That'show Ecorse got in the mess that it is in today inthe first place."Schimmel's first act as receiver was to discharge40 paid political employees from theEcorse payroll. "Cost was not important inEcorse even though they were near-bankrupt.Having their political buddies, cronies, relatives,and friends on the city payroll had become moreimportant than the taxpayers," he said. Schimmel'ssecond step was privatizing the 34-memberDepartment of Public Works. Motor vehiclemaintenance, snow removal, street and sidewalkrepairs, tree trimming, water meter reading, weedcutting, and a myriad of other activities are nowperformed by the private sector. For an encore,Schimmel sold the DPW building and the department'sequipment. "They're gone. It's going to bedifficult if not impossible to resurrect them fromthe dead," he said.Garbage collection was already handled pri-

482 THE FREEMAN • DECEMBER 1989Downtown Ecorse.vately, but Schimmel renegotiated the contract ata savings of $120,000. "It is important that contracts.are monitored on a regular basis," he said.The city boat-launching facility was privatized.The city lost money under government controlbut is now turning a profit. Surplus buildings andabandoned city lots were sold to reduce the budgetdeficit, which has been cut to $1 million.Michigan law prevented Schimmel from alteringEcorse's police department, but he privatizedthe pension fund, restoring fiscal sanity to a systemonce underfunded by $15 million. Under thefire union contract Schimmel renegotiated, thecurrent full-time force will become a part-timeand volunteer department through attrition. "Wehave a long list of applicants for the new positions.They don't seem to mind that it's not fulltime.They just want to work," Schimmel said.Few Ecorse departments have escaped Schimmel'sbudget-cutting. The city's work force, once140, has been reduced by more than 60 percentthrough privatization. There have been exceptions.The duties of the $45,000 animal control officerwere contracted to the neighboring city ofRiver Rouge. "We pay half their costs and bothof us save money," Schimmel said.Privatization is frequently characterized as a"Sun Belt" or "Republican" idea. The Ecorse exampleproves otherwise. Downriver is synonymouswith the so-called "Rust Belt," and MichiganTreasurer Robert Bowman, a Democrat, isamong those supporting Schimmel. Bowman andGovernor James Blanchard may turn to Schimmelto resolve a $4.4 million budget deficit inRiver Rouge. "There isn't a community Downriverwhere I wouldn't use privatization," Schimmelsaid. "That includes River Rouge."Not everyone is impressed with Ecorse's grandexperiment. Labor unions representing formercity employees have criticized the receivership,portraying Schimmel as an economic czar with anabrasive personality. Officials responsible for the$6 million deficit contend the privatization of cityservices has gone too far.For his critics, Schimmel has a ready response."They knew bankruptcy was coming with thatkind of spending, but they didn't do a damn thingabout it. We did."D

483The Artificial InflationofNatural Rightsby Antony FlewLike other currencies, the currency of• rights has in recent years been subject toinflation. And just as money tends to losevalue the more of it that governments print, sothe more that is said to be a matter of natural oruniversal human right, the less force any suchparticular claim will have. In the good old days ofthe American Declaration of Independence theFounding Fathers of the United States mentionedonly three such universal, unalienable,supposedly self-evident, and necessarily equalrights-to "life, liberty and the pursuit of happiness."But since World War II such declarations-more frequent and much less eloquently written,as well as (on the part of so many of the newsigners) totally insincere-have embraced everlengtheninglists. In the most notorious, adoptedin 1948 by the UN General Assembly, the tableof specification covers, not one modest clause ina single world-shaking sentence but six printedpages. In what would have appeared to theAmerican Founding Fathers a crescendo of absurditywe are told: (Article 22) "Everyone ...has a right to social security"; (Article 24) "Everyonehas the right to ... periodic holidays withpay"; (Article 25) "Everyone has the right to astandard of living adequate for the health andwell-being of himself and his family...."; andthen-for the moment-finally (Article 26): "Everyonehas the right to education. EducationAntony Flew is Distinguished Research Fellow of theSocial Philosophy and Policy Center, Bowling GreenState University. This article is from Vera Lex (Vol.VIII, No.2 [1988]), published by the Natural Law Society.shall be free, at least in the elementary and fundamentalstages. Elementary education shall becompulsory," and so on through an oddly intrusiveclause specifying that all education must"further the activities of the United Nations," tothe incongruous and inconsistent, even if welcome,conclusion that "Parents have a prior rightto choose the kind of education that shall be givento their children."There is no good reason why such a list shouldever end, no rationale either provided or availablefor including in it one claim and not others,and hence no justification for-to reclaim a recentlymisappropriated phrase-Taking RightsSeriously. For those of us who do take rights seriously,the first need is to distinguish option rightsfrom welfare rights. Option rights are claims notto be harmed and to be left alone; welfare rightsare claims to be supplied with various goods.The rights to "life, liberty and the pursuit ofhappiness" are all three of the first kind. A clearstatement of liberty is provided by the 1945 constitutionof Kemalist Thrkey: "Every Thrk is bornfree and lives free. He has liberty to do anythingwhich does not harm other persons. The naturalright of the individual to liberty is limited only bythe liberties enjoyed by his fellow citizens." Thepractice, of course, presents every kind of problem.But the principle is luminous. About happinessthe only thing to be said is that it is, ofcourse, a claim to be left free to pursue happiness,not to be supplied with the means toachieve it.The right to life also should be similarly understood.It is the right of individuals not to be killedagainst their wills. It is not a right to be supplied

484 THE FREEMAN • DECEMBER 1989either with a subsistence income or even with anopportunity to earn an adequate wage. NeitherNature herself nor the rest of mankind owes anyof us either a living or even an opportunity tomake one; and everyone still needs to rememberthis before bringing children into the world.!Again, just as any right of free association is atthe same time and necessarily a right not to join,so any right to life must at the same time and necessarilybe a right to end life if and when that isthe right-bearer's own wish.The Right to Be Left AloneAll option rights really reduce to one, the rightto be left alone and unharmed. If any claim toany natural right can be made out, then this onecertainly can. Consider "The Formula of the Endin Itself" under which Kant's Categorical Imperativebecomes: "Act in such a way that you alwaystreat humanity, whether in your own person or inthe person of any other, never simply as a means,but always at the same time as an end."2These formulations as they stand will, ofcourse, not do. One sufficient reason why theywill not do was urged by Kant's admiring criticSchopenhauer. It is, strictly, incoherent to speakof "ends in themselves." There can no more be"ends in themselves" unrelated to the personswhose ends they are, than there can be sisters inthemselves, unrelated to any siblings of whomthey are the sisters. 3Again, Kant's talk of "rational natures" and of"rational beings" is likely to suggest creatureswho are rational as opposed to irrational, or whoare intellectual and unemotional as opposed tolowbrow and emotional. But the rational beingsto all of whom the imperatives of morality apply,and "whose existence" might be said to have "initself an absolute value," are not an exclusiveband of Platonic dialecticians. Nor are they, whatnothing could be, ends in themselves. What theyare, are the very creatures we all are: creatureswhich are able to, and cannot but, form ends forthemselves; creatures which in giving to themselvesor to others their reasons for acting thisway but not that way, however irrational or nonrationalthose reasons, are rational beings.From these familiar non-moral facts of our humannature nothing can ·be immediately deducedabout either any rights which must be possessedby, or any obligations which must be laid upon,beings such as we. However, to borrow anothercharacteristic concept from Kant, "as legislatingmembers of the Kingdom of Ends," as creatures,that is, prescribing laws to apply to all creaturesadopting and pursuing ends for themselves, weourselves can lay it down that all rational agentsare to be respected in their pursuit of their ownchosen ends. Indeed, if we are committed to prescribingprinciples to apply equally to all such beings,principles which as ourselves such beings wecould will to become universal law, then it wouldseem that we can scarcely fail to prescribe the following:individuals must have the right to pursuetheir own ends, save in so far as this pursuit violatesthe equal rights of others; and everyonemust be under the reciprocal and correspondingobligation to respect those equal rights of everyoneelse. The notions of equality and of reciprocityenter here because no one can consistentlyclaim such universal human rights for themselvesexcept in so far as they concede to others thesame rights, the same liberties.At Whose Expense?Now contrast with these option rights claims towelfare rights. All such claims should be challengedby putting a crucial question, followed bya more philosophical supplementary: "At whoseexpense?"; and, "What is the basis of the obligationsupposedly falling upon the unspecifiedproviders of all these desired and desirable benefactions?"Again, natural or universal rights must, assuch, be equally valid at all times and in allplaces. If, however, ought presupposes can, thenthere are no such rights to what is not, and cannotbe made, universally available. While everyoneeverywhere and always could have enjoyedthe option right to liberty, if only the others hadbeen willing to respect these claims, there havebeen many periods, and there have been and aremany places, where the total available resourcescould not satisfy even half of these fashionablyproliferating welfare claims. And, furthermore,both the number of such less happy lands and thenumbers of their poor inhabitants would surelytend to increase exponentially if a guarantee ofgenerous welfare provision for all were to removeevery prudential check upon human multi-

485plication, thus automatically devaluing that guarantee.4The questions put and objections raised in theprevious two paragraphs bring out the hopelessnessof attempting to construct a coherent andpersuasive doctrine of welfare rights. But withoption rights it is different. There the obligationsrest as equally and fairly on everyone as therights: everyone equally ought to, and can, respecteveryone else's equal rights to liberty andagainst injury.We conclude by quoting from a Sage. A discipleonce asked Confucius whether his rule of conductmight be embodied in a single word. The Masterreplied, "Is not 'reciprocity' the word?"5 D1. For an examination of an Aristotelean source of the alwaysmore popular, contrary doctrine, see my The Politics of Procrustes(London and Buffalo: Temple Smith and Prometheus, 1981), chapterVI,3.2. Immanuel Kant, Groundwork ofthe Metaphysics of Morals,in The Moral Law, trans, H. J. Paton (London: Hutchinson, 1948),pp. 90 and 91.3. Arthur Schopenhauer, On the Basis ofMorality, trans. E. R.J. Payne (Indianapolis, IN: Bobbs-Merrill, 1965), p. 95.4. Compare, perhaps, my Introduction to Malthus: An Essayon the Principle of Population (Harmondsworth and Baltimore:Penguin Books, 1971).5. The Analects, trans. W. Soothill (Taiyuanfu, Shansi: Soothill,1910), XV; 23g487Basic Rights andMeta-Rightsby William B. IrvinePeople are generally familiar with whatmight be called our basic rights. These includeour economic rights, such as ourright to own property and our right to start a business,and our political rights, such as our right tofree speech and our right to life. Fewer people areaware of what might be called our meta-rights.These are rights we have with respect to our basicrights; they include, most importantly, our right towaive or transfer our basic rights.Suppose, for example, that I own a car, butthat I am no longer satisfied with it. If I trade it inon a new model, I am voluntarily exchanging myProfessor Irvine teaches philosophy at Wright StateUniversity in Dayton, Ohio.property right in the car for a property right in anew car; in so doing, I am exercising my metarightto transfer my property right in my car. Similarly,when I apply for a job, my prospective employermight tell me that he will hire me only if Isign a document stating that I won't divulge atrade secret. What this employer is asking me todo is to waive certain aspects of my right of freespeech; and if I accept the employment offer, Iwill be exercising my meta-right to waive the basicright in question.Although these meta-rights are less wellknown than our basic rights, a case can be madethat the preservation of our meta-rights is vital toour economic and political well-being; for unless

486 THE FREEMAN • DECEMBER 1989we have the meta-right to waive or transfer ourbasic rights, then these basic rights are much lessvaluable than they otherwise would be.To see why I say this, imagine for a moment aworld without the meta-rights described above.Imagine a world in which you could own things,but could never waive or transfer your ownership.In such a world, it is not at all clear how Icould come to own a car (unless I built it myself-butwhere would I obtain the materialsfrom which to build it?). And once I had a car, Iwould be stuck with it for life. I could never tradeit in. I couldn't give it away. I couldn't even"junk" it.It is clear that my ownership right in a car ismuch more valuable if, besides this basic right, Ialso possess the meta-right to trade or sell the carto others. For then my car, besides having valuein terms of the transportation it provides me, hasvalue in terms of the other things (e.g., other carsor cash) that I can trade it for. In having themeta-right to transfer ownership of my car, I gainthe potential ownership rights to any number ofuseful things.Or imagine a world in which I could not waiveany of my political rights. In such a world I wouldpresumably become unemployable, for as soon asmy boss tried to tell me what to do, wouldn't hebe infringing upon my right to self-determination,a basic right which, in the world described, Icouldn't waive?Even my right to life is more valuable if I havethe meta-right to waive this basic right. Thosewho would deprive me of my meta-right to waivemy right to life have done me a great disservice:They have transformed my right to live into aduty to remain alive.Few people, one assumes, would be willing tolive in a world in which people possessed the fullcomplement of basic rights, but lacked the abovedescribedmeta-rights. It sounds a bit paradoxical,but one of the things that contributes most tothe value of our basic rights is our ability to waiveand transfer them. In short, basic rights are worthhaving largely because we can relinquish them.This is a point that many people-and in particular,many politicians-fail to realize. Thesepoliticians may stand firm in their support of ourbasic rights (our basic. political rights, if not ourbasic economic rights), while at the same timechiseling away at our meta-rights.Thus, a politician who would never dream oftaking away someone's apartment building (andthus violating his basic right to own property)might nevertheless advocate passing laws thatlimit the amount of rent the building owner cancharge or laws that prevent the building ownerfrom converting his apartments into condominiums.Such laws do not deprive the building ownerof his property, but they do restrict what hecan do with it; and because they interfere withthe owner's ability to waive and transfer his propertyrights, they interfere with his meta-rights.In the above example, we see how by deprivinga person of his meta-rights, we lessen the valueof his basic rights: Once laws are passed restrictingwhat the building owner may do with hisproperty, the market value of his apartmentbuilding is likely to fall.Along these same lines, when politicians placelimits on my ability to enter into contracts withothers, they are depriving me of some of mymeta-rights since they are interfering with myability to contract away my basic rights. Andwhen politicians impose restrictions on internationaltrade, they are depriving me of some of mymeta-rights since they are making it harder forme to exchange property with people in othercountries.Anyone who values rights, then, will not wanthis list of most valued rights to end where it traditionallydoes, viz., with basic economic and politicalrights. For these rights, although valuable, derivemuch of their value from the meta-rights wehave with respect to them. Furthermore, anyonewho values his rights will defend his meta-rightsat least as vigorously as he defends his basicrights; for he will realize that a basic right whichcannot be relinquished is in many cases a rightnot worth having.D

487"I'm Here toHelp You"by Stu PritchardTWo time-honored professions, amongothers over the millennia, have been• revered in history and extolled in poetry."Medicine," exclaimed Voltaire, "that most estimableof professions." Longfellow wrote offarmers' lives "darkened by shadows of earth, butreflecting an image of heaven."These two professions are among those nowbeing throttled by bureaucratic government. "It'sinsanity," said a radiologist to me recently abouttrying to cope. "They're taking away my livelihood,"lamented a farmer.But how to explain? How can others in differentprofessions, who see only their own oxen beinggored, understand my problems as a physicianand a farmer?On one day alone, eight missives arrived bymail from Medicare. Page after computer-printedpage added and deleted five-digit codes for myriadmedical procedures and diagnoses. Cited were"violative procedures/, each be"aring a possible$2,000 fine. A clerk demanded copies of all myoffice notes and records for the past two yearsfrom my personal file on·a long-standing heartpatient. Ofcourse, I refused.Meanwhile, back at the farm, a young ladydrove past the barn and stopped at the farmhouse.The legend, "Department of Agriculture,"on the side of her pickup caught my eye."I'm here to help you," she announced, andthen, "I see you have two cows in your pasture."("Heifers," 1 corrected.) "And we've had a re-Stu Pritchard, M.D., of Tumwater, Washington, divideshis time between practicing medicine and farming. Anearlier version of this article appeared in TheOlympian, published in Olympia, Washington.port from Thurston County Health Departmentthat you did some plowing last summer.""Yes," said I. "That's why more than 100 geesefly in frequently to nibble at the oats I planted.They are undisturbed by 13 deer who also likethe feast.""Well," she persisted, "we're concerned aboutpollution in Oyster Bay.""I am, too, but 1 don't think this valley that'sbeen a farm for more than 90 years contributesmuch pollution. Better to concentrate on humansources of pollution and contagion."Public-spirited, energetic regulators are sincerelymotivated and increasingly "enabled" bypoliticians in legislative assembly. Although inboth state and Federal constitutions, governmentis prohibited from using prior restraint to restrictfreedom of speech and press, that same doctrineappears to be the method used by powerful bureaucratsto impose their views upon the citizenry."Your actions," they seem to say, "might, evenby a long stretch of the imagination, cause harmto others. There is no proof you have, but it is oursupposition that you might cause harm. Therefore,you're guilty, and we won't allow you toprove yourself innocent of any wrongdoing."Prior restraint-a doctrinaire signpost on "TheRoad to Serfdom," to quote the title of the famousbook by Nobel Laureate Friedrich Hayek-canregulate to the point of non-production,destroy incentive and entrepreneurship, and enfeeblethe industrious.My local newspaper reports that every 100public-sector jobs create 75 private-sector jobs.But wouldn't it be more realistic to say that 75 ofthe latter create 100 of the former? After all,which sector supports the other?Which is the sector that is mired down in licenseand permit fees, taxes, inquisitorial reports,and unannounced inspections on private property?And if employees in the public sector wailthat they, too, pay taxes, ask the source of themoney used to pay those taxes.Yes, many who have loved their doctoring,their farming, and their other peaceful pursuitsmight pause to reflect: "Don't let bureaucracydim freedom's light." 0

488Argentina at theCrossroadsby Richard A. CooperStatism has promised much to the Argentinepeople. But over the past 50 years, ithas brought violence, corruption, unemployment,soaring inflation, and bitter disappointment.There is, however, a vibrant andgrowing Argentine movement that offers anotherchoice-a classical liberal/libertarian movementdedicated to free markets and individual liberty.For approximately 90 years, from 1853 to 1943,the classical liberal system of constitutional government,private property, and free trade heldsway in Argentina. The country prospered. Butnot all Argentines were satisfied. Many of the urbanmasses felt cheated by the system. As timewent by, their feelings of resentment and nationalismgrew and merged. Different groups andleaders came and went, speaking for the disaffectedArgentines. Then, in 1943, while Communismand Fascism menaced Europe, came theman whose legacy still haunts Argentina-JuanPer6n.Peronism as a doctrine is very vague, althoughPer6n wrote many books and speeches. Inessence, it is statist, protectionist, nationalist, andcorporatist. Per6n himself admired Franco andMussolini. In 1949, Per6n promulgated a constitutionmodeled after Fascist Italy, which enhancedpresidential powers, increased centralcontrol, and contained corporatist features, especiallyregarding unions.The Peronist system resembles that of PRIdominatedMexico, seeking to integrate businessand labor unions into a network of state-depen-Mr. Cooper is an export/import manager in New York.He visited Argentina in November 1988.dent and politically connected parts of a statistpolitical machine. Although Peronism directs itsappeal to the masses with heavy doses of envy, itdoes not ignore businessmen, whom it supportswith protectionist trade policies and state subsidies.Thus, there were and are Peronist businessmen.Unlike Mexico, however, Peronism relieson the charismatic personality of the leader towhip up enthusiasm against foreign and domesticenemies, especially Britain.After the disgrace of the military junta in theirfailed 1982 invasion of the Falkland Islands, Argentinareturned to democracy. The Radicals surprisinglydefeated the Peronists and elected RaulAlfonsin, barred from re-election by the Constitution.The Radicals talked about privatization,but did little about it. The country has continuedits slide, and the military is restive because of lowpay and the trials of officers for their role in the"dirty war" of 1976-1983 in which thousands ofleftists disappeared.Argentina's economic malaise is plain for all tosee. While the country's standard of living wascomparable to Canada before World War II, Argentinais now slipping into the ranks of theThird World. Inflation is so high that advertisementsfor houses and cars quote prices in Americandollars.What went wrong? Per6n and his successors,military or civilian, Peronist or Radical, built up amassive state apparatus and a private industrialsector sheltered by a rigidly protectionist system.There are 353 state enterprises, including thoseowned by_ the military. One such enterprise isLADE, offering airline service to civilians, butowned by the armed forces.

489When Argentina was rich, it built railroads,subways, and phone systems. Since statism tookcontrol, these have deteriorated. The Argentineshave public services that don't serve. Three milliondollars a day are lost on a rail system whichshould be visited by antique railroad buffs. YPF,the state oil monopoly, manages to lose money.Worst of all is the phone system, ENTEL, whichhas more employees than Nippon Telephone andTelegraph in a country with less than one-thirdthe people. Twenty year waits for phones are normal.Journalist Bernardo Neustadt, a convert tothe free market philosophy, proposed privatizingthe phone system. Two hundred ENTEL unionistscame to the radio station to physically attackhim.Pervasive state control and corruption go handin hand. In frontier San Juan province, the formergovernor Leopoldo Bravo purged some independent-mindedlegislators from his Bloquistaparty. The newspaper El Diario de Hoy supportedthe legislators and their corruption charges.The newspaper's owners soon found themselvesbeing pressured by the provincial tax bureau andother state agencies. The paper, however, stillsurvives.Who speaks out against the statism that has ruinedArgentina? The liberales (liberals) representthe individualist, free market alternative tothe dominant statist ideologies. Argentina possessesan individualist movement that is impressivein its activism and dedication. Like theirAmerican counterparts in the libertarian movement,the Argentines have pursued three paths:political, academic, and popular education.Argentine individualists point to many nationalheroes as their forerunners, just as Americansdo to the Revolutionary War heroes. ManuelBelgrano (1770-1820) and Mariano Moreno(1778-1811) fought to gain independence fromSpain. Juan Bautista Alberdi (1810-1884) andDomingo R Sarmiento (1811- 1888) were admirersof the British classical liberals and the UnitedStates. They helped to overthrow the Rosas dictatorshipin 1852. Alberdi drafted the 1853 Constitution,modeled after that of the United States.More recently, there was the writer Jorge LuisBorges (1899-1986).Borges declared himself an individualist and"an anarchist in the Spencerian sense." Borgesvigorously denounced Per6n as a Fascist, andstrongly opposed nationalism and Communism. Ihad the pleasure of seeing a talk by Borges tapedat ESEADE (a post-graduate business schoolemphasizing Austrian economic principles).Borges was asked by an unidentified Americanwhy he did not write more on politics and individualism.Borges replied, "I am a mere storyteller,not a politician."UCeDeThe Argentine individualists take political actionprincipally through the Union del CentroDemocnitico (Union of the Democratic Center,usually referred to as UCeDe), which togetherwith other "liberal" parties, regionalist parties,and some conservatives form the Alianza deCentro (Alliance of the Center). The UCeDewas founded by Alvaro Alsogaray, who was theAlianza's candidate for president in 1989. TheUCeDe's strength is growing, and although AIsogarayreceived only 6 percent of the popularvote in the May 1989 elections, the party did increaseits seats in the Congress.The UCeDe actively seeks new supporters.Literature tables selling the magazine Tiempo deAcci6n Liberal ("Time of Liberal Action") andcampaign paraphernalia attract passers-by inCalle Florida and elsewhere. The UCeDe and itspartners organize "Centros Civicos" (civic centers)to promote individualism and democracy. Acook named Carlos Villalba formed the CentroCivico "Obrero Liberal" (Liberal Worker) in aslum neighborhood and signed up 630 familiesout of 1200 for the.UCeDe. Villalba is one of themany converts to classical liberalism won byAdelina de Viola, the successful UCeDe candidatefor Congresswoman from the federal districtof Buenos Aires.The Argentines are fond of clubs and socialgatherings. Tiempo de Acci6n Liberal runs a columnby Susana Herrera reporting on localUCeDe activities, such as the pasta parties ("NoquisLiberales"-"Noquis" means "gnocchi") ofthe Movimiento de Acci6n Liberal (Movementof Liberal Action). These pasta parties featurepolitical leaders, dancing, food, drink, and even araffle. Two popular education groups of individualists,the Escuela de Educaci6n Econ6mica yFilosoffa de la Libertad (School of Economic Educationand Philosophy of Liberty) and the Cir-

490 THE FREEMAN • DECEMBER 1989culo de la Libertad (Circle of Liberty, a sort of individualistsocial club), both meet at the headquartersof the Movimiento de Acci6n Liberal inBuenos Aires.The Argentine classicalliberals/libertarians attractnoticeably more women to their ranks of activiststhan seems common in the United States.Women participate actively in the Centros Cfvicosand the youth arm of the UCeDe, JuventudUcedeista (Young UCeDe's). The UCeDe's candidatefor Senator from Buenos Aires was MariaJulia Alsogaray, a Congresswoman and daughterof Alvaro Alsogaray. And there is the highly popularCongresswoman Adelina de Viola.The Argentine liberales rally to defend the1853 Constitution against the changes proposedby the Peronists and Radicals, who seek to expandthe government's (and their own) power.Although imperfect, the 1853 charter (which wasbrought back into force in 1957) is a brake onstatism, according to Enrique Cerda Omiste ofthe Fundaci6n Carlos Pellegrini (Carlos PellegriniFoundation, named after the President who restoredArgentina to solvency in the 1890s). Fundaci6nCarlos Pellegrini is an educational groupconcerned with foreign affairs, values, and education,trying to combat the debasement ofcivic lifeinherent in statism.The Centro de Estudios Sobre la Libertad(Center for Studies on Liberty) works diligentlyto propagate the ideals of individual liberty, privateproperty, and free markets in Argentina.Founded by Alberto Benegas Lynch Sr. and somefriends in 1957 under the name "Centro de Difusi6nde la Economfa Libre," the Centro is perhapsthe most important single classicalliberalllibertarian organization in Argentina.Still headed by Dr. Benegas Lynch, the Centrode Estudios Sobre la Libertad is modeled afterthe Foundation for Economic Education. LikeFEE, the Centro publishes pamphlets, books,and a magazine like The Freeman named IdeasSobre La Libertad (Ideas on Liberty). Dr. BenegasLynch brought Ludwig von Mises, FriedrichHayek, Leonard Read, and other free market luminariesto lecture in Argentina. The Mises lecturesare now available in print, in both Englishand Spanish. (English title: Economic Policy:Thoughts for Today and Tomorrow)Alberto Benegas Lynch graciously received mein his home in Buenos Aires. Dr. Benegas Lynchexpressed high hopes for the future as the competingbrands of statism have all been discredited.He is cheered that young people are turningto free market individualism. Some of this shiftcan be attributed to Dr. Benegas Lynch and theCentro de Estudios Sobre la Libertad program ofscholarships for study in the United States formany of the key professors of law and social scienceswho are contributing to Argentine individualismtoday. Their efforts show in student electionsat the University of Buenos Aires (UBA)where the liberales won in the faculty of law andthree others.The Centro de Estudios Sobre la Libertad presentsseminars and lectures on free markets andindividual liberty throughout Argentina. Thisprogram is directed by Dr. Eduardo Marty, professorof law and economics at UBA, with helpfrom UBA law and accounting student, AlejandraRojo.ESEADE: An Emphasis onAustrian EconomicsThe Escuela Superior de Economia y Administraci6nde Empresas (ESEADE, meaningHigher· School of Economics and Business Administration)is a graduate business school emphasizingthe Austrian school of economics. Itpublishes the journal Libertas, conducts a programof lectures taped on video (such as the onewith Borges), and runs short seminars on economicsand liberty for the general public. Thepresident is Dr. Alberto Benegas Lynch Jr., oneof the first students that the Centro de EstudiosSobre la Libertad sent to the United States.The Instituto de la Economfa Social de Mercado(Institute of the Social Market Economy) wasfounded by UCeDe leader Alvaro Alsogaray. Dr.Martin Krause, their Director of Programs, explainedto me that they focus on human rights(including human rights violations in Cuba), privatization,and free trade. They publish a magazineand run essay contests for students withprizes of study in the United States. Their mostrecent winner, Dr. Alfredo A. A. Solari, professorof law at the University of Buenos Aires, studiedat FEE in June and July of1989.The Instituto de Estudios Contemponineos(Institute of Contemporary Studies) was foundedby Marcos Victorica as a think tank like the Cato

ARGENTINA AT THE CROSSROADS 491a::If§o~o a:Centro de Estudios Sobre III Libertad: From I-r: Rogelio Marty, Alejandra Rojo, Senora Marty, and EduardoMarty.Institute in Washington, D.C., with a public policyfocus. It studies the informal economy, deregulation,and privatization. Most notably, it sponsoredthe book, EI Estado y Yo por Juan Garcia(taxista) (The State and Me by Juan Garcia,taxi-driver), written by Faustino A. FernandezSasso.I attended the presentation of the book at EIAteneo bookstore in Buenos Aires. About 160people came to hear about a book they had neverseen. People stood about 20 deep in the rear tolisten to the four panelists (Sasso, Adelina de Viola,Marcos Victorica, and journalist BernardoNeustadt) discuss the book.EI Estado y Yo presents a forceful and funnycase for limiting the state in the interests of thepeople. Sasso writes in a popular style with familiarstereotypes (the Japanese laundryman andthe Galician Spanish bar owner). Juan Garcia,the story's taxi-driver, is Everyman, struggling toget by and lead his family to a better life. Withfacts and figures, Garcia shows the elephantinesize of the state and its mammoth inefficiency.One memorable remark was "The country is fullof functionaries, but nothing functions."The Argentine classical liberal/libertarianmovement is gaining ground. Over 50 percent ofthe public favor some privatization. Monica Maturanoof the Instituto de Estudios Contemponineosstresses how Argentines of her generation-intheir 20s and 30s-have beendisillusioned with statism, which simply doesn'twork. The Argentine movement for liberty, likethe nation itself, stands at a crossroads. D

492A REVIEWER1SNOTEBOOKThe Survival oftheAdversary Cultureby John ChamberlainPaul Hollander was Hungarian-born, buteducated in sociology in a "somewhat casualand unpremeditated manner" in England,in Illinois, and at Princeton. He is less interested,he says in The Survival of the AdversaryCulture (New Brunswick, N.J.: TransactionBooks, 299 pp., $27.95), in exploring the injusticesand defects of American society than he isin studying the injustices and deformities of otherpolitical systems, namely, those of the Soviet variety.He still manages to retain over the years "anaive astonishment and occasional indignationover the fact that Western intellectuals, includingperhaps most American social scientists, show solittle appreciation of or support for the institutionswhich sustain them."He accepts it as a given fact that most peopleneed a "Mecca," and if they can't find it in a religionthey will find it on this earth. He quotesBritish novelist Doris Lessing with approval. SaysLessing, "it's fairly common among socialists[that] they are in fact God-seekers, looking forthe kingdom of God on earth, trying to abolishthe present in favor of some better future. If youdon't believe in heaven you believe in socialism."Hollander's curiosity led him to make an extendedstudy of "political pilgrimage" among intellectuals.Currently they are turning toNicaragua in default of anything better. Theywent al~ng with Soviet Russia until Stalin made itimpossible for them to deny their eyes and ears.Then they turned to China. But Mao, killing hismillions in the name of culture, was no betterthan Stalin.That left Cuba, with Fidel Castro, andNicaragua, with Ortega. So an issue of Sojourner'smagazine says "we believe that somethingunprecedented in Central America is happeningin Nicaragua." Hollander "wonders if it wouldhave made any difference had they known thatmany similarly hopeful travellers also believedthat something unprecedented was happening inthe Soviet Union, China, Cuba, Albania, Bulgaria,Mozambique or many other countries of asimilar political inspiration."The behavior of intellectuals on political pilgrimageto Managua or Havana taxes one'scredulity. The Reverend Jesse Jackson visitedwhat he was told was a "model prison." The inmatesplayed baseball. But "as soon as Jacksonhad left the balls and bats were taken away andthe prisoners returned to their cells."In Nicaragua the Sandinistas' Tomas Borg hastwo different offices. One is for meetings with religiousdelegations and delegations from democraticpolitical parties. Before Borg meets with areligious delegation he memorizes Bible passagesfor quotation. But in his "real office" there are nocrucifixes or Bibles-only Marxist literature and"posters of Marx, Engels, and Lenin."Borg, of course, is the Marxist who said theCentral American revolution recognizes noboundaries.The palpable effort in Managua is to reproducein Central America the atmosphere of theAmerican college campuses of the 1960s. A Sandinistanetwork in the U.S. funnels tour groups toNicaragua. Hollywood types are welcomed.George Kennan's changing views are thoroughlyanalyzed by Hollander. Kennan's famous1947 article that set forth the policy of containmentis no longer considered relevant. In 1981

493Kennan had come to believe that the negativeimage of the Soviet Union is "a monster of ourown creation." The Soviet leaders, says the"new" Kennan, are "ordinary men who share thehorror of major war."Hollander says that "perhaps we can share"Mr. Kennan's concern for the earth's limited resources,"but it is hard to see why tackling thatproblem and keeping the Soviet Union from expandingits influence should be mutually exclusive."0PROSPERITY AND POVERTY: THE COM­PASSIONATE USE OF RESOURCES IN AWORLD OF SCARCITYby E. Calvin BeisnerCrossway Books, 9825 W. Roosevelt Road, Westchester, Illinois60153 -1988 - 304 pages - $9.95 paperback.Reviewed by Peter J. HillDespite protestations to the contrary bysome economists, issues involving economicpolicy are extremely value laden.Questions of economic justice, appropriate levelsof redistribution, and the moral foundations ofrights continually arise. Hence it is not surprisingthat people who have a well-developed moraland religious framework attempt to integrate thatvalue structure with their views on economic policy.Calvin Beisner fits very well in this genre ashe has written a book that uses a biblical perspectiveto look at the world of economics.Beisner's analysis is thoroughly Christian in thesense that he sees the Bible as the ultimate standardof truth by which all things must be measured,but he is also conversant with much of therecent scholarship in economics. Thus his workrepresents a careful attempt to integrate the twoperspectives. He recognizes the need for compassionatepeople to address the problems of poverty,but he is also aware that one must couple biblicalconcern with a careful understanding of howthe world works. Beisner avoids the trap thatmany Christians fall into of thinking that good intentionsare all that matters, and that appropriateChristian concern will automatically lead to effectivepolicy measures.Beisner begins with the concept of stewardship,arguing that the believer must see God asthe owner of all things, and from that flows theresponsibility to act appropriately in economicmatters. He argues that we must not act wastefullyand that the creation of wealth is very much apart of good stewardship. However, he also recognizesthe dangers of wealth, clearly laying outwhere the allegiance of the Christian must lie.Beisner also does a thorough job of developingthe concepts of work and rest as they relate toeconomic activity.It is the second part of the book that manyreaders will find the most interesting. In it the authorputs forth his standard of economic justice,and he departs considerably from most Christianethicists on this issue. He argues that biblical justicedoes not demand equality, and, in fact, requiresvery unequal results in many cases.A major part of Beisner's analysis deals withthe controversial Jubilee Year provision of Leviticus25, and he concludes that the passage doesnot require a radical equalizing of property or incomes.He does recognize that the text implies asignificant constraint on the ability of people toalienate their productive capital, and it is in thissense that the passage has the most interestingimplications for modern society. Although Beisneracknowledges the importance of translatingbiblical concepts to the modern setting, a fullerexposition of just what the injunction against thepermanent sale of land would prohibit in today'ssociety would have been appreciated.Parts III and IV of the book give a fairly adequateexplanation of how an economy functionswith appropriate attention to issues of propertyrights, prices, and markets. Considerable attentionis given to the questions of money and inflation,with the careful development of the argumentthat a decrease in the purchasing power ofmoney represents both bad stewardship andtheft. On the basis of the biblical injunctions protectingproperty rights, Beisner concludes thatthe government should have no positive role inthe provision of money; in other words free marketmoney represents the only truly moral formof currency.The author reaches an equally radical conclusionwith regard to coercive redistribution ofwealth, namely that, by biblical standards, noneshould occur. A strong emphasis on the sanctityof property rights is at the basis of this conclusion.Fairly standard arguments against subsidies,

494 THE FREEMAN- DECEMBER 1989price controls, and import restrictions are alsomade.The last section of the book presents Beisner'sviews on what should be done to alleviate poverty.He recognizes a clear biblical imperative tocare for the deserving poor, but argues that thegovernment should have no role in doing thatother than preventing fraud and the violation ofproperty rights. Therefore he proposes alternativeanti-poverty measures involving church andpersonal voluntary action. Beisner calculates thenumber of poor people in the United States accordingto the biblical concept of poverty, whichhe argues is much more restrictive than the officialgovernment definition. Using rough estimatesfor per capita income of church members,he concludes that about one percent of their income,or one-tenth of the expected tithe, wouldbe sufficient to eliminate poverty. Of course anysuch calculations are subject to numerouscaveats, but the point is well taken; appropriateChristian concern could voluntarily solve most ofAmerica's poverty problem.Of course Christians do not devote anywherenear this amount to poverty reduction, a shortcomingof which Beisner is appropriately critical.He also recognizes that his call for reduction ofgovernment involvement in income redistributionmust be accompanied by a dramatic alterationin the attitude of many Christians towardvoluntary measures.Beisner's book is well worth reading. He takeshis standard of justice and truth, the Bible, seriouslyand doesn't shirk from attempting to applyit to some of society's most vexing economicproblems. He also is careful not to argue that theprevailing ethos of our capitalist society is biblical,while at the same time avoiding a utopianfascinatioJ;l with alter~ative institutional arrangements.One may wonder if the strength of hisconclusions is fully warranted on some issues. Forinstance, is only free market money truly biblical,and· can no coercive redistribution of income beconsidered legitimate from a Christian perspective?Nevertheless, Beisner develops well-reasonedpositions grounded in a careful reading ofScripture to support these positions, and thereader who wishes to disagree must be ready toconfront his arguments head-on. DDr. Hill is George F. Bennett Professor of Economics,Wheaton College, Wheaton, Illinois.ECONOMICS: BETWEEN PREDICTIVESCIENCE AND MORAL PHILOSOPHYby James M. BuchananCompiled with a preface by Robert D. Tollison and Viktor J. Van~berg. Texas A&M University Press, College Station, Texas 77843~4354 -1987 - 413 pages - $48.50 cloth.Reviewed by Matthew B. KibbeAgood economist will make one importanttheoretical contribution to his fieldin a lifetime of work. There are few individualsof this intellectual caliber. Far rarer isthe economist who has written extensively andproductively on a broad range of theoretical andpractical issues, often crossing official boundariesinto other academic disciplines. James Buchananis such an economist.In his distinguished career, ProfessorBuchanan has written extensively on the economicsof public finance, welfare economics, theeconomics of cost and individual choice, economicmethodology, and political philosophy. In 1986,he was awarded the Nobel Prize in Economicsfor his pioneering work in the field of "publicchoice," which revolutionized the way mainstreameconomists look at and evaluate the politicaldecision-making process.For the serious student interested in learningmore about Buchanan's work, this book is a greatplace to start. It is a collection of previously publishedessays and journal articles that brings togethera broad, well-rounded sampling ofBuchanan's most important contributions to economicsand political philosophy.A student and protege of Frank Knight at theUniversity of Chicago, Buchanan reflects aneclectic mix of ideas borrowed from Ludwig vonMises, F. A. Hayek, G. L. S. Shackle, and others.Austrian economists in particular will find themselvessympathetic with Buchanan's primary goalof reviving and extending the study of politicaleconomy in the tradition of the 18th-centuryScottish moral philosophers.But Buchanan is still a neoclassical economistwho often defends the orthodox tendencies totest, measur.e, and· predict empirically. For example,he maintains that there is a strict dichotomybetween the realm of "reactive" choice, where heviews man's actions as analogous to the reactions

OTHER BOOKS 495of rats, and the realm of true creative choice inthe Austrian sense. He argues: ". . .Misesianpraxeology, as I understand it, would seem to includeboth examples within the realm of humanaction that theory seeks to analyze and to explain.I submit, however, that they are categoricallydistinct. [Reactive] action need not reflectconscious, active, or creative choice; it can be interpretedas an animal-like response to a changein the external environment. It is. . . behaviorthat might have been scientifically predicted."Always challenging, often frustrating, it is thisessential tension, the rift "between predictive scienceand moral philosophy," that drivesBuchanan's system of thought. All the same, thereader will enjoy being introduced to one of thefew truly original thinkers in economics today. DMatthew Kibbe is a doctoral student in economics atGeorge Mason University and a fellow at the Center forthe Study ofMarket Processes.LIBERTY, PROPERTY, AND THEFOUNDATIONS OF THE AMERICANCONSTITUTIONEdited by Ellen Frankel Paul and Howard DickmanState University of New York Press, State University Plaza,Albany, NY 12246 - 1989 -181 pages - $39.50 cloth, $12.95 paperReviewed by Robert W McGeehis book consists of eight essays, written. by eight different scholars, and edited byT.. Ellen Frankel Paul and Howard Dickmanof the Social Philosophy and Policy Center inBowling Green, Ohio. The unifying theme is theinterrelationship between liberty and property,with special emphasis on how liberty and propertywere viewed by America's Founding Fathers.In the preface, Gordon S. Wood discusses theintellectual atmosphere that existed in theColonies at the time of the Revolution. Propertywas seen not so much as a way to aggrandizeprofits, but as a source of personal independence.Property consisted not only of tangible goods butalso of skills and anything else that made a personindependent. At least some of the Constitution'sframers were very much aware of the dangerposed by a legislative majority bentonusurping a minority's property rights. In one ofthe first Supreme Court cases, Justice SamuelChase stated that a law exceeds its legislative authorityif it takes property from A and gives it toB. Today, such laws are commonplace, and veryfew people question their validity or even theirpropriety. How things have changed in 200 years.Michael Kammen writes about the rights ofproperty and the property in rights. One of theprimary functions of government is to protectproperty. The new Constitution aimed at protectingthese rights, as did the various state constitutions.Liberty and property were thought to existside by side. People couldn't have one withoutthe other. The best way to safeguard liberty wasto safeguard property. While some patriots worriedthat a free society would produce inequality,wealth, luxury, extravagance, vice, and folly, curbingproperty rights to prevent these possible evilswasn't seriously considered by most theorists ofthe day. Madison pointed out that property rightsdeveloped from the diversity in the faculties ofmen and that attempting to distribute propertyevenly is a wicked idea. Jefferson wanted to give50 acres of land to every adult male who lackedproperty, so that a broad segment of the popula~tion would have a stake in the society. With thespread of property goes the spread of liberty.Andrew J. Reck's chapter discusses moral philosophyand the framing of the Constitution. Twoinfluential works of political philosophy appearedbetween 1776 and 1789, John Adams' Defenceof the Constitutions of Government of the UnitedStates of America and the Federalist Papersby Hamilton, Madison, and Jay. By far the moreinfluential of the two was the Federalist Papers,which argued for ratification of the Constitutionin a series of essays that first appeared in newspapers.Reck outlines the origins of these two documents,portions of which can be traced back tothe ancient Greeks and Romans. Other sectionsof this chapter focus on the convention debates,Forrest McDonald's comprehensive study of theintellectual origins of the Constitution, the relationshipbetween liberty and property, the compromiseby which states retained equal representationin the Senate and representation .bypopulation in the House, and Hamilton's speechat the convention. At the time of the convention,moral philosophy focused on the relationship ofspecial interests to the general good, a relationshipthat the Public Choice School and others still

496 THE FREEMAN • DECEMBER 1989are studying today. The framers' moral philosophysynthesizes the extremes of virtue and interest.Edward J. Erler's chapter compares the presentview of property rights, as expounded byJustice William Brennan, with the view of theFounding Fathers. According to Brennan, theFourteenth Amendment is perhaps as importantas the original Constitution itself because it upgradesthe importance of protecting life and liberty,and places property rights in a secondary position.The Founding Fathers, on the other hand,saw no inherent conflict between the right toproperty and the rights to life and liberty. Securingthe right to property was the means by whichthe rights to life and liberty could be achieved.John Locke and the natural rights theoristsplayed a very influential·role in shaping theframers' view of property rights. Many documentsof the Colonial era, such as the variousstate bills of rights, are Lockean in structure andcontent.Jean Yarbrough focuses on Thomas Jefferson'sview of property rights. One long-running disputehas been Jefferson's failure specifically to includeproperty among the inalienable rights enumeratedin the Declaration of Independence.Rather than life, liberty, and property (as perLocke), Jefferson used life, liberty, and the pursuitof happiness. Yarbrough points out thatproperty is not inalienable, since it can be alienated-tradedor given away. Inalienable rights are aspecial category of natural rights that cannot betransferred to another. Property can be transferred,so it is not inalienable, although it is a naturalright. Other sections discuss the origin,meaning, and status of property and the place ofproperty in a republican government. The finalsection presents an overview of Jefferson's agrarianrepublicanism.Charles R Hobson's chapter discusses republicanism,commerce, and private rights from aMadisonian perspective. Madison was committedto republicanism, the belief that government isderived from the consent of the governed. Hewas a believer in majority rule but worried thatthe majority would violate minority rights if notheld in check by the chains of the Constitution.Throughout history, republics inevitably had declinedinto despotisms. Madison was determinedthat this fate would not befall the newly createdUnited States of America, so he built in checksand balances to protect minorities and to preventany branch of government from being able toseize too much power. Virtue was needed to sustainrepublican government, and Madison believedthat virtue was best protected in an agrariansociety, where individuals could remainindependent and need not rely on others for sustenance.Bernard H. Siegan writes about the limitationsplaced on Federal and state economic powers bythe Co~stitution. The Constitution protects propertyrights and a capitalist economic system. Havingexperienced the abuse of economic rights bystate legislatures, the framers provided more specificprotection against the Federal abuse of economicrights. States were not to interfere withcontracts, although that clause has since witheredaway almost to the point of nonexistence. A commonmarket between the states prevents jealousspecial interests within the states from using thepower of government to protect their interests atthe expense of everyone else.William Letwin expands on this theme whenhe addresses the Constitution's economic policies.While the term "capitalism" wasn't used in1789, the concept of capitalism-that the meansof production should be privately owned andcontrolled-was very much a part of thefounders' philosophy. The due process, takings,commerce, and contract clauses all provide evidencethat the founders intended individuals toown and control the means of production. Contemporarywritings, such as the Federalist Papers,other writings of Madison and Hamilton, and thewritings of others during the period, all providesubstantial evidence that the founders intendedto protect a free enterprise system. However, itcannot be said that the framers intended to founda laissez faire system. Indeed, as a group, theyhad no concept of such an idea. Their experiencehad been of mercantilism, and while the framersabhorred certain aspects of mercantilism, theydid not come out in favor of a laissez faire system.But the Constitution did not say anything toprevent such a system either.In the concluding chapter, Michael W. Mc­Connell provides a case study in the relationshipbetween individual liberties and Constitutionalstructure, focusing on contract and propertyrights. He goes into some of the history behind

OTHER BOOKS 497contract, including a discussion of the NorthwestOrdinance, the Treaty of Paris, the contractclause and the just compensation clause. He alsodiscusses some possible explanations for the differenttreatments of contract rights and propertyrights, focusing primarily on the Hamiltonian andMadisonian views.All in all, this book provides an adequate,though brief, introduction to the prevailing viewof liberty and property at the time of the foundingof the American republic.DProfessor McGee teaches accounting at Seton Hall University.A SPECIAL FREEMAN REPRINTwith a foreword by Walter WilliamsCrimeandsequencesbert James BidinottoMr. Bidinotto's nationally acclaimed 3-partFreeman series is now available in convenientreprint form. Order extra copies toshare with friends and associates.40 pages, paperbackSingle copy $3.00 each10-49 copies $2.00 each50 or more $1.00 eachPrices include postage. Pleaseenclose payment with order.Order from:The Foundation for Economic EducationIrvington-on-Hudson, New York 10533

498INDEXTHE FREEMANVolume 39January-December 1989Prepared byBettina Bien GreavesNOTE: In page references, the numberpreceding the colon designates the month,the numbers following refer to pages. Allarticles have at least three entries-author,title, and subject-except in a fewcases when the title and the appropriatesubject coincide. The short "Perspective"items are listed alphabetically by title underthat category and also cross-indexedto author. Books reviewed are listed alphabeticallyby their author(s) on page503; the names of their reviewers are includedin the master index.AADVERTISINGMovie-goers can think for themselves(Machan) 10:409The quality of people and products(Athens) 1:31-32Rise and fall of the Edsel (Young)9:336-339AFFIRMATIVE action (Pasour) 1:29-31AFRICA, hunger and farming in blackSouth Africa (Vorhies) 6:232-237AGAINST the creation of wealth (Shenfield)1:16-20AGRICULTUREHunger and farming in black SouthAfrica (Vorhies) 6:232-237AHLSTROM, BjornProtecting whom from what? 4:153-154AMADOR, JorgeFairness doctrine, R.I.P. 6:226-231AMBITION/incentive"What do you want to be?" (M.Bidinotto) 2:60-61Why is there a drugproblem? (Leef)2:57-59ANDERSON, Gary M. See Readers'forum, 5:201ANISHCHENKO, Gleb (Glasnost). SeePerspectives, 7:251ARGENTINA at the crossroads (Cooper)12:488-491ARTIFICIAL inflation of natural rights(Flew) 12:483-485ASAY, Chuck (cartoons) 8:298; 9:349ASSOCIATION, forgotten right (D.Hood) 10:406-408AT WHOSE expense? (P. Smith) 5:190­191ATHENS, JonathanThe quality of people and products.1:31-32AUTOMOBILE industryProtecting whom from what?(Ahlstrom) 4:153-154Rise and fall of the Edsel (Young)9:336-339Tucker car: did the big guys do it in?(Barger) 1:4-8BBADEN, John A. See Perspectives, 3:90and Ramona Marotz-BadenLessons in a supermarket. 2:52-53BAKER, Jean L.Women and the market. 12:464-469BANKING. See Money/inflationlbankingBARGER, Melvin D.The Tucker car: did the big guys do itin? 1:4-8 See also Book reviews(Adie)BARNISKIS, Andrew E.The dark side of modern voluntarism.1:21-22BASIC rights and meta-rights (Irvine)12:485-486BATEMAN, J.·Keith. See Perspectives,11:418BEERS, DavidSocial consciousness and individualfreedom. 9:352-354BEISNER, E. Calvin. See Book reviews(Browning)BERNSTEIN, DavidRacial tensions: the market is the solution.7:279-280BERNSTEIN, Mark (Smithsonian). SeePerspectives, 3:90-91BIDINOTTO, Margaret"What do you want to be?" 2:60-61BIDINOTTO, Robert JamesCrime and consequences (3 parts)I. Criminal responsibility. 7:252-262II. The criminal justice system. 8:294-304III. "To insure domestic tranquility"9:340-351BIG BUSINESS, corporationsAgainst the creation of wealth: thethreatening tide (Shenfield) 1:16-20Speculators: Adam Smith revisited(Culp & Smith) 10:383-385Tucker car: did the big guys do it in?(Barger) 1:4-8BLOCK, WalterRacism: public and private. 1:28-29BLOCKADING ourselves (Bohanon &Van Cott) 2:69-70BOAZ, DavidPrivate property from Soweto toShanghai. 11:446-448BOCK, Alan W.Everyone can win in a truly competitivemarket. 4:144-145BOHANON, Cecil E. and T. NormanVan CottBlockading ourselves. 2:69-70BOLICK, ClintA triumph for bootstraps capitalism.10:380-382See also Book reviews (Paul)BOUDREAUX, Donald J.The minimum wage: an unfair advantagefor employers. 10:396-397BOVARD, James. See Perspectives,4:131BRAY, Thomas J.My family life as a socialist. 12:460-461BRAZILWho is destroying the world's forests?(Rehmke) 11:436-439BRETTON Woods monetary conferenceHenry Hazlitt: a man for many seasons(Greaves) 11:420-430International Monetary Fund (Ewert)4:155-160BRITISH way of withholding care(Schwartz) 3:101-102BROWN, David M. See Book reviews(Kelley)BUKOVSKY, Vladimir. See Perspectives,3:91cCAMBODIAN experiment in retrospect(Reynolds) 5:172-174CAMPING: society in miniature (Gotz)1:22-23CANADIAN experience: socializedmedicine (Lemieux) 3:96-100CHAMBERLAIN, John. See Book reviews.CHARITY, voluntaryAt whose expense? (P. Smith) 5:190­191Social consciousness and individualfreedom (Beers) 9:352-354CHILD care, real crisis (Phillips) 10:392­393CHINAChina's great leap backward (Pikcunas)12:477-480Crackdown in China (Pujie Zheng)9:332-335Entrenchment of the state (Hoffman)2:66-68Private property from Soweto toShanghai (Boaz) 11:446-448Religion in China (Kain) 12:472-476CHOLESTEROL, low, market for(Walker) 11:449CHRISTMAS givingMy family life as a socialist (Bray)12:460-461CITY/LOCAL government/communitiesEcorse's [Michigan] grand experiment(Kaza) 12:481-482Growth control and individual liberties(Sandy & Yandell) 2:54-56Letter to the commission (Hellam)1:14-15Making dough in the heartland(Rogers) 11:450-452Monopoly government (DiLorenzo)6:212-216Private cities (Phillips) 3:113-115State funding threatens communitygroups (Schimenz) 4:161Triumph for bootstraps capitalism(Bolick) 10:380-382

INDEX 1989 499COHEN, LloydOf special interest. 5:192-196COMMUNISM. See China; Russia; SocialismCOMPETITIONEveryone can win in a truly competitivemarket (Bock) 4:144-145Sailing the competitive seas (Conerly)1:24-25See also Market processCONERLY, William B.Sailing the competitive seas. 1:24-25CONFESSION of Yevgeni Turchik10:389-391CONSERVATION and the environmentCamping: society in miniature (Gotz)1:22-23Dark side of modern voluntarism(Barniskis) 1:21-22Private property and the environment:two views (Shaw & Hospers) 1:39-41Who is destroying the world's forests?(Rehmke) 11 :436-439CONSUMER sovereigntyForeign capital: friend or foe? (W. H.Peterson) 1:9-13Lessons in a supermarket (Baden &Marotz-Baden) 2:52-53See also Entrepreneurs; Market processCOOPER, Richard A.Argentina at the crossroads. 12:488­491COPING with smoking (Machan) 4:146­147CORDATO, Roy E.Section 89: tax code limits workers'choices. 7:263-264CORPORATIONS. See Big businessCRACKDOWN IN CHINA (PujieZheng) 9:332- 335CRIME AND CONSEQUENCES(Bidinotto)I. 7:252-262; II. 8:294-304;III. 9:340-351CROCKER, C. BrandonShould we stop selling real estate toforeigners? 8:320-321CULP, Christopher L. and Fred L. Smith,Jr.Speculators: Adam Smith revisited.10:383-385DDAM builders (Kuhne) 4:162-163DARK side of modern voluntarism (Barniskis)1:21-22DAVIDSON, Nicholas. See Perspectives,7:250-251; also Readers' forum,7:281-282DEAN, MacabeeIsrael: the road from socialism. 9:361­366DEPOSIT insurance deja vu (Schuler)7:265-269DiLORENZO, ThomasJ.Monopoly government. 6:212-216.See also Readers' forum, 9:369DISASTER reliefHurricane Hugo: price controls hinderrecovery (Shannon) 12:462-463DISCRIMINATIONAffirmative action: a counter-productivepolicy (Pasour) 1:29-31Quality of people and products(Athens) 1:31-32Racism: public and private (Block)1:28-29DRUGS, why a problem? (Leef) 2:57-59DUMPING: an evil or an opportunity?(Huemer) 4:151-154EEBELING, Richard M.See Book reviews (Nisbet [2]; Stigler)ECONOMIC development/progressIslamic capitalism: the Turkish boom(Elliott) 2:74-75ECONOMICS has the answer: what's thequestion? (Opitz) 4:148-150ECORSE'S [Michigan] grand experiment(Kaza) 12:481-482EDSEL, rise and fall of (Young) 9:336­339EDUCATION, public vs. privateWhy public schools fail (Payne) 6:224­225ELLIOTT, NickIslamic capitalism: the Turkish boom.2:74-75The levelers: libertarian revolutionaries.5:185-1891992: which vision for Europe? (Elliott)3:116-121Privatization in Northern Irelandmakingpolitics normal. 9:359-360See also Readers' forum, 8:321-322ENERGYResponding to the oil shock: the U.S.economy since 1973 (Gonzalez &Folsom) 2:62-65ENTRENCHMENT of the state (Hoffman)2:66-68ENTREPRENEURS/entrepreneurshipRise and fall of the Edsel (Young)9:336-339Triumph for bootstraps capitalism(Bolick) 10:380-382Tucker car: did the big guys do it in?(Barger) 1:4-8ENVIRONMENT. See ConservationERSKINE, Thomas (1750-1823): advocateof freedom (Gabb) 7:274-278EUROPE 1992, which vision for? (Elliott)3:116-121EVERYONE can win in a truly competitivemarket (Bock) 4:144-145EWERT, Ken S.The International Monetary Fund.4:155-160Moral criticisms of the market. 3:103­109FFAIRNESS doctrine, R.I.P. (Amador)6:226-231FAMILY life/responsibilityMy family life as a socialist (Bray)12:460-461Population bomb ... defused (Kirkwood)11:441-445Real child care crisis (Phillips) 10:392­393Freedom, coercion, and family size(Huff) 1:26-27FEE ESSAY contest winners. See Beers,9:352-354; Kibbe, 11:431-433FISCHER, III, C. F.My son and the Guatemalan Indians.3:122-123FLEW, AntonyThe artificial inflation of natural rights.12:483-485FOLSOM, Roger Nils (co-author). SeeGonzalezFOREIGN aidWill more dollars save the world? (W.H. Peterson) 12:470-471FOREIGN capital: friend or foe? (W. H.Peterson) 1:9-13FORGOTTEN right of association (D.Hood) 10:406-408FREE market money in coal-miningcommunities (Timberlake) 10:398­405FREEDOM of association, forgottenright (D. Hood) 10:406-408FREEDOM of religionConfession of Yevgeni Turchik (interview)10:389-391Religion in China (Kain) 12:472-476FREEDOM of speechFree speech: an endangered species inIndia (Prasad) 11:434-435Thomas Erskine: advocate of freedom(Gabb) 7:274-278FREEDOM of the seasShipwreck legislation: legality vs.morality (Gentile) 6:217-223FREEDOM, coercion, and family size(Huff) 1:26-27FREEDOM, human, two senses of(Machan) 1:33-37FREEDOM, individual, social consciousnessand (Beers) 9:352-354FRIEDMAN, Milton and Rose D.The tide in the affairs of men. 4:135­143FRUMKIN, Peter. See Book reviews(Bennett & DiLorenzo)FULDA, Joseph S.Myths of the rich man. 2:82-83See also Perspectives, 1:3GGABB,SeanThomas Erskine: advocate of freedom.7:274-278GATT and the alternative of unilateralfree trade (Lemieux) 6:238-243GENTILE, GaryShipwreck legislation: legality vs.morality. 6:217-223GEORGE, Henry. See Perspectives,5:171GERMANYWill more dollars save the world? (W.H. Peterson) 12:470-471GONZALEZ, Rodolfo Alejo, andRoger Nils FolsomResponding to the oil shock: the U.S.economy since 1973. 2:62-65GOTZ, Eugene L.Camping: society in miniature. 1:22-23GOVERNMENT, limitedPopper, Hayek, and classical liberalism(Shearmur) 2:71-73GOVERNMENT businessesIsrael: the road from socialism (Dean)9:361-366Monopoly government (DiLorenzo)6:212-216

500 THE FREEMAN • DECEMBER 1989GOVERNMENT interventionsGray markets and greased pigs (J.Hood) 8:292-293"I'm here to help you" (Pritchard)12:487Making dough in the heartland(Rogers) 11:450-452Where will it all end? (Matthew)5:180-182Who are the problem-solvers? (Payne)5:183-184GOVERNMENT spendingReal meaning of tax loopholes (Payne)4:132-133GRAY markets and greased pigs (J.Hood) 8:292-293GREAVES, Bettina BienHenry Hazlitt: a man for many seasons.11:420-430See also Perspectives, 8:291GROWTH controls and individualliberties(Sandy & Yandell) 2:54-56GRUBBS, K. E., Jr. See Book reviews(Watner)HHAYEK, F. A. - ideas ofPopper, Hayek and classical liberalism(Shearmur) 2:71-73Tide in the affairs of men (M. & R.Friedman) 4:135-143HAZLITT (Henry): a man for many seasons(Greaves) 11:420-430HEILBRONER, Robert. See Perspectives,9:331HELLAM, RobertLetter to the Commission. 1:14-15HELSTROM, Carl. See Book reviews(Bandow); also Perspectives, 6:211HIGH-DEFINITION TV: governmentor market choice? (McGath) 10:386­388HILL, Peter J.Markets and morality. 2:76-79See also Book reviews (Beisner)HISTORIC preservation and privateproperty (Ownby) 8:305-306HOFFMAN, MatthewThe entrenchment of the state. 2:66-68HOOD,DavidThe forgotten right of association.10:406-408HOOD,JohnGray markets and greased pigs. 8:292­293HORNBERGER, Jacob G. See Perspectives,1:3; 2:51; 4:130-131HOSPERS, John, with Jane S. ShawPrivate property and the environment:two views. 1:39-41HOVEY, Michael. See Readers' forum,5:201HOW smart is big brother? (Payne) 3:92­93HUBER, Peter. See Perspectives, 4:131HUEMER, Alex (Friedman essay contestant)Dumping: an evil or an opportunity?4:151-154HUFF, David C.Freedom, coercion, and family size.1:26-27Personal responsibility. 7:272-273HUMMEL, Jeffrey RogersPrivatize deposit insurance. 7:270-271HUNGER and farming in black SouthAfrica (Vorhies) 6:232-237HURRICANE Hugo: price controls hinderrecovery (Shannon) 12:462-463IIDDLES, Alan. See Perspectives, 1:2-3IDEAS/ideologyArgentina at the crossroads (Cooper)12:488-491Levelers: libertarian revolutionaries(Elliott) 5:185-189Tide in the affairs of men (M. & R.Friedman) 4:135-143"I'M HERE to help you" (Pritchard)12:487INDlA, free speech an endangeredspecies (Prasad) 11:434-435INDIVIDUALRIGHTSArtificial inflation of natural rights(Flew) 12:483-485Basic rights and meta-rights (Irvine)12:485-486Coping with smoking (Machan) 4:146­147Forgotten right of association (D.Hood) 10:406-408Levelers: libertarian revolutionaries(Elliott) 5:185-189See also Responsibility, individualINTERNATIONAL Monetary Fund(Ewert) 4:155-160INVISIBLE hand at work (Shaw) 4:134IRELAND, privatization in Northern(Elliott) 9:359-360IRVINE, William B.Basic rights and meta-rights. 12:485­486ISLAMIC capitalism: the Turkish boom(Elliott) 2:74-75ISRAEL: the road from socialism(Dean) 9:361-366JJACKSON, Donald Dale (Smithsonian).See Perspectives, 8:290JONES, RichardTaxation versus efficiency. 2:80-81JUDICIARY system, justiceCrime and consequences (R. J.Bidinotto) 7:252-262; 8:294-304;9:340-351KKAIN, GeoffreyReligion in China. 12;472-476KAMPUCHEA, 1975-1979. See CambodianexperimentKAZA,GregEcorse's [Michigan] grand experiment.12:481-482KENNEDY, D. James. See Perspectives,2:50KIBBE, Matthew B.The unspoken dialogue of the market.11:431-433See also Book reviews (Buchanan;Selgin)KIRKWOOD, R. CortThe population bomb . . . defused.11:441- 445KIRZNER, Israel M. See Book reviews(Smith)KNOWLEDGEUnspoken dialogue of the market(Kibbe) 11:431-433KUHNE,CecilThe dam builders. 4:162-163"Lime": E. B. White and self-reliance.11:440LLABOR, employment, wagesMinimum wage: an unfair advantagefor employers (Boudreaux) 10:396­397Section 89: tax code limits workers'choices. 7:263-264Quality of people and products(Athens) 1:31-32LAND use restrictionsGrowth controls and individualliberties(Sandy & Yandell) 2:54-56See also ConservationLEEF, George C.Why is there a drug problem? 2:57-59See also Book reviews (Huber); Hovey,Readers' forum, 5:201LEMIEUX, PierreGATT and the alternative of unilateralfree trade. 6:238-243Socialized medicine: the Canadian experience.3:96-1ooLEO, John (U. S. News & World Report).See Perspectives, 3:91LESSONS in a supermarket (Baden &Marotz-Baden) 2:52-53LETTER to the Commission (Hellam)1:14-15LEVELERS: libertarian revolutionaries(Elliott) 5:185-189LEVITE, Allan. See Readers' forum,1:38LIBERALISM, classical, Popper, Hayek,and (Shearmur) 2:71-73"LIME": E. B. White and self-reliance(Kuhne) 11:440MMACHAN, TiborR.Coping with smoking. 4:146-147Movie-goers can think for themselves.10:409No vote for the candidate. 11:429-430Scandal at the welfare state. 3:110-112Sports in America. 9:367-368Two senses of human freedom. 1:33-37See also Perspectives, 5:170MAKING dough in the heartland(Rogers) 11:450-452MARKET processHigh-definition TV: government ormarket choice? (McGath) 10:386­388Invisible hand at work (Shaw) 4:134Market for low cholesterol (Walker)11:449Markets and morality (Hill) 2:76-79Moral criticisms of the market (Ewert)3:103-109Racial tensions: the market is the solution(D. Bernstein) 7:279-280

INDEX 1989 501Specialization and exchange (Smiley)10:394-395Unspoken dialogue of the market(Kibbe) 11:431-433See also Consumer sovereignty; Entrepreneurs;Private enterpriseMAROTZ-BADEN, Ramona (co-author)See BadenMARX, Karl-ideas ofTwo senses of human freedom(Machan) 1:33-37MATTHEW, Scott C.Where will it all end? 5:180-182MAUGHMER, G. F. See Perspectives,12:459McGATH, GaryHigh-definition TV: government ormarket choice? 10:386-388McGEE, Robert W. See Book reviewsMEDICAL careBritish way of withholding care(Schwartz) 3:101-102Socialized medicine: the Canadian experience(Lemieux) 3:96-100What is a doctor's relative worth?(Orient) 9:355-358Why deny health care? (Oldham)3:94-95MINIMUM wage: an unfair advantagefor employers (Boudreaux) 10:396­397MONEY/inflationlbankingDeposit insurance deja vu (Schuler)7:265-269Free market money in coal-miningcommunities (Timberlake) 10:398­405International Monetary Fund (Ewert)4:155-160Old banking myths (Sennholz) 5:175­179Privatize deposit insurance (Hummel)7:270-271MONOPOLYMyths of the rich man (Fulda) 2:82-83MONOPOLY government (DiLorenzo)5:212-216MOORE, Wilma. See Perspectives,6:210-211MORALITY/immoralityEconomics has the answer: what's thequestion? (Opitz) 4:148-150Markets and morality (Hill) 2:76-79Moral criticisms of the market (Ewert)3:103-109Social consciousness and individualfreedom (Beers) 9:352-354MOVIE-GOERS can think for themselves(Machan) 10:409MURRAY, Joe. See Perspectives,11:418- 419MY FAMILY life as a socialist (Bray)12:460-461MY SON and the Guatemalan Indians(Fischer) 3:122-123MYASNIKOV, Alexei (Glasnost) SeePerspectives, 9:330-331MYTHS of the rich man (Fulda) 2:82-83NNEW YORK TIMES. See Perspectives,3:91NICHOLS, Sheridan. See Perspectives,5:170-171NIEDERHOFFER, Victor. See Perspectives,8:290-2911992: which vision for Europe? (Elliott)3:116-121NO VOTE for the candidate (Machan)11:429-430oOF SPECIAL interest (Cohen) 5:192-196OIL shock [1973], responding to (Gonzalez& Folsom) 2:62-65OLD banking myths (Sennholz) 5:175­179OLDHAM, Robert K.Why deny health care? 3:94-95OPITZ, Edmund A.Economics has the answer: what's thequestion? 4:148-150ORIENT, Jane M.What is a doctor's relative worth?9:355-358OSTASZEWSKI, KrzysztofSee Readers' forum, 8:322OWNBY, LeePrivate property: in need of historicpreservation. 8:305-306pPAINE, Tom (1737-1809), his revolution(Phillips) 4:164-165PARKS, Lawrence M. See Readers' forum,9:369PASOUR, E. c., Jr.Affirmative action: a counter-productivepolicy. 1:29-31See Book reviews (Luttrell)PAUL, Ellen Frankel. See Readers' forum,7:282PAYNE, James L.How smart is big brother? 3:92-93The real meaning of tax loopholes.4:132-133Who are the problem-solvers? 5:183­184Why public schools fail. 6:224-225PERSONAL responsibility: a brief survey(Huff) 7:272-273PERSPECTIVESAutomotive genius (M. Bernstein)3:90- 91Beyond numbers (J. A. Taylor)10:379Black and white (Hornberger) 1:3China: why the worst got on top (Summers)10:378Control or economic law? (Greaves)8:291The decline of moral consciousness(Hornberger) 2:51Economics and ecology (Baden) 3:90The educational challenge (Nichols)5:170-171Equal rights (Southwick) 10:379Facing the facts (Leo) 3:91The freedom philosophy (Maughmer)12:459The insanity of inflation (Rees-Mogg)2:51Is aid helping prolong the Sudanesewar? (Bateman) 11:418;The Johnstown flood (Jackson) 8:290Justice and charity (Kennedy) 2:50Knowledge of the law is no excuse(Murray) 11:418-419Letter from China (Anonymous)12:458Little tyrannies (Moore) 6:210-211Look around (Simon) 4:130Man alone (Bukovsky) 3:91Message from Moscow (Myasnikov)9:330-331On envy (Russell) 10:379On speculators (Niederhoffer) 8:290­291Property and welfare (Machan) 5:170Protecting the irresponsible (Hornberger)4:130-131Pure socialism (Fulda) 1:3Regulatory chaos (Huber) 4:131Social security (Robbins) 7:251The socialist elite (Iddles) 1:2-3Soviet agriculture (New York Times)3:91The triumph of capitalism (Heilbroner)9:331The uninsured (Summers) 5:171A vital difference (Weidenbaum) 3:91What if ... ? (Helstrom) 6:211What protection teaches (George)5:171Where your mail went (Bovard) 4:131Why the Russians didn't march (Anishchenko)7:251Why the Soviet economy is still introuble (Davidson) 7:250-251The worst polluter (Wald) 10:379PETERSON, Robert A.A tale of two revolutions. 8:313-319PETERSON, William H.Foreign capital: friend or foe? 1:9-13Will more dollars save the world?12:470-471PHILLIPS, J. BrianPrivate cities. 3:113-115Real child care crisis. 10:392-393Tom Paine's revolution. 4:164-165PIKCUNAS, Diane D.China's great leap backward. 12:477­480PIZZA shop, making dough in the heartland(Rogers) 11:450-452POLAND, private enterprise in (Sall)5:197-200POLITICS, political action/corruptionNo vote for the candidate (Machan)11:429-430Scandal at the welfare state (Machan)3:110-112Tide in the affairs of men (M. & R.Friedman) 4:135-143POPPER (Karl), Hayek, and classicalliberalism (Shearmur) 2:71-73POPULATION controVgrowthFreedom, coercion, and family size(Huff) 1:26-27Population bomb . . . defused (Kirkwood)11:441-445PRASAD, Rayasam V.Free speech: an endangered species inIndia. 11:434-435PRICES/pricingHurricane Hugo: price controls hinderrecovery (Shannon) 12:462-463What is a doctor's relative worth?(Orient) 9:355-358PRITCHARD, Stu"I'm here to help you" 12:487PRIVATE cities (Phillips) 3:113-115

502 THE FREEMAN • DECEMBER 1989PRIVATE enterpriseAgainst the creation of wealth(Shenfield) 1:16-20China's great leap backward (Pikcunas)12:477-480Private enterprise in Poland (SaIl)5:197-200Women and the market: are they madefor each other? (Baker) 12:464-469See also Market processPRIVATE propertyPrivate preservation of wildlife: a visitto the South African lowveld (Seijas& Vorhies) 8:307-312Private property: in need of historicpreservation (Ownby) 8:305-306Private property and the environment:two views (Shaw & Hospers) 1:39-41Private property from Soweto toShanghai (Boaz) 11:446-448Shipwreck legislation: legality vs.morality (Gentile) 6:217-223PRIVATIZATIONEcorse's [Michigan1grand experiment(Kaza) 12:481-482Israel: the road from socialism (Dean)9:361-366Private property from Soweto toShanghai (Boaz) 11:446-448Privatize deposit insurance (Hummel)7:270-271PRIVATIZATION in Northern Ireland(Elliott) 9:359-360PROTECTING whom from what?(Ahlstrom) 4:153-154PROTECTION. See Trade barriersPUJIE ZhengCrackdown in China. 9:332-335QQUALITY of people and products(Athens) 1:31-32RRACIAL tensions: the market is the solution(D. Bernstein) 7:279-280RACISM public and private (Block)1:28-29RADIOrrVFairness doctrine, R.I.P. (Amador)6:226-231High-definition TV: government ormarket choice? (McGath) 10:386­388REAL child care crisis (Phillips) 10:392­393REAL meaning of tax loopholes (Payne)4:132-133REES-MOGG, William. See Perspectives,2:51REHMKE, Gregory EWho is destroying the world's forests?11:436-439RELATIVE worth, doctor's? (Orient)9:355-358RELIGION. See Freedom of; alsoMoralityRELIGION in China (Kain) 12:472-476RENT CONTROLWhere will it all end? (Matthew)5:180-182RESPONDING to the oil shock: theU.S. economy since 1973 (Gonzalez& Folsom) 2:62-65RESPONSIBILITY, individual"Lime": E. B. White and self-reliance(Kuhne) 11:440Personal responsibility (Huff) 7:272­273Social consciousness and individualfreedom (Beers) 9:352-354REVOLUTIONSTale of two revolutions (R. A. Peterson)8:313-319Thomas Erskine: advocate of freedom(Gabb) 7:274-278Tom Paine's revolution (Phillips)4:164-165REYNOLDS, Morgan O.The Cambodian experiment in retrospect5:172-174RISE and fall of the Edsel (Young)9:336- 339ROBBINS, Aldona E. See Perspectives,7:251ROBSON, John S. P. See Readers' forum,1:38ROGERS, Ann WeissMaking dough in the heartland 11:450­452RUSSELL, Jim. See Perspectives,10:379RUSSIACambodian experiment in retrospect(Reynolds) 5:172-174Confession of Yevgeni Turchik (interview)10:389-391Entrenchment of the state (Hoffman)2:66-68sSAFARISPrivate preservation of wildlife: a visitto the South African lowveld (Seijas& Vorhies) 8:307-312SAILING the competitive seas (Conerly)1:24-25SALL, BarbaraPrivate enterprise in Poland. 5:197-200See also Readers' forum, 8:322SANDY, Jonathan, and Dirk YandellGrowth controls and individualliberties.2:54-56SAVINGS and loan industry. See MoneySCANDAL at the welfare state(Machan) 3:110-112SCHIMENZ, Robert J.State funding threatens communitygroups. 4:161SCHULER, KurtDeposit insurance deja vu. 7:265-269SCHWARTZ, HarryThe British way of withholding care.3:101-102SCRIP currency/tokens/coinsFree market money in coal-miningcommunities (Timberlake) 10:398­405SECTION 89: tax code limits workers'choices (Cordato) 7:263-264SEIJAS, Nancy and Frank VorhiesPrivate preservation of wildlife: a visitto the South African lowveld. 8:307­312SEMMENS, JohnSee Book reviews (Wildavsky)SENNHOLZ, Hans EOld banking myths. 5:175-179SHANNON, RussellHurricane Hugo: price controls hinderrecovery. 12:462-463See also Book reviews (Morris)SHAW, Jane S.The invisible hand at work. 4:134__and John HospersPrivate property and the environment:two views. 1:39-41SHEARMUR, JeremyPopper, Hayek, and classical liberalism.2:71-73SHENFIELD, ArthurAgainst the creation of wealth: thethreatening tide. 1:16-20SHIPWRECK legislation: legality vs.morality (Gentile) 6:217-223SHOULD we stop selling real estate toforeigners? (Crocker) 8:320-321SIMON, William E. See Perspectives,4:130SMILEY, GeneSpecialization and exchange. 10:394­395SMITH, Adam - ideas ofSpeculators: Adam Smith revisited(Culp & E Smith) 10:383-385Tide in the affairs of men (M. & R.Friedman) 4:135-143SMITH, Fred L., Jr. (co-author). SeeCulp.SMITH,PhilipAt whose expense? 5:190-191SMOKING, coping with (Machan) 4:146­147SOCIAL consciousness and individualfreedom (Beers) 9:352-354SOCIALISMCambodian experiment in retrospect(Reynolds) 5:172-174Hunger and farming in black SouthAfrica (Vorhies) 6:232-237Israel: the road from socialism (Dean)9:361-366Tide in the affairs of men (M. & R.Friedman) 4:135-143SOCIALIZED medicine: the Canadianexperience (Lemieux) 3:96-100SOUTH AFRICAPrivate preservation of wildlife: a visitto the South African lowveld (Seijas& Vorhies) 8:307-312Private property from Soweto toShanghai (Boaz) 11:446-448SOUTHWICK, Kevin. See Perspectives,10:379SPECIAL interest, of (Cohen) 5:192-196SPECIALIZATION, division of laborSpecialization and exchange (Smiley)10:394-395 'Taxation versus efficiency (Jones)2:80-81SPECULATORS: Adam Smith revisited(Culp & E Smith) 10:383-385SPORTSSports in America (Machan) 9:367-368State funding threatens communitygroups (Schimenz) 4:161STATE funding threatens communitygroups (Schimenz) 4:161STATISTICSHow smart is big brother? (Payne)3:92-93STEWART, David M. See Book reviews(Bethell)

SUBSIDIESAtwhose expense? (P. Smith) 5:190­191Real child care crisis (Phillips) 10:392­393State funding threatens communitygroups (Schimenz) 4:161Who is destroying the world's forests?(Rehmke) 11:436-439SUMMERS, Brian. See Perspectives,5:171; 10:378SUPERMARKET, lessons in (Baden &Marotz-Baden) 2:52-53TTALE of two revolutions (R. A. Peterson)8:313-319TAXATIONSection 89: tax code limits workers'choices (Cordato) 7:263-264Tax loopholes, real meaning of(Payne) 4:132-133Taxation versus efficiency (Jones)2:80-81TAYLOR, Jeff A. See Perspectives,10:379TAYLOR, Joan Kennedy. See Book reviews(Murray)TAYLOR, Robert. See Book reviews(Hayek)TELEVISION, high-definition: governmentor market choice? (McGath)10:386-388TIDE in the affairs of men (M. & R.Friedman) 4:135-143TIMBERLAKE, Richard H.Free market money in coal-miningcommunities. 10:398-405TRADE, internationalDumping: an evil or an opportunity?(Huemer) 4:151-154Foreign capital: friend or foe? (W. H.Peterson) 1:9-13GATT and the alternative of unilateralfree trade (Lemieux) 6:238-243Should we stop selling real estate toforeigners? (Crocker) 8:320-321Specialization and exchange (Smiley)10:394-395TRADE barriersBlockading ourselves (Bohanon & VanCott) 2:69-70My son and the Guatemalan Indians(Fischer) 3:122-123Protecting whom from what?(Ahlstrom) 4:153-154TRIUMPH for bootstraps capitalism(Bolick) 10:380-382TUCKER, Jeffrey A. See Book reviews(Cowen); also Readers' forum,8:321TUCKER car: did the big guys do it in?(Barger) 1:4-8TURCHIK, Yevgeni (part-time KGBagent), the confession of (Glasnost).10:389-391TURKISH boom: Islamic capitalism (Elliott)2:74-75TWO senses of human freedom(Machan) 1:33-37uUNITED States historyFree market money in coal-miningcommunities (Timberlake) 10:398­405Tom Paine's revolution (Phillips)4:164-165UNSPOKEN dialogue of the market(Kibbe) 11:431-433vVAN COTT, T. Norman (co-author). SeeBohanonVORHIES, FrankHunger and farming in black SouthAfrica. 6:232-237___ (co-author). See SeijasINDEX 1989 503wWALD, Matthew L. See Perspectives,10:379WALKER, MichaelThe market for low cholesterol. 11:449WATER power, flood control, irrigationDam builders (Kuhne) 4:162-163WEIDENBAUM, Murray. See Perspectives,3:91"WHAT do you want to be?" (M.Bidinotto) 2:60-61WHAT is a doctor's relative worth? (Orient)9:355-358WHERE will it all end? (Matthew)5:180-182WHO are the problem-solvers? (Payne)5:183-184WHO is destroying the world's forests?(Rehmke) 11:436-439WHY deny health care? (Oldham) 3:94­95WHY is there a drug problem? (Leef)2:57- 59WHY public schools fail (Payne) 6:224­225WILDAVSKY, Aaron. See Readers' forum,5:200WILDLIFE, private preservation of: avisit to the South African lowveld(Seijas & Vorhies) 8:307-312WILL more dollars save the world? (W.H. Peterson) 12:470-471WOMEN and the market: are they madefor each other? (Baker) 12:464-469yYANDELL, Dirk (co-author). SeeSandyYOUNG, AnthonyThe rise and fall of the Edsel. 9:336­339zZHENG, PujieCrackdown in China. 9:332-335BOOK REVIEWS(Reviewer's name in parentheses)ADIE, Douglas K. Monopoly mail: privatizingthe U. S. Postal Service(Barger) 7:286-287BANDOW, Doug. Beyond good intentions:a biblical view ofpolitics (Helstrom)5:207-208BEISNER, E. Calvin. Prosperity andpoverty: the compassionate use ofresourcesin a world ofscarcity (Hill)12:493-494BENNETT, James T. & DiLorenzo,Thomas J. Unfair competition: theprofits ofthe nonprofits (Frumkin)9:371-372BETHELL, Tom. The electric windmill:an inadvertent autobiography (Stewart)5:203- 204BLOCK, Walter E. & Walker, MichaelA. Lexicon ofeconomic thought(McGee) 11:454-455BROWNING, Graeme. Ifeverybodybought one shoe: American capitalismin communist China (Beisner) 11:455­456BUCHANAN, James M. Economics:between predictive science and moralphilosophy (Kibbe) 12:494-495CARSON, Clarence. Basic economics(Chamberlain) 1:42-43COWEN, Tyler, ed. The theory ofmarketfailure (Tucker) 7:284-286de SOTO, Hernando. The other path(Chamberlain) 6:244-245DICKMAN, Howard (co-ed.) See PaulDiLORENZO, Thomas J. (co-author)See Bennett

504 THE FREEMAN • DECEMBER 1989EBERSTADT, Nick. The poverty ofcommunism (Chamberlain) 7:283-284EKELUND, Robert B., Jr. & Saurman,David S. Advertising and the marketprocess: a modern economic view(McGee) 6:245-246FITZGERALD, Randall. When governmentgoes private: successful alternativesto public services (McGee) 3:125­127GUNDERSON, Gerald. The wealth creators:an entrepreneurial history oftheUnited States (Chamberlain) 11:453­454GWARTNEY, James D. & Wagner,Richard E., eds. Public choice andconstitutional economics (McGee)1:45-46HANKE, Steve H., ed. Privatizationand development (McGee) 4:167-168HARASZTI, Miklos. The velvet prison:artists under state socialism (Chamberlain)3:124-125HART, Ben. Faith and Freedom: theChristian roots ofAmerican liberty(Chamberlain) 4:166-167HAYEK, F. A. The fatal conceit: the errorsof socialism (R. Taylor) 10:412­414HOLLANDER, Paul. The survival ofthe adversary culture (Chamberlain)12:492-493HOPPE, Hans-Hermann. A theory ofsocialism and capitalism: economics,politics, and ethics (McGee) 9:374­376HUBER, Peter W. Liability: the legalrevolution and its consequences (Leef)5:204-207JOHNSON, Paul. Intellectuals (Chamberlain)9:370-371KELLEY, David. The art ofreasoning(Brown) 3:128LUTTRELL, Clifton B. The high cost offarm welfare (Pasour) 9:373-374MALLOCK, William Hurrell. A criticalexamination ofsocialism (Chamberlain)10:410-411McKENZIE, Richard B. The Americanjob machine (McGee) 7:287-288MELITZ, Jacques, ed. See VinerMORRIS, Jan. Hong Kong (Shannon)10:411-412MURRAY, Charles. In pursuit ofhappinessand good government (J. K. Taylor)1:43-45NASH, George H. The life ofHerbertHoover: the humanitarian, 1914-1917(Chamberlain) 2:84-85NISBET, Robert. The present age:progress and anarchy in modernAmerica (Ebeling) 1:47-48Roosevelt and Stalin: the failedcourtship (Ebeling) 10:414-415PAUL, Ellen Frankel. Equity and gender(Bolick) 2:85-87___ & Howard Dickman, eds. Liberty,property, and the foundations ofthe American constitution (McGee)12:495-497SAURMAN, David S. (co-author) SeeEkelundSELGIN, George A. The theory offreebanking: money supply under competitivenote issue (Kibbe) 2:87-88SINGER, Max. Passage to a humanworld: the dynamics ofcreating globalwealth (Chamberlain) 5:202-203SMITH, T. Alexander. Time and publicpolicy (Kirzner) 8:325-327STIGLER, George J. Memoirs ofan unregulatedeconomist (Ebeling) 8:327­328TOLCHIN, Martin & Susan. Buyinginto America: how foreign money ischanging the face of our nation (W. H.Peterson) 1:9-13VINER, Jacob. Religious thought andeconomic society. Jacques Melitz &Donald Winch, eds. (Chamberlain)8:323-324WAGNER, Richard E. (co-ed.) SeeGwartneyWALKER, Michael A. (co-author) SeeBlockWATNER, Carl. Robert LeFevre: "Truthis not a half-way place" (Grubbs)6:246-248WILDAVSKY, Aaron. Searching forsafety (Semmens) 3:127-128WINCH, Donald, ed. See Viner