the freeman 1979 - foundation for economic education · loopholes," an examination of real...

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FreemanVOL. 29, NO.9. SEPTEMBER 1979

Capital Punishment John Semmens 515How inflation and taxation discourage and prevent the generationof capital for better jobs.

Prices: Guidelines that Work William E. Cage 523Let the market price guide production and consumption; put thecontrols on government spending and inflation.

World in the Grip of an Idea33. Conclusion: Loosening theGrip of the Idea Clarence B. Carson 530

The individual is responsible for tending to his own business andfulfilling his purpose.

Foreign Policy Bettina Bien Greaves 544Private property must be respected and free trade encouraged ifconflicts are to be minimized.

F. A. Hayek: Classical Liberal Thomas W. Hazlett 551A salute to one of the great students and defenders of liberty in ourtime.

The Tiller, the Van, and the Typewriter Ruth B. Alford 563One woman's firm stand against coercive measures that disruptand destroy an advanced market economy.

Book Reviews: 570"Memoirs of a Dissident Publisher" by Henry Regnery"Economics of Public Policy: The Micro View" by John C. Good-man and Edwin G. Dolan

Anyone wishing to communicate with authors may sendfirst-class mail in care of THE FREEMAN for forwarding.

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Copyright, 1979. The Foundation for Economic Education, Inc. Printed in U.S.A.Additional copies, postpaid: 3 for $1.00; 10 or more, 25 cents each.

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Some articles available as reprints at cost; state quantity desired. Permissiongranted to reprint any article from this issue, with appropriate credit except "Prices:Guidelines ThatWork," "World in the Grip of an Idea," and "F. A. Hayek: ClassicalliberaL"

A widely forecast recession did notoccur in 1978. The Carter Administration stood practically alone in itsinsistence that there would be norecession. So, when the year endedwith healthy gains in reported corporate profits there was much rejoicing, right? Well, not quite. It seemsthat while prosperity is a circumstance to be much sought after,profits-one of the symptoms ofprosperity-are a ~~catastrophe" thatthe body politic cannot abide.

There is no rejoicing. Instead, theoccasion serves to stimulate demands for mandatory profit controlsfrom union potentates, while thePresident seems intent on providing

Mr. semmens is an economist for the Arizona Department of Transportation and is studying for anadvanced degree in business administration atArizona State University.

an opportunity for in-houseeconomists to grope for neVi meaningless phrases to describe and defend government economic policy.

The most amazing aspect of thewhole spectacle is that so much inspiration could be generated by anevent which never occurred. Therewas no increase in corporate profitsin 1978. When adjustments aremade to account for the effects ofinflation, net profits actuallydeclined by 4% rather. than increasing by 16%, as the reported figuresseem to imply.l

This discrepancy between reported and real profits is one of theless ambiguous government accomplishments of recent· years. Onthe one hand, a manipulativemonetary policy has facilitated aphantom doubling ofnominal profits

515

516 THE FREEMAN September

over the last decade. On the otherhand, a tax code which makes noprovision for the declining value ofeach dollar, allows the governmentto confiscate ever larger portions ofthe nation's wealth. It is the oldstory ofcrime and punishment. Onlyin this case, while it is an agency ofthe federal government which robsthe holders of money of their purchasing power, the punishment isdished out to the productive sector ofthe society.

Such a policy, though it may betemporarily expedient in the aggrandizement of government power,has significant negative effects onthe general welfare. The progressively worsening bouts of stagflation, with each episode more unnerving than the last, are a manifestation of the future that such a policy portends.

It is possible, one must suppose,that the originators and executors ofthis counterproductive treatment ofbusiness profits are unaware of thedamage wrought or, at least, thatthey discount its seriousness. However, a supposition of this sort mustborder on the absurd, given both theextensive discussion of the issue inacademic and business circles, aswell as recognition of the need towarn investors ofthe distortions to afirm's reported financial conditionevinced by the Securities and Exchange Commission.

In May of 1976 the S.E.C. issued

ASR 190, which required publiclyheld corporations to prepare additional financial statements estimating the impact of inflation on reported financial results. Thus, thebusiness firm's access to equityfinancing is being stymied from allsides. The Internal Revenue Service,ignoring the effects of inflation increating imaginary profits, siphonsoff retained earnings. Meanwhile,the S.E.C., citing the effects of inflation, is warning off would-be investors from providing external sourcesof equity finance.

Since the counterproductive policy persists, despite its absurdity, wemust demonstrate more convincingly its effects and why it is imperative that it be changed.

Suppressed Evidence

The most convincing evidence wewould cite to illustrate the seriousness of the problem is the lack ofprogress in the stock market. TheDow Jones Industrial Average, themost famous of stock price indices,has failed to advance much above1000 in the past ten years. In fact,the DJIA now stands lower than itdid ten years ago. This is in spite ofanear udoubling" ofearnings over thespan.

Customer's men and stock markettouts are not the only ones to bemystified by the ((sick" market.Looked at from the standpoint of the((value" of the assets owned by the

1979 CAPITAL PUNISHMENT 517

firm, it would appear that shares areundervalued. The ratio of marketprice to book value is about half ofwhat it was a decade ago. And sincethe nominal return to equity is approximately the same as it was then(about 12% on the Dow Jones Industrials), the shares must be worthtwice as much, right? Wrong, theshares' price-to-earnings ratios arehalved and the number ofcompanieswhose shares sell for amounts lessthan tangible book value is substantial.

An obvious case of market irrationality, it would seem. Unless,that is, one is willing to consider analternative hypothesis. What if it isnot the market that is out of stepwith reported earnings, but rather,the reported earnings which are outof step with an ~~efficient" market?There are sufficient grounds forsuch a hypothesis in economictheory. At the root of the capitalistictheory of the economy is the presumption that given a reasonablePeriod of time, the market is themost effective and efficient allocatorof resources. Now, if a cost leveladjustment to the reported financialstatements of a sample of firms weremade for the years 1967 through1977 and the resulting figures appeared to more closely conform tothe market value of the shares, thenwould it not be logical to concludethat the sickness is in profits andnot the market?

For the purpose of evaluating theabove hypothesis, ~he earnings andmarket values of the 30 companieswhich now compose the DJIA werecompiled for the ten-year period.Use of these firms is defended on thegrounds that combined they accountfor nearly 15% of the total earningpower of all U.S. non-financial corporations. This is a significant sliceof the total economic pie in thiscountry.

Using an unweighted average ofcommon stock earnings divided byaverage market prices of DJIAshares, we find an apparent rise inrate of return from 6.4% to 10.0%between 1967 and 1977. The returnon common stock, by this measure,has increased substantially. However, if we adjust earnings to reflectthe effects of inflation on the firms'depreciation reserves for long-termassets, an entirely different pictureis revealed. In this case we findvirtually no change in the return oncommon stock. In 1967 the rate was5.2%, while in 1977 the rate was5.4%.

Tortuous Taxation~~As a consequence of the U.S. tax

system, inflation unambiguouslyreduces incentives to undertake newinvestment projects, and· therefore,business investment spending declines."2 It would appear that thechickens of Keynesian monetarymanipulation have come home to


roost. American investors can nolonger be duped into accepting nominal rates of return which conceallower real rates of return.

Despite demagogic rhetoric attacking ttobscene profits" and tttaxloopholes," an examination of realearnings portrays a much differentstory. Even though inflation effectively reduces income, the tax codemakes no allowances for the reduction in real income. As a result, theafter tax return to equity takes abeating. In the last decade real aftertax return to equity dropped by over50%, i.e., from over 10% to under5%. Meanwhile, the effective taxrate on real income has soared toover 70%. Far from escaping ttfair"taxes and piling up ~~windfall" profits, American corporations are beingprogressively bled dry.

This rising effective tax rate hasbeen cited by numerous studies ofthe tax consequences of inflation.The important consequence, ofcourse, has been the powerful disincentive for capital investment thatis created. The real reduction in return that occurs when cash flowscan recover only the original historical cost of fixed assets leads, quitenaturally, to a more negative assessment of investment pay-offs,and therefore, to less investment.

Ostensibly, the accelerated depreciation schedules that the IRS allows are supposed to offset the taxeffects of inflation. While this may

have been an adequate resolution ofthe problem 20 years ago when inflation rates were more modest, itdoes not provide much help today.An article in the Federal ReserveBank ofSt. Louis Review found thatthe presence of a negative inflationeffect was independent of depreciation methods used.3 A similar conclusion was reached by RichardKopcke.4 Whether one used straightline or sum-of-the-years digits depreciation under high inflationrates, the difference was minor, i.e.,with an equipment life of 10 yearsand an inflation rate of 9% per annum, the difference in present valueof the streams ofcash flow under thetwo depreciation methods was only1%.

Neither is the investment taxcredit adequate to overcome thepenalty resulting from taxationbased on historical cost recovery depreciation allowances. A study byParker and Zieha showed that underinflation rates of recent years, evenan investment tax credit of 10% wasnot sufficient to offset the negativeincentives of the basic tax code.5

The Real Crime

A look at the earnings performance of the 30 DJIA companieswill serve to indicate the magnitudeof the disincentives produced by thetaxation and inflation combination.After adjustment for inflation, everycompany has experienced a decline


in return on equity between 1967and 1977. For the entire period,profits were overstated by 29 to 55%,(using weighted and unweightedaverages respectively). A year toyear comparison reveals the growing distortion in reported figures. In1967, nominal earnings were overstated by only 8 to 16%. However,by 1977 nominal earnings wereoverstated by 66 to 116%.

These phantom earnings are, ofcourse, taxed as if they were real. In1977, out ofa pre-tax net income of$39 billion, $28 billion went tocover tax liability, $10 billion waspaid out in dividends, and only $1billion was retained to facilitatecompany growth. The ratio of taxesto real retained earnings in 1977was 28 to 1. For each dollar thesefirms retained for future expanslon,$28 had to be set aside for government consumption. This compares toa calculated ratio of $3 in taxes forevery $1 in retained earnings in1967.

Excessive taxation is the realcatastrophe, not corporate profitsthat are u way too high." The re-tained earnings of the 30 companiesused in this study amounted to lessthan .3% of the total, assets of thesefirms. Since it requires at least$80,000 in real capital (adjusted forthe effects of inflation on replacement costs) to support each job, thetotal employment-generating capacity of these firms from internal

sources was 13,000. If thisphenomenon can be said to be typical, then the total number of jobsthat could be generated by the retained earnings of all U.S. nonfinancial corporations in 1977 wasfewer than 90,000. This equates toan employment growth rate of onetenth of one per cent.

These figures may shed somemuch needed light upon the greatmystery of modern economic orthodoxy: the simultaneous occurrences of high' inflation and unemployment. Keynesian monetarymanipulation assumes that more inflation means less unemployment,and vice versa. This theory reliesheavily on the presumption thatnongovernment investors are dopes.This, of course, is the fatal flaw inthe system. Independent economicactors will seek to protect themselves against the losses resultingfrom investments penalized by inflation.

Job-Creating Programs ConsumeAvailable Capital

The progressively worsening results of monetary ,manipulationhave been compounded by the implementation of various public jobcreating programs. If $80,000 incapital can provide only one job inthe private sector, then $80,000ought to be able to make work for atleast five persons if it is simplyspent by the government on


salaries. Such a simplistic solutionignores the lesson told in the goldengoose fairy tale. Private capitalnormally earns a return in excess ofits cost. Over an extended period,the $80,000 in capital would notonly regenerate itself, but providean increment for the expansion ofthe enterprise and employment. Incontrast, the government programwhich consumes the $80,000 tocreate five jobs is exhausted withinone year. Repeated resort toconsumption-based job creationmust inevitably erode the long-termemployment opportunities of theeconomy.

There can be little question thatinflation and taxation lead to alower rate of capital formation.Output is reduced, but the questionis: by how much? One researchercalled the total social welfare lossresulting from the current taxtreatment of earnings on capitalCCastounding."6 His estimate of theyearly welfare loss was $50 billion.The chief victims of this loss areworking people. The punishment ofcapital and the reduction of returnson capital also reduce the returns onlabor. Consequently, upward mobility and an improving standard ofliving are hampered by the poorreturns on capital investment.These consequences are no less realmerely because they are unintended. Policy makers would do wellto remember this point the next

time they seek to punish corporateUprofiteers."

The persistent reliance on inflationary policies has created whatmay be the most difficult problem toreverse-inflationary psychology.The penalties inflicted on thrift andproductive investment have nurtured an ~~eat, drink and be merry fortomorrow we die" philosophy. It wasKeynes himself who said ~~in thelong run we're all dead." True to hisword, Keynes is dead, leaving therest of us to reap the harvest sownby policies based upon his theories.

The ulong run" of 1935 is heretoday, with all of the distortions anddisincentives that Keynes' early critics predicted. More and more, wesee purchases made in order to avoidhigher prices later. This rush to acquire hard goods increases the proportion of malinvestment. The earlierone commits to a specific investment, the less certain one can be ofthe future. This in itself would tendto lower return on fixed assets, evenwere inflation to be ended.

Further, manpower and resourcesare diverted to nonproductive pursuits. The deterioration of monetaryassets impels an increase in moneyvelocity and paper financial transactions, as firms and individualsseek to minimize cash balances.This creates a demand for financialservices in great excess to whatwould be necessary under a morestable monetary unit. These trans-


actions consume resources thatmight serve more productive ends.In addition, managerial talent mustbe directed, at least in part, towardcoping with the problems of inflation and its tax consequences. Thisdiverts talent from dealing withmatters that could be of more substantive benefit to our materialwell-being.

Possibly the most damaging effectofthe inflation-taxation policy is thedestruction oftruth in both financialreporting and policy discourse. Thedisintegration of the monetary unitgoes a long way toward invalidatingcorporate annual reports. Evenworse, this distortion pollutes theprice system and upsets the balancing and allocating functions performed by this system.

But the lowest blow of all is thecontribution this policy makes to thedeterioration ofpublic policy debate.The whole Uadvantage" of a deliberate provocation of inflation is theelement of deceit based upon theUmoney illusion." The money illusion concept is an illustration ofKeynes' contempt for the intendedvictims ofgovernment manipulationof the money supply. People are notastute enough, Keynes reasoned, toperceive the erosion of purchasingpower in the monetary unit. As longas the nominal dollar amounts oftheir incomes remained unchangedor higher, they would not react toprotect themselves from the effects

of inflation of the money supply.Disciples of this ~~money illusion"

theory attempt to trick the economicunits in society into pursuing actions they would not ordinarily take.This makes dissemblers of our public policy spokesmen. How can apolitical system based upon democratic decision-making operate whenthe citizens must be fed lies as amatter of course in the implementation of national economic policy?One critic even goes so far as toclaim that the whole process is intentionally dishonest-not for thepeople's own good, as apologistsmight argue-but for the expressintent of increasing the government's tax take.7

The Ultimate Punishment

We have examined the effects ofinflation and taxation on corporateprofits. There can be little doubt as tothe negative consequences. Corporate profits are, as a result of inflation, overstated. Since the tax codemakes no allowance for inflation,profits are then overtaxed. Realearnings are substantially reduced.

The penalties against earningsfrom capital investment have, naturally, discouraged such investment.This portends a rather dire futurefor the United States economy. Discouragement of investment shrinksthe capital stock. If the effect on the30 DJIA companies we have examined is representative, then the

522 THE FREEMAN

economic growth capacity of privatebusiness in the United States is lessthan Va of the rate of populationgrowth. If the long-term standard ofliving is to rise, or at least avoid adecline, more capital must becreated. This is precisely what thegovernment's policies on inflationand· taxation are preventing.

Perhaps the.greatest irony of themanipulative monetary policy hasbeen the rising value of that ttbar_barous relic"-,-gold. At the sametime that stock prices and the returnon productive assets have declinedin real· terms, the price of gold hassurged. The inflationary monetarypolicy spawned by Keynesianeconomic theory has done more topromote the resurgence of the Hbarbarous relic" than all hoarders andspeculators could ever have hoped to

achieve. Which only goes to showthat in the long run, crime does notpay. @

-FOOTNOTES-

lU Profits '78-Inflationary Razzle-Dazzle",

Citibank Monthly Economic Letter (Apr.,1979), pp. 5-10.

2John Tatom and James Turley, "Inflationand Taxes: Disincentives· for Capital Formation:' Federal Reserve Bank of St. Louis Review (Jan., 1978), pp. 2-8.

3Ibid.4Richard Kopcke, uThe Decline in Corporate

Profitability," New England Economic Review(May-June, 1978), pp. 36-56.

sJames Parker and Eugene Zieha, "Inflation, Income Taxes and the Incentive for Capital Investment," National Tax Journal (Vol.XXIX, No.2, 1976), pp. 179-189.

6Michael Boskin, uTaxation, Saving, and theRate of Interest," Journal of Political Economy, (Apr., 1978), pp. 3-27.

7Harry Johnson, uA Note on the DishonestGovernment and the Inflation Tax:' Journal ofMonetary Economics (July 1977), pp. 375-377.

IDEAS ON

LIBERTY

Plunder by FraudTHE WORLD is not sufficiently aware of the influence that sophistryexerts over it.

When the rule of the stronger was overthrown, sophistry transferredthe empire to the more subtle, and it would be hard to say which ofthesetwo tyrants has been the more disastrous for mankind.

Men have an immoderate love of pleasure, influence, prestige,power.......in a word, wealth.

And, at the same time, they are driven by a powerful impulse toobtain these· things for themselves at the expense of others.

But these. others, who constitute the public, are impelled no lesspowerfully to keep what they have acquired, provided that they can andthat they know how.

Plunder, which plays such an important role in the affairs of theworld, has but two instruments: force and fraud, and two impediments:courage and knowledge.

FREDERIC BASTIAT, EcolWmic Sophisms

WilDamE.Cage

GUIDELINES©THAT WORK"'-__----------_..1

ONE of the stories handed down overthe years tells how kings used toexecute messengers who broughtbad news. The nobility apparentlythought-literally-that no newswas good news. If only we don'tknow about a catastrophe, it isn'tbad at all!

We can laugh at such an attitudetoday because we realize the importance of information, whether it isgood or bad. The good news tells usthings are going well and the badnews is a call to action. Whether themessenger carries informationabout an earthquake or a shaky financial structure, we respond bytaking helpful and remedial actions.Bad news is no longer cause forbeheading the courier but rather isan alarm that signals that something must be done.

There are those who still take theold view that bad news is somehowthe fault of the messenger who car-

ries that news. Their response toinformation about calamities is toshut down the news service. Theywould rather have the morningnewspaper full of blank pages thanhave the assaults and accidents reported as they happened. Most ofthis crowd-the tthear-no-evil-andtherefore-everything-is-fine" crowd-,.seem to hold public office.

That doesn't mean that the freedom of the press is in jeopardy-notyet, at least. Those who wouldeliminate bad news have a muchbigger target in their sights. Whatthey are aiming at is the biggestcommunications system in theworld.

It may come as a surprise that thissystem is not a broadcasting company, the phone system, nor a publishing company. The world'sbiggest communications systemdoes trillions of dollars of businesseach year but has no paid employ-

523


ees. It doesn't use satellites or microwave towers, and it doesn't evenhave a corporate headquarters.

The Price Network

This communications system isthe network of prices that keeps oureconomy going. Whenever peoplestart buying more of an item, theprice of that item starts going up-asignal to producers to produce more.If a particular skill is needed bybusinesses, the price of people withthat skill (their wage) goes up.Those who have that skill are allocated to that part of the economywhere they are of the most value,and more people are attracted intothat profession or trade as a result ofthe higher wages. If OPEC simplydecides to shut off all oil to ourcountry, we will quickly experiencea massive shift to other energysources-not because the Department of Energy so decrees but rather because oil prices will rise to thepoint that other energy sources become more attractive.

That message system-the pricenetwork-works efficiently night

The biggest communicationssystem in the world ... is thenetwork of prices that keepsour economy going.

and day. When it makes a mistake,it is quickly corrected. It sends thelabor, the natural resources and thefinished goods to the places wherethey are most highly valued. It tellsa businessman when he has made amistake in interpreting consumers'wants and it rewards those who develop new or better ways of solvingproblems. Last year, in the U.S.alone, our price network allocatedover $2 trillion of goods, services,materials and talents-and it allwent smoothly.

The Burden of Inflation

Well, it almost went smoothly.The price network has had an extraburden to bear for the past decadeand especially for the past few years.The extra burden is inflation. To besure, the price system has done itsjob. It has reported to us that thedollar is losing its value, both athome and abroad. At the same timethat the price network was delivering this message it was still havingto simultaneously adjust for changesin people's tastes, technological advances and new products. Thiswould be similar to a juggler havingto keep all of the balls in the airwhile riding a roller coaster!

The price network kept the messages coming despite having to adjust for the extra messages about thevalue of the dollar. Normally, suchfaithful service in the face of overwhelming demands would call for

1979 PRICES: GUIDELINES THAT WORK 525

recognition of and reward formeritorious duty. But the old practice of kings is re-instituted instead.Washington declared that we shouldexecute the messenger who daredreport bad news. Their sensitivity isunderstandable. After all, the badnews was that there were too manydollars in circulation-and that wasthe fault of the Federal Reserve System, a quasi-government agency.

The execution of the messenger isto be voluntary, at least in the beginning. The government asked allof those in the economy to voluntarily ignore the price network. Even ifcustomers have more dollars tospend, producers are not supposed toraise prices more than they haveduring the past couple of years (ac,:,tually, one-half per cent less). Employees are not supposed to be givenwage increases in excess of 7 percent, even if an employer loses hisentire work force to a competitor. Ifcosts are restrained, and prices arerestrained-so goes the Washingtonview-inflation will no longer be aproblem. Let the messenger drink acup of hemlock and there will nolonger be any bad news!

The bad news, of course, will stillbe there. The price network has simply been delivering the messagethat there is an excess supply ofdollars and that the value of thedollar is therefore lower. Now, ifthose excess dollars are still outthere, what will happen if everyone

faithfully follows the wage and pricevoluntary guidelines?

In doing so, we are (voluntarily)executing our economic messenger-the price system. That pricenetwork would otherwise be tellingus that people have lots of dollarsand that they want to spend thosedollars, driving prices up. If pricesand wages are voluntarily restrained, the dollars are still in circulation and the demand for goodsand services still exists. But, underthe guidelines, that dollar demandcannot have an effect on wages andprices (in excess of the guidelines).

The producers in the economymust receive higher prices if theyare to produce more. The only waythat businesses can maintain theirprofit margins is to charge more asinefficiencies creep in with expanded production. But if they cannot-or will not-eharge more, theycannot be expected to produce more.

Maladjustments

So, if everyone were to faithfullyfollow the guidelines, the demandfor more goods would be unmatchedby an increase in the supply of thosegoods. Those items in greatest demand would soon disappear fromstores. Without the price network tobroadcast up-to-the-minute economic news, shortages would begin tocrop up.

But the consumers, thwarted intheir desire for the products in


trade restrictions to be imposed,preventing us from buying Frenchwines, Japanese stereos and German cars.

When we put our price networkout of commission-voluntarilywe implicitly agreed that we wouldresort to some other way to allocatethe available goods and services.Whether we resort to governmentlicenses to buy imported products orcoupons to buy gasoline, or simplythe arbitrary system of first-come,first-served, we will have to use avery inefficient means for dividingup the gross national product. Worseyet, we can expect fewer products tobe available because our domesticcompanies have no incentive to produce more and we won't be able tobuy as much from foreign companies.

greatest demand, will try somethingelse. Second-hand goods, antiques,and all those things not under theguidelines will become popular aspeople seek to get out of dollars andinto something of value! Even asthey spend for such things, though,the dollars are still in circulation inour economy. They may have passedinto the hands of used car dealersand antique store owners, but thedollars are still there.

At some point, if we cannot get theadditional goods and services wewant from our own economy, we aregoing to buy those products fromanother economy. To get foreigngoods, though, we need to haveforeign currency. As we try to purchase goods abroad, offering dollarsto get francs, marks, yen and lira,the value of the dollar will startdownward. We may have done awaywith our own economic messenger Inflation Persists, Despitebut the international price network the Disguisewill quickly send the same report: The inflation problem is still withthere are too many dollars and their us, even if everyone follows thevalue must fall. wage and price guidelines. All that

The U.S. government could hardly we have done is disguise it. If youstand by and let the international want to buy gasoline, you will stillmarkets telegraph such informa- have to pay more for it-except thattion. For a while, our government now the payment will be partly inwill step in and supply the foreign 'cash and partly in a willingness tocurrencies we need to buy foreign get up at 3:00 A.M. to get in line atgoods. But the government's the service station. If you want thatsupply of those currencies is lim- increase in salary you deserve, youited, so the dollar support program will either have to change comcould only have a limited life. Before panies or settle for non-monetaryits demise, we can expect direct _fringe benefits-a new office, more


secretarial help, a fancier phone onyour desk.

Total compliance with the voluntary guidelines does nothing to solvethe problem of inflation. It simplydrives the problem underground.The bad news is still there, andliquidating the messenger doesn'tchange the message.

Ignoring the price network makeslife in a complex economy exceedingly more difficult. Because thedemand for goods and services cannot be expressed entirely in dollars,everyone must learn how each storeor industry operates. We have tofind out when the meat counter receives its daily shipment; when thegas station will be open; whether wehave any friends to whom we canturn to supply what we ·want. Employers must try to keep their. employees without granting wage increases in excess of the guidelinesand figure out how to get the materials needed for production withoutpaying more than the guidelines allow. As the demand for products andlabor will not be satisfied under theguidelines, that demand will seekits own level elsewhere. As theprices of the goods and services notunder the guidelines begin to rise,we can expect governmental restrictions and controls to spread. Importcontrols, restrictions on investmentabroad, credit controls and perhapseven an extension of the guidelinesto used merchandise and individual

wages and salaries are all conceivable.

Difficult as life in that type ofeconomy would be, we could stillmuddle along. Most people probablydon't realize just how difficult lifewould be, for it is widely reportedthat nearly two-thirds of our adultpopulation supports the guidelineapproach to controlling inflation. Ifthere were any reasonable chancethat the guidelines would in factreduce inflation, that support mightbe understandable. However, theonly result that we can expect fromeven complete compliance with theguidelines is a new face for inflation.Instead ofhigher dollar prices, therewill be higher non-dollar prices. Instead of higher wages and salaries,there will be more money spent forredecorated offices with orientalrugs. Instead of buying importedgoods at market prices, we will haveto buy licenses to get those foreigngoods at below-market prices.

Destroying the Messenger

The voluntary. wage and priceguidelines will fail to control inflation because they do nothing to ridus of the cause of inflation. Theguidelines confuse the message andthe messenger.

The cause of inflation .is simplytoo many dollars· available to buytoo few goods and services. Whenthere are too .many dollars relativeto products, the dollar price of those


products will go up. The rising pricesare the result, not the cause. Therising prices are just telling us thatthere are an excessive number ofdollars chasing a scarce amount ofgoods around. Only when an antiinflation policy attacks the rootcause of those excess dollars willinflation be controlled.

The number of dollars--our country's money supply-has increasedabout 6 per cent per year for the past5 years. Prices have increased about6 per cent per year over the sameperiod of time. This close relationship between increases in our nation's money supply and increases inprices has been traced back and verified for as many years as we havedata. So, the immediate cause ofinflation is an excessive increase inthe supply of money. To effectivelycontrol inflation, we must get to thereasons why our money supply hasbeen expanded at such a high rate.

Federal Spending

The basic reason for such excessive monetary expansion is that thefederal government has persisted inspending far more than its income.The gross federal debt has increasedby more than $300 billion in thepast five years. That $300 billionwas borrowed, some of which otherwise would have been available forinvestment in productive facilities.That diversion of funds from privateinvestment to public spending in it-

Guidelines can bring inflationunder control, but they mustbe guidelines to curb federaldeficit spending.

self would reduce productivity andproduce a sluggish economy. But theinflationary forces were unleashedwhen part of that $300 billion ofborrowing was supplied indirectlythrough the Federal Reserve System.

The ((Fed" is the agency that controls the amount of money in theeconomy. When the federal government borrows heavily, the Fed isunder pressure to step in and helpsupply the needed funds. The trouble is that the Fed supplies thosefunds by simply printing moremoney! As those new dollars findtheir way into the economy, unmatched by an increase in goods, theinflation process begins.

The only way to end that inflation, then, is to halt the rapid increase in the supply of money. Butthe only way to curtail the monetaryexpansion is to curtail the deficitspending of the federal government.Guidelines can bring inflation undercontrol, but they must be guidelinesto curb federal deficit spending.Government spending guidelineswill reduce inflation-wage andprice guidelines won't.


The Outlook

Suppose that we continue withthis futile experiment in controllinginflation by wage and price guidelines. What will be the outcome?

First, inflation-in one form oranother-will continue unabated.To the extent that businesses andemployees comply with theguidelines, the inflation will be disguised but nonetheless present. Tothe extent that the guidelines areignored, prices will continue to riseat a rapid rate. If this happens, thereis certainly the possibility thatmandatory wage and price controlswil~ be imposed. If the price networkwon't die through voluntary actions,we will execute it!

Test your memory: what was therate of inflation in August, 1971,just before mandatory price controlswere last instituted? In 1978, consumer prices rose in excess of 9 percent per year, and the average increase over the past 5 years has beenin excess of 6 per cent per year. Ifinflation were to continue at even 8per cent per year, the general pricelevel would double in 9 years!

Now, what was the inflation rateback in 1971? Less than 4 per cent,and it was declining. Comparedwith the present economic conditions, that was a period of stableprices-yet mandatory controls

were imposed on wages and pricesbecause of the rate of inflation!

Mandatory controls will work nobetter than voluntary guidelines inbringing inflation down. Mandatorycontrols will drive more of the inflation into disguise, but they will notget rid of it. To eliminate inflation,there is but one answer, and a simple one at that. Issue guidelines andimpose controls, but aim thoseguidelines and controls at the realcause of inflation-federal deficitspending. Those are the only controls and guidelines that willwork. @

Dr. William E. Cage is aneconomist and administrativeanalyst at Tamko AsphaltProducts, Inc., of Joplin, Missouri. He has also been a universityprofessor and economic consultant.

This article, reprinted hereby permission, was first published as a pamphlet by theUnited States Ind ustrialCouncil Educational Foundation, Home Federal Building,Nashville, Tennessee 37219.Copies of the pamphlet maybe ordered directly from themat $15.00 per 100, $60.00 per1000.

W;rldin thB

grfRQfanIaea,

Clarence B. Carson

33. Conclusion: Looseningthe Grip of the Idea

As this piece is being written thereis a hint of spring in the air. The icehas melted away, and the weatherhas turned mild. A gentle rain hasfallen, preparing the earth for a newseason. A moment ago, I heard abird chirping outside. The sap hasbegun to rise in the trees;· the matteddown grass blades look here andthere as if they might be changingcolor from brown toward green;flowers not yet ready to bloom arenonetheless pushing gently upward

In this series, Dr. Carson examines the connectionbetween Ideology and the revolutions of our timeand traces the impact on several major countriesand the spread of the Ideas and practices aroundthe world.

530

toward the sun. In a few weeks, if Imistake not, tiny green leaves willbe thrusting forth from thebranches of trees, flowers will beblooming, the people will be emerg~

ing joyfully from their winter cocoons. The earth which lately lookedso glum will be suddenly supplied,as it were, with new raiment in anever recurring annual cycle.

Even so, experience teaches thathowever hopefully we anticipate thecoming of spring we should be waryas well. Spring will not be likely toarrive without a great struggle inthe atmosphere. The warm windsblowing up from the south collidetime and again with the cold winds

LOOSENING THE GRIP OF THE IDEA 531

from the north as winter givesground grudgingly to spring. Fromthese collisions there are oftenthunderstorms, heavy rains, floods,high winds, and even tornadoes, themost locally devastating of all natural phenomena. The best things inlife are not free; there is always aprice to pay. Stormy weather is theprice we pay for spring.

But then, on the heels of thesethings there comes a very specialmoment-a few hours, a day, or,when we are lucky, several daysfor all who will attend it. It is a daywhen the sun shines brightly, whenthe last bit ofchill has gone from theair, when the wind has finally blownitselfout and a near stillness is uponthe earth. The fragrance of flowersfills the air, the birds are singing,and animals are at play. It is a timefor sitting or lying under a tree, forstopping the never ending struggle,for drowsing if that should occur, orjust for peaceful contemplation. Atsuch moments, a man may be asnear to peace and a sense of harmony with nature as he gets, a nature against which he has so oftenstruggled. He may feel himself atthe threshold of some great truth.Perhaps he is. It is a time for readingand pondering these words ofJesus:

nAnd why take ye thought for raiment? Consider the lilies of the field,how they grow; they toil not, neither dothey spin:

nAnd yet I say unto you, That even

Solomon in all his glory was not arrayedlike one of these.

uWherefore, if God so clothe the grassof the field, which to day is, and tomorrow is cast into the oven shall he notmuch more clothe you, 0 ye of littlefaith?

((Therefore take no thought, saying,What shall we eat? or, What shall wedrink? or, Wherewithal shall we beclothed?

((But seek ye first the kingdom of God,and his righteousness; and all thesethings shall be added unto yoU."I

A Lesson in Economics

Some of these passages are surelynot to be taken literally. No one issupposed to conclude that becauselilies neither toil nor spin that manneed not do so either. There aresome crucial differences betweenlilies and man. If man were literallyto stop giving thought to what hewould eat, drink, and wear tomorrow, the cupboard would almost certainly be bare. Although the ostensible subject of these passages isfaith, they also contain a lesson ineconomics. A part of the message Iglean from the quotations can bestated in this way. Do not engage invain struggles to accomplish whatyou would do. (The verse which immediately precedes those quotedreads, uWhich of you by takingthought can add one cubit unto hisstature?") Get yourself in accordwith the nature of things. Be right,first, and what is good and desirable


will follow from your efforts. But tograsp the full import of this, it isnecessary to delve into basic economics.

One difference between the lilyand man is that man is totally dependent upon outside sources for hisenergy supply. The lily is not, ofcourse, completely self-containedand self-sufficient. In order to grow,it requires sunlight, water, and certain minerals. The water and minerals it extracts from the soil, andsunlight does the rest. It makes itsown energy-its food supply-by aprocess of photosynthesis. Anotherdifference between man and plant isthat man can think-even to takingthought for the morrow. Andperhaps the most critical difference,man is a moral being-with thecapacity even for seeking righteousness first. It is these differences incombination that give rise to economy, Le., man is energy dependentand energy in usable forms is scarce.He uses his intellect to acquire energy efficiently, and morality prescribes what means are rightfullyavailable to him. Man is mobile, too,and the plant is not; this gives morescope to his efforts at economy.

Household and Market

Economy assumes two forms, andtwo only. There is, first, the economy ofthe household. It may also bethought of as the economy of thefamily, but the term will not serve

in all cases. Not everyone lives in afamily, but everyone has a household, even a tramp who has only acan of beans and a makeshift shelter. The other is the market economy. It can also be thought of as amoney economy, but the term is notquite so inclusive, for it is possible tohave a market without money. Itwould be more precise to call it anexchange economy, but that does notdistinguish it so well from thehousehold economy in which theremay be some elements of exchange.There are those who speak of aninterventionist economy, but so faras intervention holds sway it is notan economy. The same goes for acCplanned" economy. .

There are some similarities between the household and marketeconomies. Exchanges may occur inboth, though exchange is essentialto the market and usually incidentalto the household. Division of laborusually occurs in a household of twoor more people, and always in themarket, or, more precisely, it bringsthe market into being. Each has arightful claim to the title of economy, for each deals with the allocation of scarce resources.

But the differences are much morepronounced than the similarities. Akey difference is that the householdis primary, basic, and fundamental;while the market is secondary andderivative. The household is a center of value; the market is only a

1979 LOOSENING THE GRIP OF THE IDEA 533

utility. The household is a miniaturecommunity; the market is amechanism. Labor is an asset in thehousehold; it is a cost in the market.There are no prices in the householdordinarily; whereas, the prime activity of the market is the determination of prices. The household islocal and limited: its locale circumscribes what can be efficientlyproduced; it is limited to the wantsand productive capacities of itsmembers. Potentially, the market isworld-wide and encompasses thewants and productive capacities ofall the people in the world.

In actuality, we usually encounterthe household intertwined with themarket economy. This can lead tothe conclusion that there is nothingmore to household economy thanwhat is presently described as consumer education, i.e., that it consistsof the most effective means forutilizing the market. On this view,the household tends to become anextension of the market. This reverses the normal relationship,making the market basic and thehousehold contingent. This might beof no great consequence in a freemarket, but when intervention hasproceeded to great lengths such adependence on the market lays thehousehold open to political control.

The modus vivendi of the marketis advantage or gain. Men enter themarket in quest for something different from or better than what they

have. They seek their own advantage by trade. Each person tradingin the market must be assumed to bepursuing his self-interest, else thereis and can be no market. In order tosee this it is necessary only to imagine two people trying to make anexchange with each other in whichneither wants what the other has. Ifan exchange took place, it could onlybe by gift. That would be the practical result, too, of each seeking onlythe well-being of the other. In thefinal analysis, it could only be anexchange for the sake of exchange.

An Assault on the Market

The idea that has the world in itsgrip is an assault on the market.This is so, most basically, because itis an attempt to remove the individual pursuit of self-interest from social relations. If this could be done,there would be no market. But therewould also be no economy whichcould be regulated, controlled, ormanaged. No means would exist forcoordinating or concerting allhuman effort for the supposed common good. In fact, socialism cannotdispense with the market entirely,any more than it can dispense withthe motive of self-interest. It can, asalready noted, level its attack at theindependence of the individual. Thisit does. In doing this, the market, ora truncated version of it, is a prominent and essential means. Organization and numbers, as already dis-


cussed, are the means by which itdoes so.

Gradualists use the market muchmore broadly than do communists.By taking away much of privateproperty, communists remove one ofthe basic conditions of trade. At thesame time, however, they establisha near absolute dependence uponsome sort of market for people to geta livelihood. Thus, while the markethas only an attenuated existence incommunist countries, what there isof it, free or not, is much more important than in gradualist countries.

Intervention to. Grasp Power

Be that as it may, the crucialtheorem for an understanding of theimpact of socialism is this: The morefirmly the grip ofthe idea is fastenedon a people the less the advantage tothe individual of exchanging in themarket. To put it another way, themore government intervenes in,controls, and occupies the market,the less the chance of gain for theindividual in the market. That is notto say that there are not gains to bemade in the hampered market, butthey are gains increasingly to thosein a position to manipulate and usegovernment to effect their gains.That is not an arena for individualsacting alone; it is an arena forgroups, for collectives, for organizations, and for conglomerates-thosewho can mass numbers and organi-

zations so as to grasp the handles ofpower. Such activity is a way of lifein every ((advanced" country in theworld today. In well-run communistcountries, the rulers often perceiveadvantage in favoring groups, butthe flow of power tends to be onedirectional-from the rulers to theruled.

We live in a world in which conditions are rigged against the individual. The market is increasingly riggedagainst him; the penalties thatattend its use increase, and the costsof trading there become prohibitive.Government is rigged against him;it attends almost exclusively to collectives and organizations and concerns itselfonly with matters wherelarge numbers are involved. (Thecourts are a partial exception to this,but predicting court decisions hasbecome an increasingly parlousgame).

The individual appears to be onthe horns of a grotesque dilemma.Either he must operate individuallyin a market rigged against him or hemust become a part of some collective and yield up management ofmany of his affairs to the group. Toput it perhaps too dramatically, itlooks as if the individual must hangalone or be hanged with the collective. That is not a socialist slogan; itis the future toward which socialismleads.

Is there a way out? Let us lookagain to the lilies of the field. There


are· three lessons, at least, to belearned from the lily, or almost anyother plant, for that matter. Theycan be concisely stated this way:

1. Mind your own business.2. Provide for your own sustenance.3. Fulfill yourself.

We know already, of course, that inapplying these lessons we must keepin mind that man differs from a fieldplant in that he is mobile, rational,and moral. The lessons are validbut it does take imagination t~apply them.

One's Own Business

Much of the toiling and spinningthat is going on in the world today isworse than wasted effort; it isobstructive and counter-productive.The attempt to concert all effort-tomanage economies, to fit everyoneinto the effort as a cog in a machine,to project the future from thepast-runs aground on human nature and arouses resistance ratherthan productive effort. The attemptto transform man into an ant can nomore succeed than would an effort tomake a lily into an oak. The biological case against this possibility waswell expressed a while back byAldous Huxley:

In the course of evolution nature hasgone to endless trouble to see that everyindividual is unlike every other individual. We reproduce our kind by bringingthe father's genes into contact with themother's. These hereditary factors may

be combined in an almost infinite number of ways. Physically and mentally,each one of us is unique. Any culturewhich, in the interests of efficiency or inthe name of some political or religiousdogma, seeks to standardize the humanindividual commits an outrage againstman's biological nature.2

The deeper case for the individualprovided by Christianity has already been discussed.

Plants are especially adept atminding their own business. Theyput· down their roots wherever theseed has fallen and reach outwardto such supplies as they can use. Nolily ever poked its petals out andlaunched any such plaint as the following: uWould you look at thissituation! There is too much vegetation, hereabout and too little waterand minerals to go around. Look atthat huge .maple over there. It'sgoing to drain all the water andminerals from the soil. All the liliesneed to get together and see thateach plant gets no more than itsequal share. Moreover, we have gotto do something about the uncontrolled reproduction ofcrabgrass." Itis not that the lilies, considered as aclass, may not have such problems;it is rather that it is no part of theirbusiness to deal with them. Eachlily deals with its own particulardifficulties of getting enough water,minerals, and sunlight.

Loosening the grip' of the ideawhich has us in its hold requires an


emulation of the lily. The idea extends its sway by bidding us conceive of the whole world as our business. A recent civics textbook (usually taught in junior high school)describes a portion ofthe world-wideproblems which confront us thisway:

In 1976 U.N. Secretary-General KurtWaldheim said: uThe problems whichface mankind are common to all nationsand all areas. It is not possible to resolvethem any more by purely national, oreven regional, responses. Slowly we haverealized that we are physically andeconomically interdependent on thisplanet."

What are the world wide problemswhich all nations face? Among them,most scholars agree, are:• poverty and hunger• over-population;• the using up of limited natural resources. ...3

Pitfalls of Vanity, Immorality,and Tyranny

There is Divine warrant for believing that these problems are none ofmy business, that I should. give nothought to them, and am to continueon my way without regard to themorrow. Why? Because, in the firstplace, it is vain to think on suchthings. It is vanity for me, one whoknows not the ends to which a singlechild is born, to speculate about suchmatters as over-population. More,think as I will, I can discern no waygenerally to reduce poverty and

hunger without using up limitednatural resources.

In the second place, thinking onsuch things leads to the contemplation of actions I believe to be wrong.Should the world's goods be redistributed by force? But that would betheft, and Thou Shalt not Steal. Theauthors of the above text suggestthe direction such thought takes:

If people live longer, the populationwill get even larger-unless fewer peopleare born. Should we try to cut the birthrate and work to enable people to livelonger? Should we set an age limit beyond which we would not help people tolive?4

In the third place, tyranny is thelogical conclusion to which· suchthinking leads. Aldous Huxley described it as the Will to Order in thesocial realm and described its process this way:

Here the theoretical reduction of unmanageable multiplicity to comprehensible unity becomes the practical reduction of human diversity to subhumanuniformity, of freedom to servitude. Inpolitics the equivalent of a fully developed scientific theory or philosophicalsystem is a totalitarian dictatorship. Ineconomics, the equivalent of a beautifully composed work of art is thesmoothly running factory in which theworkers are perfectly adjusted to themachines. The Will to Order can maketyrants out of those who merely aspire toclear up a mess. The beauty of tidiness isused as a justification for despotism.5

It would never occur to me to go


about telling my neighbors howmany children they should have.Nor would I think of advising myneighbors to cease all efforts atkeeping the elderly among themalive. Were I to do so, I should mostlikely be told to mind my own business. And rightly so. Yet, once one'smind is bent by the idea that has theworld in its grip, many people experience no difficulty in acceptingthe use of force to compel what theywould hardly think of making efforts to get done voluntarily at thelocal and concrete level. Mindingone's own business is the essentialfirst step in loosening the grip of theidea.

Coercively Involved

But what is one's own business? ASecretary General of the United Nations has said, in effect, that mybusiness is entangled with everyoneelse's business. The peoples on thisplanet ttare physically and economically interdependent," he has said.Let us spell out a little of what maybe meant by this. If my money isbeing taken to pay the hospital feefor an infant being born, how manychildren that family has does become my business. If my gasolinesupply is determined by the actionsof OPEC nations, I am in some measure dependent on them. It is atleast possible that what they do becomes my business: If I buy hospitalization insurance, or au-

tomobile insurance, or any sort ofinsurance, my rates may be determined by the behavior and carelessness of others.

To untangle this web, we needsome distinctions. The distinctionbetween a market economy and aninterventionist economy needs to bemade. The rule in the market economy is quid pro quo. There is asaying regarding legal settlementsthat goes like this: ttLeave nothingon the table." It means that nothingshould be left to be resolved later,that all accounts should be settled.The meaning ofquid pro quo is thatall parties to a transaction have fulfilled their commitments and thatmeasure for measure has been given. Neither owes anything furtherto the other. Such transactions takeplace all the time. I drive up to aservice station and order five dollarsworth of gasoline. The attendantpumps two gallons, or howevermuch it takes to equal five dollars athis prices, I pay five dollars, andthat is that. A quid pro quo has beengiven, and nothing has been left onthe table.

Activity in the market does not, ofitself, entail either dependence orinterdependence. The free market ina money economy is really amechanism for making exchangesby people who retain their independence one of another. Even in contracts where some dependence is established, that dependence is tem-


porary and limited. (CLeaving nothing on the table"· does not mean thatthere may not be obligations to besatisfied in the future. The phrase isused in real estate transactions inwhich there may be warranties running for several years and paymentsto be made for as much as thirty ormore years. It means, rather, .thatall these obligations are specificed,agreed to, and thereby limited.

"Left on the Table"

Government intervention intrudes force into the market. To theextent that force plays a role quidpro quo is not the rule. Indeed, theidea that· has the world in its gripaims to remove quid pro quo fromsocial relations, for quid pro quodepends on the working of individual self-interest just as does themarket itself. In consequence,transactions in the market do tendto establish the kind of dependencethat is unlimited and may well bedescribed as interdependence. Whenforce is used in the market ttsomething is always left on the table."What is ((left on the table" is, at theleast, whatever was extracted byforce. Dependence is established, because the ·transaction is never completed.

Let us take a simple example. Letus return to the service station andthe transaction involving purchaseand delivery of five dollars worth ofgasoline. Something was (Cleft on the

table." The price included a state andFederal gasoline tax. I did not get myfull quid, though he may have gothis quo. In fact, I did not get fivedollars worth of gasoline; I only got$4.40, say. The service stationoperator and I are not quit ofeachother. How he runs his business hasbecome in some measure my business. It has become my concern,though I may not be aware of it, thathe pay the taxes collected into theproper government collection agencies. Beyond that, it becomes myconcern. that the. money is properlyspent on goods or services which isin accord with the law.

Of course, much more than sixtycents was ((left on the table." However much more I had to pay than Iwould have had to pay without thecollusion ofthe OPEC cartel was lefton the table. All the tribute paid totax collectors, union wages, and soforth during the whole of the processof getting gasoline to and from thepump was left on the table. A wholeset of dependencies and interdependencies were entailed in thetransaction, many of which are verymuch·my business.

Self-Supporting

Before going further with thisanalysis, it is in order to return tothe second lesson to be learned fromthe lily-To provide for your ownsustenance. The lily ·is equipped tomake its own food literally by photo-

1979 LOOSENING THE: GRIP OF THE IDEA 539

synthesis. Man is, as already noted,energy dependent. Even SO, man isnormally equipped with the meansfor establishing his independence.His mobility enables him to range in.quest of sources of energy and tomake exchanges with others. Hisrationality enables him to accumulate capital and use tools to providefor himself and his own. His moral··ity enables him to cooperate with.others, to distinguish between whatis his and what belongs to others,and enjoins him to works of charityin aid of those unable to provide forthemselves. That he be responsiblefor himself and fulfill his obligations is a necessary condition of hisindependence as a man.

Man's independence is contingentupon his household economy. It canbe stated simply this way: Man canbe independent to the extent thatand so long as his household con··sumes no more than he has pro··duced. Participation in the marketdoes not fundamentally alter thisaxiom. The market enables individ··uals to specialize by providing themeans for exchanging what surplusthey may have for that of others.Nor do debts which may be con..tracted in the market alter theaxiom; they can only defer for a timethe balancing of accounts. Debts dotend, however, to reduce the inde··pendence of the individual if theyare not counterbalanced with moreor less liquid assets.

An individual may enhance hisindependence in the free market. Bycontrast, when government intervenes to regulate, control, and usethe market for its ends, the individual can lose his independence in themarket. As already indicated, government intervention intertwineseveryone's business with everybodyelse's. Transactions tend to losetheir limited character and to drawthose who engage in them into acontinuum of effects that extend onand on. Rather than augmenting hisindependence in the market, the individual is drawn into a web of dependence and interdependence. Inthese circumstances, the more theindividual depends upon the marketthe less his control over his affairs.

Controlling the Individual

There is another facet to government activity in the market. Governments use the market primarilyas their means of controlling andusing the individual. They collectmost of their taxes there. (In theUnited States, the income tax iscollected, where possible, by the employer, and that is in the markettoo.) They depend upon the marketfor prices on the basis ofwhich taxesare levied. Beyond that, ingradualist countries, most controlsare exercised through the medium ofthe market.

At the present time there are twoways to loosen the grip of the state


on the individual. One is by theconcerted action of peoples to placeconstitutional restraints and limitson governments. My belief is thatthis will only be likely to occur whenthe idea that now has the world inits grip has lost its hold. That doesnot have to occur on a worldwidescale, of course, and if it happens itwill most likely do so country bycountry. I know of no country in theworld where such an event appearsimminent. But when the time isright, those with a will to do so candiscover readily the principles onwhich government should be limited.

But people will be ready for limited government and a free marketonly when they are ready to assumeresponsibility for themselves andtheir own. Silk purses cannot bemade from pig's ears, and freedomcannot be imposed upon a people.Only a people who believe that manis a value will have freedom.. Onlythose who have a high estimate ofman and his potentialities can conceive of it as desirable for him to befree.

The greater our dependence uponothers, the further are we removedfrom freedom. People do not revoltand establish freedom when oppression surpasses tolerable limits. Theylimit governments only when oppression becomes something theyare unwilling to tolerate. Oppression is not a preparation for free-

dom but rather for greater oppression. The way for freedom is prepared by the successful practice ofindividual responsibility. The manwho assumes responsibility for himself and his own is on his way tofreedom, regardless of what othersmay be.

Penalties on Market Activity

The other way to loosen the grip ofthe state, establish individual independence and responsibility, doesnot require concerted actions of people. Where there is private property,it can be done by individuals andfamilies. The way is to rely less andless on the market and more andmore on the household. The household economy is the basic--even thettreal"--economy; the market is onlyan extension of it. It is becomingincreasingly expensive .to use themarket to supply the wants of thehousehold. Social Security taxes, income taxes, sales taxes, importduties, excises, utility companieswith monopoly privileges, international cartels, extortions by organized labor, and so on almost endlessly place heavy penalties on market activity. The division of laborloses much of its advantage as thecost of transport mounts. Moreover,the more the market is regulatedthe less able it is to serve the wantsof the individual.

What I am suggesting is alreadyoccurring as a trend in the United


States. More and. more people arelearning to do-it-themselves, tomaintain and repair their automobiles, to do their plumbing andelectrical work, .to grow some portion of their food, to make theirclothes, to cut hair, and to do a.thousand and one other usefulthings. The more they do for themselves the less they are taxed in.providing for their wants. The moreclosely they come to a household.economy the less is the control ofothers over them.

The potentially valuable impact ofthis turn toward a household econ··omy is the impact it can have onloosening the grip of the idea, too..The idea that has the world in itsgrasp is a grandiose idea. It is onethat casts thought in the frameworkof groups, classes, races, nations,and the world. Those who thinkin .terms of the household economy have already to some extentloosened the grip of the idea. Theyare thinking in terms of producingtheir own goods with the least ex··penditure of the means of produc··tion. That is what economy is about.When the market is' an adjunct totheir economy, they will no doubtuse it.

Fulfill Yourself

The final lesson from the lily isthis: Fulfill yourself. We know whatthat means for a lily. It means todevelop a sturdy stem which can

support its· flowering and productionof seeds. But under the sway of theidea that has the world in its grip weare losing our grasp of what itmeans for a man to fulfill himself.We have well-nigh perfected the science of making machines, but weare on the way· to losing the art ofdeveloping men. This is so becausewe are under the sway of an ideawhich childrenizes the race. It viewsman as a reflex ofclass, race, nation,and the people. Its thrust is to devisea scheme which will provide forthem as· if they were infants andcontrol them as if they were irresponsible children. Beyond that, it isto concert their efforts to provide forthe needs of everyone. It is a plan ofhuman sacrifice. It makes of individual man only a means.

Man fulfills himself by becomingan adult, by developing his faculties,by exercising his skills, by becomingresponsible for himself and his own,by making choices, and by realizinghis potential. Man does not naturally fulfill himselfas does the lily ofthe field. He must be nurtured -as aninfant, trained as a child, educatedas an adolescent, and held responsible for his acts as he grows towardmaturity. The surrounding societymay aid and sustain him throughoutlife. Government has for its task toprotect his life and property.

It is not in derogation ofsociety, oforganizations, or of whatever othergroups there may be that it is ob-


served that they are all adjuncts tothe individual; they are servants notmasters. Man too is a servant at hisbest, but he is at his best only whenhe is serving at his own good willand in ways that he decides.

The Road to Tyranny

It is idle, vain, and potent withdestruction for men to take thoughtfor the morrow of the human race. Itis from such thought that ideologiesare constructed. Such schemes arebut plans for subordinating andsubduing other men to the will ofthose who conceive them. Coordinating economies is an activity beyondthe capacity of any man, and a taskfor which there is no warrant orcommission. Control over others is athing to be shunned, not sought. Thegood parent finds joy in seeing hischild taking over the managementof his own affairs. The successfulparent is humbled by the accomplishments of his offspring, for hesees in them much that could nothave come from him. The effectiveteacher is one whose students surpass his limited conceptions. Anyplan that entails the use of otherswithout their individual consent is apresumption. He who puts such aplan into effect is a tyrant.

The idea that has the world in itsgrip is a promise of eternal springtime. It is a vision ofarriving at thatspecial moment of spring and remaining there forever. It is delusion.

The idea brings destruction in itswake, not the euphoria of springtime. It brings discord, hatred, war,terror, and the massed force of thestate. That is its record. The onlyelement of springtime in the appliedidea is, figuratively, storms, tornadoes, floods, and violent winds.Amidst these, it offers not shelterbut insoluble problems of evergreater dimension.

When storm clouds descend, thetraveler upon the road longs for thesecurity of home. It is a sound instinct. Confronted with elementsbeyond his power to control, he longsfor a mansized place which he canorder and manage. Home has everbeen the sign and symbol of thatplace of refuge. To return to it is areturn to basics, a return to fundamentals, a return to what life isabout. The storm recedes in importance as the returned traveler enters the familiar household.

Such joys of springtime as mancan have come from minding hisown business, providing for himselfand his own, and fulfilling himself.

But what will become of us if wemake these things our primary concern? How will we get all the goodsthat we need or want? Will we not bedrowned in a mass of humanity resulting from over-population? Howwill the hungry be fed? Will we notuse up our limited resources? ~~o yeoflittle faith." ttConsider the lilies ofthe field, how they grow; they toil


not, neither do they spin: And yet Isay unto you, That even Solomon inall his glory was not arrayed likeone of these."

It is for man to put his own housein order, not to order the world. (tButseek ye first the kingdom of God andhis righteousness; and all thesethings shall be added unto you."

Let it be so. @

-FOOTNOTESlMatthew 6:28-31, 33.2Aldous Huxley, Brave New World Revisited

(New York: Harper & Brothers, 1958), p. 26.3Steven Jantzen, Carolyn Jackson, Diana

Reische, and Phillip Parker, Politics and People (New York: Scholastic Book Service, 1977),p.159.

4fbid., p. 172.SHuxley,op. cit., p. 28.

This concludes the series. AnArlington House version ofWorld in the Grip ofan Idea isin the works, and will be dulyannounced in The Freemanand in Notes from FEE just assoon as publication date andprice are known.

ALMOST everybody wants peace andprosperity. Certainly governmentofficials profess a desire to promotepeaceful cooperation among peoplesand they devote much time andenergy to Uinternational relations."Yet almost daily the press, radio andTV report international tensionsin southeast Asia, southern Mrica,the Middle East, Latin America orthe Orient. As human beings are notperfect, possibilities will alwaysexist for mistakes, misunderstandings, disagreements and disputes that could grow into widespread conflicts. So the task of thoseconcerned with foreign policy is two-

Mrs. Greaves, a member of FEE's senior Staff, Is theauthor of Free Market Economics. For many yearsshe has compiled materials for debate students.This essay deals with the subject of the 1979-80 highschool debate resolutions.

544

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./~f

./

fold-(l) to contain local quarrelsand (2) to minimize the possibility ofsuch conflicts in the future.

It is natural for people to tradewith one another. No doubt mencame to understand the advantagesof voluntary transactions long before the dawn of written history.Persuading others to part voluntarily with some good or service, byoffering them something in exchange, was usually easier thandoing battle for it. Certainly it wasfar less dangerous. Barring force,fraud or human error, both partiesto any transaction expect to gainsomething they value more thanwhat they are giving in exchange.Otherwise they would not trade.This is equally true of trades amongfriends or strangers, fellow countrymen or foreigners, small enter-

FOREIGN POLICY 545

prises or large-whether locatednext door to one another or separated by many miles or nationalborders. Trades may be complex, ifintermediate transactions or different national currencies are involved, but the principle remainsthe same. Both parties expect togain from a voluntary transaction.So people who trade with oneanother have both good reason toremain friendly and just cause toresent interferences that hamper orprohibit their trading.

Most consumers care more aboutthe availability, quality and price ofwhat they buy than they do aboutwho makes it or where it comesfrom. If a particular gasoline workswell in their cars, they don't carewhether the oil came from Arabia,Alaska, Venezuela or Algeria. Consumers will buy Taiwanese shirts,Hong· Kong sweaters, Brazilianshoes, German cars, Japaneseradios, or any other foreign good, ifprice and quality suit them. Andsatisfied customers promote goodwill.

Economic Nationalism

It is governments, not consumers,that make national boundaries important. It is governments, not consumers, that create national distinctions and promote economic nationalism, often without intending to doso. A tax on U.S. citizens, not required for protecting lives and prop-

erty or defending the country, increases production costs unnecessarily. Regulations and controls toUprotect" consumers, workers, manufacturers, farmers, miners, truckers, the environment, or any otherspecial interest also raise domesticproduction costs. Benefits to specialgroups-the unemployed, elderly,handicapped, minority enterprisers,or those awarded lucrative government contracts-must be paid for byothers, in taxes or through increasesin the quantity of money which intime hurt everyone. All these programs increase costs and make voluntary transactions more difficultand expensive.

As production costs increase, someproducers find their sales droppingso they must curtail production andreduce their work force. Many persons then believe it even more important to enact special legislation,erect trade barriers or grantgovernment subsidies, to supportthe injured firms and protect themand their workers from foreign competition. But such programs onlyincrease domestic production costsstill more. This further hampers theability of would-be traders to carryout voluntary transactions.

The goal of economic nationalismis to protect domestic producers fromforeign competition. Its proponentswant to preserve a specific pattern ofproduction. They do not understandthe mutuality of trade. They do not


realize that both parties gain from asuccessful voluntary transaction.Nor do they recognize the inevitability of change.

Nothing in·this world stands still.People move~ The wishes of consumers change. Their knowledge is continually shifting. Changes also takeplace in stocks ofavailable resourcesand the most economical places inwhich to produce particular items.Producers, investors and workersshould be free to move about andadjust to these many changes as bestthey can.

Any attempt to maintain, forpolitical reasons, some rigid patternofproduction is bound to faiL Insofaras production is guided by political,rather than economic, motives, itbecomes more expensive and wasteful. When government seeks to reduce dependence on imports and increase national self-sufficiency, consumers must get along with fewergoods and services of lower quality;and their standards of living willdecline.

Foreign Policy Repercussions

Restricting imports by governmentfiat reduces exports also. How canforeigners continue to buy as muchfrom us, if our government restrictstheir opportunities to earn dollarsby selling goods in this country? Themutual gains that come from trading turn traders into friends. Butwhen trading is hindered, ill will

has. a chance to develop. Frustratedwould-be traders look for someone orsomething to blame. Officials of foreign governments become antagonistic to the U.S. government, for theyrealize their producers' sales to thiscountry are hampered by our government's interference. However, fewU.S.citizens blame their governmentfor imposing trade restrictions. Manyeven consider the federal government a benefactor. For when imports and exports decline the federalgovernment often tries to make upfor lost trading opportunities by offering those who are hurt direct orindirect assistance-subsidies, relief, new protective regulations, andso on. But such government programs can never compensate wouldbe traders fully for opportunities forgone, reduced production, and theloss of individual self-respect.

The advocates of free tradepointed out more than a century agothat ttif goods do not cross borders,soldiers will." As fewer exchangestake place across national borders,individuals have fewer opportunities to know and respect oneanother. Antagonism, animosityand enmity among nationals mayarise. We have seen this happen inrecent years-in India and Pakistan, Southeast Asia, the MiddleEast, southern Africa, and elsewhere. Obstacles to the path of trademade transactions across nationalboundaries more and more difficult,

1979 FOREIGN POLICY 547

expensive and infrequent. Thecommon bond which could haveturned their international tradersinto friends was weakened. Thosewho could have helped each otherthrough voluntary transactions hadno cause to come together. They remained strangers and, in time, wereeven led to consider one anotherenemies.

Government intervention, whichbegins by distinguishing betweendomestic and foreign goods and producers, leads in time to a policy ofeconomic nationalism which actively discriminates in favor ofdomestic products to the disadvantage of imported goods. This hurtsnot only foreign producers, whosegoods are excluded from the domestic market. It also harms domesticconsumers and producers. Production costs rise so that fewer goodscan be produced and sold. Withfewer goods and services availablefor everyone, living standards decline.

Localizing Conflicts

The sure way to turn local disputes into widespread conflicts is foroutsiders to interfere. The first stepin that direction often springs froma sincere sympathy on the part ofthe strong for the weak, the ttrich"for the ttpoor," the tthaves" for thetthave nots." Officials of one nationoffer to help defend a weaker country against the threats of stronger

neighboring states. But by takingsides in this way, neutrality isabandoned. No matter how wellintentioned, such government-togovernment economic aid andmutual defense agreements showfavoritism which can lead in time tomilitary actions and wars. Throughu.s. commitments such as NATO,SEATO and SALT, as well as various treaties, pacts and executiveagreements-relating to the MiddleEast, China, Russia, Panama, J apan, various African nations, andmore-we could well become embroiled in local violence or borderdisputes, at almost any instant, almost anywhere in the world.

U.S. involvement in the MiddleEast undoubtedly began with a sincere sympathy for Jewish refugeeswho wanted to establish a homelandin Israel. Our involvement in Vietnam has been traced by some to adesire to help relieve France, whenshe was economically and financially strained by military operations in her colonial Indochineseterritories, so as to persuade her tojoin NATO. ttWe do not plan ourwars; we blunder into them" as history professor Henry Steele Commager has pointed out.

George Washington's advice inhis Farewell Address (September17, 1796) is still sound: u ••• nothingis more essential than that permanent inveterate antipathies againstparticular nations, and passionate


attachments for others should beexcluded, and that in place of themjust and amicable feelings towardall should be cultivated ... Thegreat rule ofconduct for us in regardto foreign nations is, in extendingour commercial relations, to havewith them as little political connection as possible." And similarly,Thomas Jefferson urged cCpeace,commerce, and honest friendshipwith all nations, entangling alliances with none" (First InauguralAddress, March 4, 1801).

U.S. involvement in this centuryin two World Wars as well as Koreaand Vietnam is due to the fact thatU.S. foreign policy has been guidedby precisely the opposite ideas fromthose Washington and Jefferson advocated. To contain local violence, anation should avoid taking the firststep toward abandoning neutralityand playing favorites. Thus, weshould refuse to add to the manyinternational commitments ourcountry is now duty bound to honor.Then we should move toward the

foreign policy recommended by ourthird President-upeace, commerce,and honest friendship with all nations, entangling alliances withnone."

Minimizing Future ConflictsThrough Free Trade

To minimize conflicts in the future we should aim to create a worldin which people are free to buy whatthey want, live and work wherethey choose, and invest and producewhere conditions seem most propitious. There should be unlimitedfreedom for individuals to tradewithin and across national borders,widespread international division oflabor, and worldwide economicinterdependence. Would-be tradersshould encounter no restrictions orbarriers to trade, enacted out of amisguided belief in economic nationalism and the supposed advantages of economic self-sufficiency.Friendships among individuals living in different parts of the worldwould then be reinforced daily

WHEN the baker provides the dentist with bread and the dentistrelieves the baker's toothache, neither the baker nor the dentist isharmed. It is wrong to consider such an exchange of services andthe pillage of the baker's shop by armed gangsters as two manifestations of the same thing. Foreign trade differs from domestic tradeonly in so far as goods and services are exchanged beyond theborderlines separating the territories of two sovereign nations.

LUDWIG VON MISES, Human Action

1979 FOREIGN POLICY 549

through the benefits they reap frombuying and selling with oneanother. Thus a sound basis forpeaceful international relationswould be encouraged.

Individuals should have the rightof national self-determination andeven to shift national politicalboundaries, if they so voted in aplebiscite. For practical andeconomic reasons, a single administrative unit would be sovereignwithin the political borders so established. But this administrative unitwould have to be responsive to thewishes of the people or face beingousted in the next election. It wouldhave to do its best to protect equallythe private property of every inhabitant and to respect the rights ofall individuals within its borders,irrespective of race, religion or language. In such a world, members ofracial, religious or linguisticminorities need have no fear ofpolitical oppression for being different. Any nation which adoptedthese policies at home and in its

relations with other nations wouldhelp to reduce international tensions and so contribute to minimizing future conflicts. But once itbegan to play favorites again-togrant privileges to some to the disadvantage of others, to introducerestrictive controls and regulations-it would be reembarking onthe path that leads to friction andconflicts among individuals, groupsand nations.

World Peace

To maintain peace throughout theworld, the grounds for conflictshould be reduced as much as possible. The first step in this directionmust be to respect and protect private property throughout the world.The ideal would also include complete freedom of trade and freedomof movement. Political boundarieswould no longer be determinedunder threat of military conquest oraggressive economic nationalism,but rather by legal plebiscite, Le.,by vote of the individuals concerned.

WAR is never a handy remedy, which can be taken up and applied byroutine rule. No war which can be avoided is just to the people whohave to carry it on, to say nothing of the enemy..... In the forum ofreason and deliberation war never can be anything but a makeshift,to be regretted; it is the task of the statesman to find rational meansto the same end.

WILLIAM GRAHAM SUMNER, an essayon "War" from The Conquest of theUnited States by Spain and otherEssays

550 THE FREEMAN

In such a world, the nationalsovereignty under which one livedor worked would be relatively immaterial.

Daily news reports certainly indicate that we are a long, long wayfrom approaching this ideal. Programs intended to promote worldpeace often lead in the opposite direction. The various intergovernmental institutions-the UnitedNations and the several regionalpolitical and economic communities-do little or nothing to rejecteconomic nationalism. The debatesand proposals of their representatives reveal little understanding ofthe mutual advantages privatetraders gain from voluntary transactions. They do not even appear toconsider the possibility of leavingtrade to private individuals and enterprises to arrange as they see fit.Rather they continue to delegateimportant powers to variousgovernmental authorities to regulate and control quantities and qualities of imports and/or exports,sometimes even to set minimum· ormaximum prices at which certaincommodities may be traded. In theirdesire to protect various fields ofproduction within their newlyerected borders, they fostereconomic nationalism over geographical areas larger than a singlenation. Thus, although the spokesmen for these multinational organizations sometimes talk of cCfreer

trade," their actions lead to less freetrade.

The foreign policy that wouldminimize future conflicts wouldpromote an economic climate inwhich voluntary trades among private individuals would flourish because private property was protected worldwide. To create such aclimate calls for widespreadeconomic understanding. To maintain it would require eternalvigilance. @

-Bibliography-Bastiat, Frederic. Economic Sophisms. Trans

lated from the French (1851) and edited byArthur Goddard. Irvington-on-Hudson, NewYork 10533: Foundation for Economic Education, Inc., 1964.

Bauer, P. T. Dissent on Development: Studiesand Debates in Development Economics.Cambridge, Massachusetts: Harvard University Press, 1972.

Curtiss, W. M. The Tariff Idea. Irvington-onHudson, New York: Foundation forEconomic Education, Inc., 1953.

Fleming, Harold M. States, Contracts andProgress: Dynamics ofInternational Wealth.Dobbs Ferry, New York 10522: Oceana Publications, Inc., 1960.

Krauss, Melvyn B. The New Protectionism:The Welfare State and International Trade.New York, N.Y. 10003: New York University Press, 1978.

Mises, Ludwig von. The Free and ProsperousCommonwealth: An Exposition of the IdeasofClassical Liberalism. Translated from theGerman (1927) by Ralph Raico. Edited byArthur Goddard. Princeton, New Jersey: D.Van Nostrand Co., Inc., 1962. Reprinted1978 as Liberalism: A Socio-economic Exposition. Kansas City, Missouri: Sheed Andrews& McMeel, Inc.

Thomas W. ·Hazlett

F.A.Hayek:ClassicalLiberal

IF George Will has deemed us ((Inmates of the Twentieth Century,"and Eric Hoffer has decried our timeas ((hectic, soaked with the blood ofinnocents, irrational and absurd,"then it is most fortuitous that wehave the writings ofF. A. Hayek asa refreshing oasis of sanity. Now inhis 80th season, this 3-letter scholar(Ph.D's in law, political science andeconomics) has risen to his mostcommanding position of influence,topped by his receipt of the NobelPrize in Economics (awarded jointlywith Gunnar Myrdal) in 1974. Symbolically, it is cause for great hope

Mr. Hazlett is a doctoral student in economics at theUniversity of California In Los Angeles where he Ison the staff of the International Institute· forEconomic Research.

This article appears here by permission from hisIntroduction to an Interview with 'Professor Hayek,being published as a pamphlet by the IIER.

that when the London Times carriedProfessor Hayek's picture in its May18,1978 issue, they chose to captionit: ((F. A. Hayek: the greatesteconomic philosopher of the age."

It wasn't always so. Least of all inthe eyes of the London Times. AsPatrick Cosgrave wrote in the article adjacent to the photo:

He [Hayek] has lived long enough tosee the twin assumptions he has spenthis career attacking begin seriously tofail in their power of convincing. Thefirst assumption was that greater andgreater intervention by the state in, andgreater and greater control by the stateover, the economic process, was a necessary concomitant of progress, efficiencyand equality. The second was--centralplanning having failed to be efficientthat·greater and greater regulation bythe state of income and rewards wascompatible with individual freedom.

551


His Star Ascenc;lsIt is in the swirling winds of a

turbulent political climate, a climate turning cold to socialism, thatHayek's stock is perking up. And ashis star ascends, much credit is extended to his iconoclastic observations from less friendly times. ttTheengine of Hayek's return to favor,"comments Cosgrave, ttwas inflation,which he had always predictedwould be the inevitable consequenceof the infiltration of Socialist ideasabout social engineering into modern democratic government. It remains to be seen whether his secondprediction-that the failures ofSocialism and socialistically inclined governments lead inevitablyto tyranny-will be allowed to cometrue."

Yet it is coming true-before oureyes, not to ment~on our wallets.Bureaucrats in centralized government offices are today charged withthe authority to dictate who may bepromoted in their jobs according tocertified racial quotas, where children may attend school, what political discussions are engaged in by(private) r"adio and television stations, what prices companies maycharge and what wages laborersmay receive, which artists and social scientists may receive tax subsidies, what parts of the countrymay receive energy supplies madeshort by federal price controls, whatsafety equipment consumers must

add to the cost of their automobile,what medicines a heart patient mayuse in an attempt to save his life,what artificial sweeteners aweight-watcher may add to his dietcola, ad infinitum. What could bemore redundant today than a complaint against arbitrary, unreachable bureaucrats? Citizens increasingly cry out against ttunresponsiveadministrators"-always in a toneof helplessness. But, demagoguesexcluded, who might tell us why it isthat ttyou can't fight city hall"?

In his 1944 best-seller, The Roadto Serfdom,l Hayek forewarns precisely why:

When the government has to decidehow many pigs are to be raised or howmany busses are to be run, which coalmines are to operate, or at what pricesshoes are to be sold, these decisions cannot be deduced from formal principles orsettled for long periods in advance. Theydepend inevitably on the circumstancesof the moment, and, in making suchdecisions, it will always be necessary tobalance one against the other the interests ofvarious persons and groups. In theend somebody's views will have to decidewhose interests are more important; andthese views must become part of the lawof the land, a new distinction of rankwhich the coercive apparatus of government imposes upon the people. (p. 74)

Hayek has inhabited the ivorytower for better than 60 years, yet,

lUniversity of Chicago Press, 5801 EllisAve., Chicago, Ill. 60637.

1979 F. A. HAYEK: CLASSICAL LIBERAL 553

since he gave up on socialism in hisearly twenties, has never beentaken by collectivism's press releases. In quoting Tocqueville inThe Road to Serfdom, Hayek shareswith us the classic analysis of gov-ernment control: .

ctDemocracy extends the sphere of individual freedom," he said in 1848,usocialism restricts it. Democracy attaches all possible value to each man;socialism makes each man a mere agent,a mere number. Democracy andsocialism have nothing in common butone word: equality. But notice the difference: while democracy seeks equality inliberty, socialism seeks equality in restraint and servitude." (p. 25)

While Western nations have, forall intents and purposes, left theidea of Uhot socialism," as Hayekcalls it, they still dance with theseductive political notion of statecontrol in Hhigh priority" socialproblem areas, thus creating a convoluted political compromiseperplexing to socialists and capitalists alike, and leading us into slavery.

Although we have been warned bysome of the greatest political thinkers ofthe nineteenth century, by De Tocqueville and Lord Acton, that socialismmeans slavery, we have steadily movedin the direction of socialism. And nowthat we have seen a new form of slaveryarise before our eyes, we have so completely forgotten the warning that itscarcely occurs to us that the two thingsmay be connected. (p. 13)

And for the cCused-to-be-liberals"who have come to realize that goodintentions are not sufficient to secure good results, Hayek's most important service may be as an advance warning system alerting us towhat may happen when the heart isin the right place but pumping a bittoo fast. cCOnly if we understand,"Hayek explains, CCwhy and how certain kinds of economic controls tendto paralyze the driving forces of afree society, and which kinds ofmeasures are particularly dangerous in this respect, can we hope thatsocial experimentation will not leadus into situations none of us want."(Foreword)

What we should want, in Hayek'sestimation, is a renewed determination to set free the unpredictablecreative juices of individuals. Thisrequires not anarchy, but rather anextension of the Liberal Order, thattradition of government welldefined and clearly limited by theRule of Law. To Hayek, the chiefvictory ofWestern Man has been theremoval of much of government'scoercive power from the realm ofarbitrary whimsical ((public servants," and the subsequent ensuringof a healthy, secure area of socialactivity in which all may take whatever actions they will so long as theyare willing to shoulder the associated costs. In our ascension froma society of status to one of contract, Hayek observes the essential


ingredient of the ttrule of law" asopposed to Uthe rule of man":

The true contrast to a reign ofstatus isthe reign of general and equal laws, ofthe rules which are the same for all, or,we might say, the rules of leges in theoriginal meaning of the Latin word forlaws-leges, that is, as opposed to privileges.

Hence, the legacy of classicalliberalism survives with Hayek.

Hayek and Keynes

"When the definitive history ofeconomic analysis during the nineteen thirties comes to be written, aleading character in the drama (itwas quite a drama) will be ProfessorHayek. ... It is hardly rememberedthat there was a time when the newtheories ofHayek were the principalrival of the new theories of Keynes.Which was right, Keynes or Hayek?"

-Sir John Hicks, 1971 NobelLaureate, t(The Hayek Story" inCritical Essays in MonetaryTheory, Oxford, 1967, p. 203

The 1930s were troublesome,momentous times. For economicthought, they were also awatershed. It was then that thenegative connotation which had always shrouded the term ((govern-ment spending" dissolved, to be replaced by an aroma of high-mindedcivic virtue. While in 1932 FranklinRoosevelt could swing key precinctsby blaming the Depression on Presi-

dent Hoover's profligate federalspending policies, all the successfulpolitical job-seekers of a very fewyears hence were boastfullypromising deficit budgets, governmentemployment and ((stimulatory"policies. This was the KeynesianRevolution.

The academic alibi for the Keynesian Revolution was Lord JohnMaynard Keynes. In his 1936treatise, The General Theory ofInterest, Employment and Money, heoffered theoretical explanations forthe idea that depressions werespawned by insufficient consumerdemand, and vice versa. That is tosay, unemployment is caused by afall in t( aggregate demand" and(taggregate demand" falls as unemployment increases. All of whichleads to a vicious circle of povertyand joblessness.

It was easy for the masses to believe in vicious circles in 1936. Ofcourse, it had always been easy forthe governing class to believe invicious circles (or anything else)that called for them to administerheavy doses of public sector remedies. Such,· as coincidence wouldhave it,was just the Keynesianbromide. The lasting impact of TheGeneral Theory may be viewed as aprescription from the desk of Dr.Keynes, written permission fromthe economic establishment to support the addiction which the political community had been so long try-


ing to acquire. The General Theoryturned a bad habit into ttmedicine."

The treatment? When consumersttdemanded" too little, the government should demand more. Translated into political jive: tax, tax, tax,spend, spend, spend, elect, elect,elect.

"The New Economics"

The governing class receivedKeynes' doctrine with an enthusiasm reserved for great warsand holy crusades. So completelywas the Keynes ttsolution" to unemployment embraced by theacademic and political worlds thattheir master, Lord Keynes himself,was unable to deter the march. AsProfessor Axel Leijonhufvud has recently demonstrated, much of whatpassed for ttKeynesianism" was inconflict with the actual economics ofKeynes.

Yet Hayek kept his head while allabout were gasping over the NewEconomics. Where magical Keynesian potions guaranteed prosperityby paying a million workers to digtrenches and another million to fillthem back in, Hayek never flinched.The world had not been turned on itshead by Lord Keynes or the traumatic 1930s, there remained a world ofscarcity, there was no free lunch. IfHayek appeared crazy to the point ofirrelevance in maintaining these beliefs thirty years ago, he seems quitethe prophet to have had such a track

record today. For in our post-NewEconomics era, where are thosemartyrs who will still boast of government mega-spending to bring useconomic bliss?

As the fashionable designer labelshave fallen from the Keynesian emperor, those disillusioned with thepanaceas of nfine-tuning," ttpump_priming," and ttgovernment stabilization policy" have discoveredHayek anew. The simultaneous appearance of inflation and unemployment-which the crude Keynesian model specifically ruled outhas turned virgin utopianism intopregnant reality. Today people areready to listen when Hayek says,as he wrote in 1975:

The present unemployment is the direct result of the short-sighted ufullemployment policies" we have been pursuing during the last 25 years. This isthe sad truth we must grasp ifwe are notto be led into measures that would makematters only worse. The sooner we cantear ourselves out of the fool's paradisein which we have been living the betterwill be the chance that we can keep theperiod of suffering short. (Full Employment at Any Price?, p. 11)2

Hayek does not, moreover, simplydispense competing panaceas:

I find myself in an unpleasant situation. I had preached for forty years thatthe time to prevent the coming of adepression was in the boom. During the

2Transatlantic Arts, Inc., N. Village Green,Levittown, N.Y. 11756.


boom nobody listened to me. Now peopleagain turn to me and ask how the consequences of a policy of which I had constantly warned can be avoided. I mustwitness the heads of the governments ofall the Western industrial countriespromising their people that they willstop the inflation and preserve fullemployment. But I know that they cannot do this. (p. 15).

The Hayek solution, not in favorwith advisors to political candidates,is straightforward:

What we must now be clear about isthat our aim must be, not the maximumof employment which can be achieved inthe short run, but a Uhigh and stable"(i.e. continuing) level of employment, asone of the wartime British White Papersphrased it. This however we can achieveonly through the re-establishment of aproperly functioning market which, bythe free play of prices and wages, establishes for each sector the correspondenceof supply and demand.

Though it must remain one ofthe chieftasks of monetary policy to prevent widefluctuations in the quantity of money orthe volume of the income stream, theeffect on employment must not be thedominating consideration guiding it. Theprimary aim must again become the stability of the value of money. (p. 27)

Hayek vs. Pseudo-Science

Any discussion of Hayek must include his brilliant attack on themethods of social scientists in general. As a witness to the mushrooming arrogance of felloweconomists, sociologists, and

psychologists to direct human behavior and to control personalchoices and relationships, Hayekhas emerged (along with his closefriend and convert Sir Karl Popper)as a superb critic of the academicprejudice known as cCscientism."

As an unparalleled student of history, the evolution of political ideasand the emergence of social institutions, a fully-armed Hayek has goneto battle for the free will of individuals in their struggle against thetyranny of today's white-coated totalitarians. While B. F. Skinnermay talk about a world CCbeyondfreedom and dignity," where all isplanned to be CCrational" and CCopti_mal" by those who know what thosewords really mean, Hayek understands that nothing can be known tobe either of these things outside ofthe context of free human behavior.((Rational" and ((optimal" are no lesssubjective to Hayek than is ((happiness"; and all attempts to make thehuman experience an objective problem of mere technical equationsolving is at once an intellectualerror and a moral crime.

The crux is that contemporary social thinkers often tend to see liberty as a nuisance. It foils theircalculations and botches their experiments. Hayek is relentless in hisappreciation ofhuman liberty as theinimitable innovator which createsthe very progress which social scientists seek to duplicate and supplant.


Freedom to Hayek is far from anunmanageable, intractable, troublesome variable, but the pervasive determinant for advancement in eachand every compartment ofour sociallife.

Freedom and the SpontaneousOrder of Society

So it is that Hayek championsc<the spontaneous order." Thisstands in contradistinction to thehuman laboratory of B. F. Skinnerand his numerous accomplices. Thespontaneous order is what motivatesthe development of the common law,of language, of manners and customs, of liberal constitutional government, of the competitive marketeconomy. In short, it is the unplanned, unplannable genius ofmenand women just getting along. It isthe fabled uinvisible hand" of socialprogress; it is not reproducible in thesocial alchemist's test tube, no matter the contempt with which hemight regard individual enterprise,creativity and adaptability.

As Arthur Shenfield elaborates:

Scientism is the uncritical applicationof the methods, or of the supposedmethods, of the natural sciences to problems for which they are not apt. In thepresent context it is their application toproblems of human society. Thus it is inits very nature unscientific-an idolatry,not an understanding, of science. AsHayek says, UThe scientistic as distinguished from the scientific view is not an

unprejudiced but a very prejudiced approach which, before it has considered itssubject, claims to know what is the mostappropriate way of investigating it."And what is claimed to be the mostappropriate way turns out to be inappropriate. (Essays on Hayek, p. 63)3

Hayek's intimate contact withthis part of society that His theproduct of human action but not ofhuman design" led him to hisgreatest insights in theoretical economics. Take the idea of a market,for instance. A market sets a priceequating supply and demand for acommodity, and thereby tells thewhole system how much that particular good is worth relative toother scarce resources. This allowseveryone to make their plans accordingly. They can determine howimportant it is to economize on thisgood, or to produce it, or to switch tosubstitute goods. By looking at theprice-determined by the marketthe allocation problem of any good,be it gold, hockey games orGatorade, is solved. Every singleperson may discover how much heshould produce, and how much heshould consume. That, unquestionably, is a paramount advance forsociety.

But the astonishing fact is that noone invented a market. Marketsare not made, they just happen.

3Essays on Hayek by various authors, editedby Fritz Machlup. Hillsdale College, Hillsdale,Mich. 49242.


They are the spontaneous organicresult when individuals who, actingonly in their narrow self-interest,cooperate with each other to satisfytheir diverse needs and aspirations.Freedom allows trial and error totest whatever plans innovators arewilling to chance; self-interestpushes all the rest to imitate theinnovations that work. In preciselythe same manner does the institution of language spring up from thefree flow of individuals just trying tocommunicate for their own purposes; nobody ttbuilds" a language.The ttmacro" conclusion of this((micro" process is· an innovationenormously beneficial to all socialcreatures.

Of similar shock value is therealization that this key illstitutionruns on its own energy source. Noone creates a market, and no oneadministers it after creation. Nocentral agency takes responsibilityfor issuing orders to make sure thatprices equate supply and demand;no one tells consumers or producerswhat their buying and spendingplans should be. From spare parts towatermelons, the irrepressibleforces of supply and demand setprices that automatically create theproper incentives so that theamount demanded will approximatethe amount supplied-without anyone person knowing the whole reason (or anything close to the wholereason) why.

The Socialist ControversyIn thus digging to the roots of our

institutions, economic and otherwise, Hayek extracted his most consequential theoretical discovery:uThe Use of Knowledge in Society."In his famous 1945 paper by thistitle, he demonstrated that the basiceconomic problem in society was tomake the best use of all the information available for satisfying ourwants. The unique, over-riding feature of this economic information,however, is that ttthe knowledge ofthe circumstances of which we mustmake use never exists in concentrated or integrated form but solelyas the dispersed bits of incompleteand frequently contradictory knowledge which all the separate individuals possess." (Individualism andEconomic Order, p. 77)4

While people are accustomed tothinking of uinformation" in a technical sense, like how to get oil out ofthe ground or how to manufacturesteel, such scientific knowledge isactually closer to background musicfor purposes of enhancing our material well-being. If prosperity simplyrequired proper engineering, afterall, Soviet Russia (or the U.S. PostOffice) would work. Hayek showedthat the most essential economicttfacts" are tiny bits of informationuof time and place."

"Gateway Editions, Ltd. Box 207, SouthBend, Ind. 46624.


Central administration ofeconomic activity must lose this special, individualized information.Bureaucratic offices have tremendous resources to obtain general information such as statistics, opinionpolls, and econometric models aswell as technical, scientific data.But bureaucrats are helpless tomake the best use of all this precisely because they have no way tocapture specifzc bits of informationas to what individuals may do tocontribute. And it is the individualconsumer, producer, worker orentrepreneur who must actuallymake choices and perform the work.

The result is that if central planners make economic decisions from((above" without the contributions ofthese individuals directly involved,the system has lost an incrediblesum of knowledge. The attempt toUcontrol" economic affairs by centralplanning ends up creating a systemwherein less knowledge is utilized,precisely the opposite we haduplanned." Centralized directioning,in addition to transferring powerover decisions from individuals tobureaucrats, creates a loss of efficiency and thereby a wealth reduction for the society as a whole.Hayek details:

Today it is almost heresy to suggestthat scientific knowledge is not the sumof all knowledge. But a little reflectionwill show that there is beyond question abody of very important but unorganized

knowledge of general rules: the knowledge of time and place. It is with respectto this that practically every individualhas some advantage over all others because he possesses unique information ofwhich beneficial use might be made, butof which use can be made only if thedecisions depending on it are left to himor are made with his active co-operation.We need to remember only how much wehave to learn in any occupation after wehave completed our theoretical training,how big a part of our working life wespend learning particular jobs, and howvaluable an asset in all walks of life isknowledge of people, or local conditions,and of special circumstances. To know ofand put to use a machine not fullyemployed, or somebody's skill whichcould be better utilized, or to be aware.ofa surplus stock which can be drawn uponduring an interruption of supplies, issocially quite as useful as the knowledgeof better alternative techniques. Theshipper who earns his living from usingotherwise empty or half-filled trampsteamers, or the estate agent whosewhole knowledge is almost exclusivelyone of temporary opportunities, or thearbitrageur who gains from local differences of commodity prices-are all performing eminently useful functionsbased on special knowledge of circumstances of the fleeting moment notknown to others. (Individualism andEconomic Order, p. BO)

And so we see the ultimate wisdom of human beings acting freelywith no direction save self-interestin what might naively appear asuseless, wasteful activities. Thisbrings us full circle on the Hayek


globe, for in understanding thevalue of individual knowledge andenterprise in the economic sphere,Hayek is able to blend the interestsof both our material wants andspiritual yearnings. Liberty doesn'ttrade for prosperity. On the contrary: Freedom works. This becameHayek's enduring contribution, stillin effect, to the so-called ((SocialistControversy."

Social Philosophy at Its Best

What remains to be reported,happily, is that there is more toHayek than brilliant scholarshipand an admirable attachment tohuman freedom. Here is a moving,delightful expositor of the tide ofman's affairs; a writer who mayburst an explosive social theorywithout the simultaneous burstingof your patience. Hayek's forte isclarity. His gift is an awesome graspof logic. So powerfully does hethrust his reader from premise toconclusion that the inevitable destination is accompanied with an irrepressible passion for ideas. It is theway social· philosophy should bedone.

Arthur Shenfield writes of hisreaction to three of Hayek's articlesin Economica (1942-44) introducinghim to the author by way of the drytopic of UScientism and the Study ofSociety."

When I read them I became stout Cortez (or Balboa) on his peak in Darien. To

this day I remember the tingling excitement which they evoked in me. Sincethen, the roll call of Hayek's works on thefundamental problems of society arousesin those who grasp their message a peakof admiration which is now familiar.

This striking sort of impression iswitnessed in scores of cases. LordKeynes was Udeeply moved" byHayek's Road to Serfdom. And Patrick Cosgrave couldn't avoid notingthat ((there is an Arctic ruthlessnessabout his brilliant logic whichseems, most of the time, to refusehouseroom to the ... warm-heartedschemes for human improvement bygovernment action which haveparaded themselves in dazzling succession before our bewildered eyes."

A Scholar in ManyFields of Knowledge

Hayek's tremendous breadth as ascholar is surely a factor in his persuasiveness. He has indeed lived upto his impersonal observation that((he who is only an economist cannotbe a good economist." His academicwritings grace every topic from lawto sociology to philosophy, not tomention economics, history, or politics. One of his great thrills, heclaims, was to recently learn that awell regarded college in Pennsylvania was assigning his 1950 The Sensory Order in a psychology class.When he taught at the University ofChicago (1950-1962) one of hisduties as Professor of Social and


Moral Science was to conduct aweekly seminar of Ustaggeringcatholicity," according to ShirleyRobin Letwin. The group includedtwo nuclear physicists, one a NobelPrize winner; ttan Irish classicist,completely master of Shakespeare,Gibbon or Tolstoy, as of Sophocles,Plato and Thucydides;" a FrenchThomist; the two most eminentChicago School economists, bothworld-famous; tt a classical archeologist ... the author of TheGothic Cathedral and the author ofThe Lonely Crowd as well as theinventor of the tfolk society.' "

As Dr. Letwin describes:

Hayek presided over this remarkablecompany with a gentle rectitude thatmade his seminar an exercise in theliberal virtues. Every remark, howeverfatuous, no matter how obscure or youngthe speaker, was heard to the very endwith a respect that the weaker membersfound· maddening. The general subjectwas liberalism and no one was in anydoubt about Hayek's convictions. Butstudents who hoped to shine by discovering apostasy to an official creed learnedto seek other paths to glory. Hunting forthe holy grail was definitely out oforder.The seminar was a conversation with theliving and the dead, ancient and modern;the only obligation was to enter into thethoughts of others with fidelity and toaccept questions and dissent gracefully.<Essays on Hayek, p. 148)

As history remembers Hayek itwill be told that his great quest wasto ask why liberty is so slippery to

our grasp. While other current social scientists have devoted their research to discovering programs toreplace free and spontaneous humaninteractions by imposed ttscientific"solutions, Hayek has prowled aboutto find why classical liberalism,which has given Western Man sovery much, is being cashed in for astatism which promises neitherpeace nor freedom. Nor, most obviously, prosperity. In fact, socialist,real-world experience has been sobitterly painful that those contemporary reformers who clamor for increased state intervention have givenup the pretense that such controlscan give us more than free marketsand free men. Instead they arguethat material well-being andeconomic improvement are memories gone by and that the futureholds a more modest portfolio. Thatthe government will be in charge ofchoosing this portfolio helps to guarantee the claim, so that the confident prophecy is self-fulfilling andrecyclable.

Yet, for those who would ratherlook to a future which offers libertyfor the oppressed and progress forthe poor, there can be no betterresource guide than the writings ofF. A. Hayek. His fine and sensitivetouch with the subtlest workings ofhuman (and humane) civilizationwill sprinkle us with understandingfor millennia to come.

It is, of course, juvenile to debate

562 THE FREEMAN

any scholar's place in history's archives, particularly when we arestill blessed to have him among us.Yet, what can safely be claimed isthat if the generations to follow arelucky-very lucky-it will come to

pass that our Twentieth Centurywas not the age of the Hitlers, theStalins and Mao Tse-tungs; butrather the time of the Einsteins, theSolzhenitsyns, and the Friedrichvon Hayeks. li

WHAT is threatened by our present political trends is not justeconomic prosperity, not just our comfort, or the rate of economicgrowth. It is very much more. It is what I mean by the phrase "ourcivilization." Modern man prides himself that he has built thatcivilization as if in doing so he had carried out a plan which he hadbefore formed in his mind. The fact is, of course, that if at any pointof the past man had mapped out his future on the basis of thethen-existing knowledge and then followed this plan, we would notbe where we are. We would not only be much poorer, we would notonly be less wise, but we would also be less gentle, less moral; in factwe would still have brutally to fight each other for our very lives. Weowe the fact that not only our knowledge has grown, but also our morals have improved-and I think they have improved, and especiallythat the concern for our neighbor has increased----not to anybody planning for such a development, but to the fact that in an essentially freesociety certain trends have prevailed because they made for apeaceful, orderly, and progressive society.

This process of growth to which we owe the emergence of what wenow most value, including the growth of the very values we nowhold, is today often presented as if it were something not worthy of areasonable being, because it was not guided by a clear design ofwhat men were aiming at. But our civilization is indeed largely anunforeseen and unintended outcome of our submitting to moral andlegal rules which were never "invented" with such a result in mind,but which grew because those societies which developed thempiecemeal prevailed at every step over other groups which followeddifferent rules, less conducive to the growth of civilization.

F. A. HAYEK, remarks in What's Past IsPrologue, 1968

The Tiller, the Van,and the Typewriter

Ruth B. Alford

WHEN the union moved into theuniversity where I worked (movedin, may I say, by hook and by crook),I looked down the road and foresawa collision course. So, on the side, Imade plans.

I had already bought and joyfullyused a genuine six-horsepowerelectric-start Troy-bilt rototillerwith excellent results in my owngarden. Could I, at my age, tillgardens for others for money? Icould try.

But how to get the tiller from hereto there?

I studied the problem of trailersversus vans versus pickup trucksfrom front to back and back to frontand sideways to see what was bestfor me. I decided, in the end, on avan. It would transport the tillerand anything else I wanted, plus

providing me with a camper fortraveling. You can get from frontseat to rear, or vice versa, in a van,without ever stepping outdoors, aprudent thought if you should landin rough company and need to getaway.

Further, if the economy shouldcontinue its downward plunge, thevan could even provide desperationhousing.

I invested in a van. Just about thetime it came, so did the first strike.Not in favor, yet in sympathy withmy friends, I did not picket but Irespected the lines and stayed out. Iput an ad in the paper and got outthere and tilled gardens.

There was usually a look of apprehension as a gray-haired grandmother wheeled up and unloadedher tiller. But as the earth pul-

563


verized to a remarkably workableconsistency, and no heart attacksseemed imminent, the customers relaxed and were delighted. Most paidin cash. One person paid an equivalent amount in meat from herfreezer-most welcome.

The strike was settled. Work resumed. Then I was told that I musteither join the union and pay dues ornot join and pay dues anyway (dueto an agency agreement). In my ignorance, before then I had not evenheard of ttagency shop." What! I wasoutraged. Pay to keep the job I lovedand had essentially created! Pay fora service I neither needed norwanted! Pay protection money!

No! I set my grandmotherly heelsand said, ttO.K. Do your worst."

Time passed. I made a third investment, a typewriter-a sturdy,upright model that could be usedanywhere, electricity or not. Off andon over the years I had been writing,occasionally selling. I hoped to do alot more of both.

So, when the union cracked thewhip, I was ready.

Let me diverge here, to say justwhy I opposed the union's demands.I'll try not to go on too long about it,but if you are to understand why Itook such a strong stand, I have toexplain the situation.

Many people join the union, notthinking too much about it, as itseems the only reasonable thing todo at the time. I read the pledge

card, all the fine print, and was notabout to sign that-to pledge myhonor equally to the union and tothe United States of America; tosign over to the union the sole rightto represent me in any and all matters relating to my employment; toswear not to divulge any of the secret proceedings of the union (whatif I were a member and had a disagreement with union policies?); toagree that, should I resign from theunion I would automatically lose myjob. Not only did I refuse to join, Irefused to pay to the support of anorganization which exacted such apledge.

Union promoters say over andover again that those who share inthe benefits should share in thecost-hence ttagency shop" agreements. What if the union does notbring benefits? Money is not everything on ajob. It had been my observation that when a union comes in,strikes inevitably follow. I don't likethe method. My way of gettingahead on a job, which has certainlyalways been effective, has been toconsider that I am there to get thework done. The result of strikes isdisruption of necessary work,polarization of employer and employees, antagonism between employees, regimentation and virtualloss of merit pay, and loss of incomeboth to individuals and to the community at large.

It is my strong contention that

1979 THE TILLER, THE VAN, AND THE TYPEWRITER 565

anyone should be able to join aunion, even to strike if they so wish,but not be able to force others to dothe same. The right to join must bebalanced by the right not to join-orto pay.

There. That sums up my position.

The crisis came in the fall. I hadbeen receiving epistles from theunion which I mentally, if not actually, threw in the wastebasket. Iassumed I was working for the university. On September 15 I wascalled to the personnel office andtold to pay up or be ((terminated" onSeptember 21. Six days' notice!

I was stunned. Six days to phasedown a complex operation!

My work was as curator (a sort oflibrarian) of preserved plant and insect collections. These specimenshad been assembled over the years,some being a hundred years old, andwere a most valuable record of theplants and insects of different areas.There they were, not just a pictureor description of a given plant orinsect, subject to the artist or author's error, but the actual organism, always capable of beingtaken out and restudied. The specimens were used in teaching, in research, and as historical vouchers.Because it was a relatively smallcollection (about 20,000 plants), andI was the only worker, I did a varietyof tasks-collecting, pressingplants, pinning insects, mounting,

cataloguing, making up specialteaching mounts, assembling displays for classes on request.

All that, clubbed down in six days,solely because I could not in conscience pay to an organization whichintervened between me and my employer!

Well, I had been terminated.What now?

Back to my three allies, the tiller,the van, and the typewriter. I tilledgardens. I baby-sat. I typed furiously, completing a book and someshorter works. I balanced throughthe winter on half-time employmentelsewhere-that bitter winter of1976-1977. I acquired another responsibility: My eighty-nine-yearold mother came to live with me, Ibeing the only child who was athome enough to have her. While Iwas at it, I completed the requirements for my M.S. in biology.

Came the spring. Time for decision.

I had one more security, a majorone. Several years earlier I hadseized the opportunity to buy asmall farmhouse and farm in Michigan's Upper Peninsula. I had alwaysplanned to move north one day, aftergiving adequate notice to the university (six months to a year) andturning the work over to a successorin orderly fashion.

I weighed all the factors: mymother, who needed increasing care;my ambition to write; my refusal to


work any place where I must join aunion; the rising cost of living inAnn Arbor, where half-time workwas not enough to keep my headabove water; my love for the northcountry. On the negative side: moving away from friends and family(but they could come to visit); thehazards of no certain income. Theanswer, I decided, was to movenorth, to take my chances on mywriting, to consolidate everything inone grand effort.

Then followed the exhaustion ofpacking and sorting, of selling off, ofbreaking the myriad threads-getting change ofaddress cards fromthe post office; phoning the gas company, the telephone company, theEdison. Saying goodbye to friends.Be sure to write. Yes, of course, I'llwrite.

When I moved to the farm, I wentin faith and hope and terror. There Iwould be, launching into the unknown. I alone would be responsiblefor plumbing, repairs, gettingaround in the severe winters. Nofamily nor close friends would livenear.

We came on Memorial Dayweekend, by U-Haul. Two sonsdrove the truck up and unpackedeverything, while I drove moreslowly, bringing my mother. Smallgranddaughter came along for theride. A week before the move I wassure of only one person to help withthe loading. On the day, eleven peo-

pIe appeared and packed and loadedme out of there.

It has been like that all the way. Iwould set my sights on somethingand work toward it and somehow,incredibly, it would work out. I'veforgotten who said it: uThe steps offaith fall on the seeming void andfind the rock beneath."

There we were.Chaos.As soon as I had a narrow channel

cleared from sink· .to stove to refrigerator, I set up the typewriter inmy bedroom/office, and tilled andplanted the garden. Life was goingto be frugal, and every carrot wouldcount.

There was, to begin with, a commission to write a booklet on plantcollecting and preservation for abiological supply company--a goodsolid commission. That was firstwriting priority. Every day I p~t inat least four hours at the typewriter. The rest of the day I unpacked, sorted, cooked, cleaned, gardened, made repairs.

At first the electric pump did notwork, so I pumped and carried fromthe hand-operated one in theyard--marvelous for exercise. Wehave excellent fall-back systemshere. If the electric pump (now installed) does not work, I just take abucket and go out and get water.The kitchen range burns wood inone end but also has electric burners. The main heat comes from an


oil space~heater.Ifthat goes out, thekitchen range will hold off the cold.If the drains freeze or otherwise stopup, there is a wooden privy beyondthe windbreak. The electric waterheater did freeze last winter, but weheat water on top ofthe stove or elseuse the sauna-the most efficient,warmest, most civilized way everdevised to take a bath in a coldclimate.

Repair of the electric pump and ofa crumbling foundation neatlycleaned out the savings account.Since then I have existed on a seriesof fortuitous money sources: the saleof the plant-collecting booklet; a fewdays' work back at the university,instructing my successor; a completely unexpected gift from my sister; ~epayment of a long-standingloan.

The garden was not the greatest,but I utilized every vegetable thatreared its head, and canned andfroze vegetables and fruit fromthere, from gifts from visitingfriends, and from purchases. I havestudied the gardens of myneighbors, learning much, so thatnext year that department shouldshow improvement. Perennial fruitsand vegetables already started areasparagus, strawberries, red andblack 'raspberries, rhubarb, multiplier onions, Hansen bush cherries,and apples.

To improve the garden soil, everydrop of dishwater, with its phos-

phates and bits of refuse, as well asthe wood ashes and every scrap ofgarbage, go on the garden. Also twolovely loads ofmanure were applied.The tiller will churn the soil deeperand deeper as time goes on, makingthe garden better each year.

Just living, day by day, has been arich experience. The air here is freshand sharp, the sky a brilliant blue,with white clouds like great puffs ofsteam moving in off Lake Superior.Clouds·of birds utilize the evergreenwindbreak for nesting in summer.One day I counted twenty-eightswallows, mixed barn and tree swallows, on the electric wires. My yard,in May, is starred with blueforget-me-nots. The roadsides are ariot of wildflowers all summer--{)xeye daisies, yellow buttercups,orange hawkweed, pink and whitemallows, white everlastings andyarrow. Later goldenrod and tansyand the varied blues of asters signalthe approach of fall. The cooler season transfigures the landscape inlate September and early October,and even after the peak of the redmaples against yellow poplar andgreen conifers passes, there is amuted succession of smallersplashes of color. In mid November(rather late this year) the snowbegan to fall, a beautiful, cleansnow, .piling to drifts a foot deep thefirst snowfall. Since then it hassnowed nearly every day. The placelooks like a Christmas card, with


the little farmhouse set against theforest green of spruce and pine.

Each day I go out and use myingenious Finnish snow scoop. Imagine a squarish, galvanized metalscoop, on runners which extend upward to form handles. You never liftthe snow; you push it, dumping it offthe scoop in some un-walked spot. Ican make paths all over the yardand never puff.

My new neighbors have been unbelievably kind, helping me with allsorts of problems, from lifting heavythings (like the new oil heater), toselling me good cord wood at a modest price, to giving me precious practical advice. uThere's going to be afrost tonight [mid-August], bettercover the garden."

Out came odd tubs, bedspreads,rugs, even cardboard, to cover thetender tomatoes, squash, beans, andcucumbers for that night and sixsubsequent nights, after which theweather warmed up again and allwas saved.

Snowshoes were a going-awaypresent. I've tried them and theywork! No particular effort. Justdon't try to tum too rapidly, andthink like a duck. Some women nearhere go on showshoe hikes. I'll trythat some day, when I have a companion to stay with my mother.

My mother finds the countrybeautiful, exclaiming over the number of trees, the blue of the sky, thecloud formations, the length of the

icicles pendant from the roof, andthe depth of the snow.

Of course there have been problems. Lawnmowers which won'tstart. Leaky plumbing. Storm windows to putty and put up. Gettingstuck in the heavy red clay soil,which my neighbor describes asbeing like wet soap. The howlingwind storm in early winter, following unseasonably warm weather,when the power went off for an hourand an half, which gave me a chanceto assess the performance of my systems under stress, and to makechanges before the weather gotcolder.

The van carts everything: stormwindows, a used oil tank from asalvage place, groceries, junk,straw. In time I hope to build ahandy in-and-out-going cart so I canhaul dirt and manure.

There have been rejections of mywriting. Oh, my, yes, there havebeen rejections. Back and back havecome the fat envelopes, returningmy manuscripts. uWe are sorry butthis does not meet our presentneeds." ttOur refusal in no way implies criticism of its merits." ttWewish you success in placing itelsewhere." I have even begun tostudy the variations in the form ofthe rejections, with an eye to theircourtesy and ingenuity. Perhapsthere should be an award, uThe Rejection Slip of the Year."

Doggedly I keep on writing and


sending out. The post office knowsme well. I buy sheets of stamps,which disappear alarmingly. (Someday, somewhere, my work willcatch.) Each day, the eighth-of-amile walk to the mailbox brings afeeling of suspense. Will today bethe day of a sale?

Today I sit at my typewriter, look-

Power Politics

ing out over the top of the parkedvan to the snow falling softly downon the pointed conifers, the fieldsbeyond. I think of the tiller, parkedsnugly in the shed, waiting to do itsturn, come spring. I feel content,confident that I will survive, takingpleasure in my day-to-day life and inmy work. @

WITH government controlling more and more of our economy, thefact that crooks have to go where the money is causes more and moreof them to tum to government employment.

However, there is probably an even stronger reason for individuals to become politicians.

That is the power which accompanies political office.Many idealists think they know better than the ordinary person

what is good for that person. They consider themselves a cut abovethe ordinary individual who just isn't smart enough to know whathe or' she should do.

Idealists seek government power to impose their ideas upon therest of us. They may be personally honest insofar as not thinking oflining their own pockets with money but have little compunctionabout bolstering their egos with government power.

This attitude explains the environmentalists, the do-gooders, and.others whose ego causes them to seek government power to imposetheir ideas upon those ofus who just want to make our way in a freemarket in open competition with everyone else. They don't believein a free market or voluntary actions. They do believe in controllingothers by means of government power.

HARRY HOllES, editorial from TheRegister, Santa Ana, California, June2, 1979

A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN

D\Ss\dent

Memoirs of al\Publisher

To MEET Henry Regnery, one wouldnever suspect him of being a revolutionary. He is self-contained, evenplacid. He does not raise his voice.He is not a sleeve-plucker. But,working out of a small publisher'soffice in Chicago with little supportfrom the book sellers and onlysporadic encouragement from reviewers, he has been one of the morepotent movers and shakers in theAmerican conservative movement.

He tells the story ofhis publishingventures in an engagingly modestautobiography, Memoirs of a Dissident Publisher (Harcourt BraceJovanovich, 757 Third Avenue, NewYork, N.Y. 10017,260 pp., $12.95),that is in thorough keeping with hischaracter. Always honest with himself, he had an affinity for honestmen who are finding it difficult toget a forum in a world dominated bythe quasi-collectivists who had .appropriated the word «liberal" to .de-

570

scribe their illiberal philosophy. Hehad some money from his father'sbusiness, he had the support of hisQuaker-bred wife, Eleanor, who believed in his inner light as well asher own, and he retained enoughbusiness sense to keep clear ofbankruptcy even while doing good for itsown sake. With these quiet advantages he picked up authors who,though they scarcely realized itthemselves,werejust onthe verge ofcapturing new audiences for whichthe Establishment publishing authorities had no feeling and no use.

The list of conservative and libertarian writers who were eitherfloated or rescued by the Regneryimprint now makes a «(Who's Who"of a movement that is coming ofage.Regnery published Bill Buckley'sGod and Man at Yale on a tip fromFrank HanighenofHuman Events,he accepted Russell Kirk's epochalT he Conservative Mind in its im-

MEMOIRS OF A DISSIDENT PUBLISHER 571

pressive entirety after Knopf haddemanded that it be cut to a quarterof its length, and he gave many adissident in the field of foreign affairs (Freda Utley, William HenryChamberlin, Charles C. Tansill,George Crocker) his or her head. Inbetween times he did not neglectpoetry, belles lettres and religion,publishing books ofconsequence andtaste even though they did not anticipate the apocalypse.

Studies in Germany

In his diffident way Henry Regnery would have you believe thathe became a publisher because hewas not fit to be anything else. Hisown record belies his modesty. Hedecided against an engineeringcareer after two years at Ar~our

Tech, but he continued to pursue amathematics major at M.1.T. AtM.I.T. he met students and teacherswho deflected him from the ((dullwinter ofmathematics and physics" tomore exciting pursuits in music, art,languages and philosophy. At the behest of a young German friend hespent two years in the GermanRhineland, studying at Bonn andlistening to all the music that hecould absorb. Regnery's forebears,on both his father's and mother'sside, had come from the Mosel region near Trier, so RhinelandGermany seemed home to the youngstudent. Hitler had not yet succeeded in Nazifying the region, and

the genocidal purge of the Jewswas still a few years away.

The German experience taughtHenry Regnery that not all Germans are Prussians, and gave him aspecial feeling for the opposition toHitler whose plottings might haveended the war at an early stage ifRoosevelt had not insisted on unconditional surrender. Returninghome to New Deal America, Regnery studied economics at Harvardunder Schumpeter, learning something of ((the realities of the world."He began to distrust the fashionableintellectuals who had illusions oftheir own importance, but he retained enough faith in the New Dealto spend a summer working for Rexford Tugwell's Resettlement Administration.

Quaker Influence

After qualifying for an M.A. atHarvard he took a job with anAmerican Friends Service Committee community project in westernPennsylvania which offered a voluntaristic version of the Tugwelltheories. Using funds raised by theQuakers from private foundations,the so-called Penn-Craft communityhoped to establish an industry tosustain homesteaders who could nolonger find work in the mines or atthe abandoned coke ovens. The mostadvantageous event to come out ofHenry Regnery's brief associationwith Penn-Craft was his meeting


with Eleanor Scattergood, thedaughter of a prominent Quakerfamily. After their marriage, theyspent a short time working with thePenn-Craft pioneers, but the timehad come, so the young couple felt,for something more permanent.Henry Regnery tried to return to hisfather's textile business, but soon, ashe says, he found himself slidinginto publishing ctalmost imperceptibly."

The young Henry began withpamphlets, an offshoot ofhis connection with Human Events, a publication started in Washington towardthe end of the war by FrankHanighen and Regnery's Quakerfriend Felix Morley. One thing led toanother, and a collection of Communist documents assembled byRaymond Murphy of the State Department, too voluminous for pamphlet issue, inevitably became abook, Blueprint for World Conquest,with an introduction by WilliamHenry Chamberlin. The HumanEvents pamphleteering introducedRegnery to more and more peoplewho did not conform to what heperceived to be the ~~dominantopinion" of the times, which was all infavor of accommodation with Stalinabroad and an extension ofwelfaristcollectivism at home.

The ~~dominant opinion" includedHenry Morgenthau's plan for turning the German Rhineland andRuhr into a permanent industrial

waste. Henry Regnery, remembering his own German experience, revolted against that. So the first imprints of a newly formed Henry Regnery Company went on two booksby the humanitarian English publisher Victor Gollancz, In DarkestGermany and Our Threatened Values, and one by the philosopher MaxPicard, Hitler in Our Selves. A firstRegnery catalogue included HansRothfel's The German Opposition toHitler and Ernst Juenger's ThePeace.

The Flag of Unorthodoxy

Having raised the flag of unorthodoxy, Henry Regnery began todiscover that Gollancz's phrase, ~~ourthreatened values," applied all overthe lot. Pursuing this anti-Morgenthau interests, Regnery pub-,Jished Montgomery Belgion's Victor's Justice and Freda Utley's TheHigh Cost of Vengeance. Later heissued Utley's The China Story, butnot in time to save mainland Chinafrom the Communists. MortimerSmith's And Madly Teach, a book onthe dominant educational theoriesthat had inflicted the faulty ~~look

say" reading methods on a generation of unsuspecting children, became a Regnery best-seller afterTime magazine had devoted athree-column article to it.

It was only natural that Regneryshould take the lead in publishingearly World War II Hrevisionist

1979 MEMOIRS OF A DISSIDENT PUBLISHER 573

books." There was William HenryChamberlin's America's SecondCrusade, Charles Tansill's BackDoor to War, Husband Kimmel'sAdmiral Kimmel's Story and GeorgeCrocker's Roosevelt's Road to Russia.Regnery says he doubts that publishing the true story of Pearl Harbor or Yalta uwill prevent such occurrences in the future." But thetruth, he says, ((is worthwhile for itsown sake." If we can't know whatour leaders have done and agreed toin our name, the alternative is ((thesociety described in George Orwell's1984."

Regnery anticipated Solzshenitsyn by many years with his publication of Elinor Lipper's Eleven Yearsin Soviet Prison Camps. He outragedthe Zionists by publishing Alfred M.Lilienthal's What Price Israel, eventhough Lilienthal made plain his((obvious devotion to his Jewishfaith."

It was not with a movement inmind that Regnery accepted RussellKirk's The Conservative Mind andBill Buckley's God and Man at Yale,but a movement it became, as themany Regnery titles mentioned inGeorge Nash's The Conservative Intellectual Movement in AmericaSince 1945 attest. In a period of lessthan two years Regnery issuedJames J. Kilpatrick's The SovereignStates, Felix Morley's Freedom andFederalism and James Burnham'sCongress and the American Tradi-

tion,all of which complementedeach other.

Regnery has a gift for characterization, and his descriptions andanalysis of some of his authorsKonrad Adenauer of West Germanyand Roy Campbell, the South African poet, are examples-prove thathe could have been a huge success asa critic or journalist if he had notchosen publishing as a career. Butpublishing was just exactly right forhim. It allowed him to indulge hismaster passion, which was to lethonest dissidents have their say. @

ECONOMICS OF PUBLICPOLICY: THE MICRO VIEWby John C. Goodman and Edwin G.Dolan(West Publishing Company, 50 W.Kellogg Blvd., P.O. Box 3526, St. Paul,Minnesota 55165) 1979211 pages • $6.95 paperback

Reviewed by Lawrence W. Reed, Assistant Professor of Economics, Northwood Institute, Midland, Michigan

How refreshing it is to come upon atextbook on public policies whichholds those policies up to the light ofliberty as a standard for judgingtheir desirability. At a time whenmany economists cast this yardstickaside with a ((Mussolini at least keptthe trains running" attitude, two


authors have produced a magnificent volume which is at once soundeconomics and a defense of liberty.

The primary purpose of John C.Goodman's and Edwin G. Dolan'sEconomi;;s of Public Policy: TheMicro View is ((to help students un-derstand how economic theoryapplies to the real world . . . byshowing how some of our most important (and often controversial)public policies reflect economic principles in action." If the response ofstudents at my college, NorthwoodInstitute, is any indication, Goodman and Dolan deserve an ((A+" forsuccess in this endeavor.

In Chapter 1, ((Thinking AboutPublic Issues and Policies," Goodman and Dolan map out for thereader the course they will take inthe succeeding fifteen chapters.They explain that positiveeconomics-the scientific study ofeconomic institutions, policies, andactions-will be utilized throughexamination and application ofsuchconcepts as scarcity, opportunitycost, the production-possibility frontier, supply and demand analysis,and consumer choice. From there,the authors propose to enter therisky field of normative economics«the application ofethics or philosophy to economic issues."

It is this latter emphasis thatmakes Goodman's and Dolan's bookso intriguing to the freedom believer. The authors readily ac-

knowledge that ((not everyoneagrees on which normative standards are valid or on which ethicalprinciples are more important thanothers" but they are quick to proclaim that ((such disagreements areno excuse for the failure to thinkand express ourselves clearly" inthis realm.

The first standard which they usein evaluating public policies is thatof efficiency, defined by the authorsas ((the property of producing or acting with a minimum of expense,waste, and effort." A policy or achange in policy is judged ((efficient"by this standard if its benefits exceed its costs.

A second standard, equality, focuses on the distribution of incomeand wealth. If there is anything inthe book which might touch off alibertarian's warning siren, it wouldbe this point. Goodman and Dolanstate that ((By this standard, a policythat causes income and wealth to bemore equally divided would bejudged to be a good policy ..."

Inclusion of this standard, however, does not lead the authors toendorse coercive, egalitarian measures. They consistently favor theunfettered price system for rationing economic goods and opposenonmarket forms of rationing putforth as programs to ((help the poor."They champion the sanctity of contract and rebuff schemes for the forcible redistribution of wealth. They

1979 OTHER BOOKS 575

clearly show that recognition ofHvalue trade-offs" is importantthat complete equality of income, forinstance, could only be achievedwith disastrous effects on both efficiency and their third criterion,liberty.

As applied to the evaluation ofpublic policy, Goodman's and Dolan's standard of liberty holds thatcCany policy is bad if it violates theindividual's civil and economicliberties." Such liberties includefreedom of speech, freedom of thepress, freedom of religion, the rightto own property, the right to producegoods and services, and the right toengage in voluntary exchange withothers. As a professor ofeconomics, Iam at a loss to name another textbook which rigorously evaluates thepublic policies of today against suchnoble principles.

Look to the Individual

Another great strength of thisbook is the policy-by-policy scrutinyof the cCpolitics" of the issues. Here,the authors tackle the job of Utryingto explain why we have the particular policies we do have." As Ludwigvon Mises and the praxeologicaleconomists have stressed repeatedly, the basic·economic unit ofsociety is the individual. All actionsand their consequences must betraced back to their point oforigin-particular' individuals withparticular interests and ideas. Only

in this manner can we see why anact or policy has come about, andthen assign responsibility.

Once their methods ofanalysis areunfolded, the authors take on suchvaried topics as the military draft,gasoline rationing, product safety,farm policy, the postal service, illegal aliens, the minimum wage, theenvironment, and social security.

Chapter 10, HCompetition andMonopoly in the Market for Oil," isone of the best. It covers a briefhistory of government and the oilbusiness, a look at the OPEC cartel,the politics of oil, and a summary ofseveral alternative energy policies.These range from adopting a, freemarket to breaking up oil companiesto nationalizing the oil industry. Intheir evaluation, Goodman andDolan endorse the free market asthe only alternative consistent withthe standards of efficiency and liberty, even though it does not pro:mise greater equality of income:

By this standard [liberty] there shouldbe no restrictions· on the buying andselling of oil and no restrictions on theproduction of oil and oil· products. Norshould government be able to tax uwindfall" profits or subsidize uwindfall" losses.Nor should government impose arbitrary restrictions on our behavior oruse the tax system to reduce ourconsumption of oil. The production, distribution, and use of oil should be lefttotally to the free choices of individualswho are participating in the free market.

In other chapters, the reader will

576 THE FREEMAN

fmd such interesting tidbits as acontrast between private and government mail delivery in Americanhistory, a defense of free immigration, a suggestion of applying theproperty rights concept to eliminatepollution, and an endorsement ofinnovative, free market pricing inthe distribution ofelectric power. In

every chapter, the authors write in alively and lucid style that makesthis study of public policy an absolute delight.

Economics of Public Policy: TheMicro View is exciting and exceedingly useful in the classroom. And,in this reviewer's opinion, it's justgreat reading for anybody. i

HANDSOME BLUE LEATHERLEX

FREEMAN BINDERS

$3.00Order from:THE FOUNDATION FOR ECONOMIC EDUCATION, INC.

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the freeman 1979 - foundation for economic education · loopholes," an examination of real...

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