THEFREEMANIDEAS ON LIBERTY

FEATURES

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Center

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Freedom and the Car by Loren LomaskyAnswering the critics of the automobile.

Paparazzi and Public Property by Tibor R. MachanDefining freedom of the press in public places.

Where Does Law Come From? by Bruce L. BensonThe motivations for developing rules and governing institutions.

The Efficiency of Natural Rights by Wendy McElroyImportant insights from Ludwig von Mises and Benjamin Tucker.

The Future of the Union Movement: Clues From the UPS Strike by Charles W BairdReports of a union resurgence are erroneous.

What's So Bad About Big Government Anyway? by George C. LeefThere is a "right" size for government.

Or Else ... by Russell MaddenCombating legal extortion.

COLUMNS

NOTES from FEE-Benefits of Immigration by Donald J. Boudreaux

IDEAS and CONSEQUENCES-Will Retirement Become a Personal Responsibility?by Lawrence W Reed

POTOMAC PRINCIPLES-Kill Big Business's Bank by Doug Bandow

ECONOMICS on TRIAL-Best Textbooks for a Free-Market University by Mark Skousen

DEPARTMENTS

Perspective-Sheldon Richman

Book Reviews

-Hungry Ghosts: Mao's Secret Famine by Jasper Becker, reviewed by Steven W. Mosher; Whythe Left Is Not Right-The Religious Left: Who They Are and What They Believe by RonaldNash, reviewed by Doug Bandow; The USA Tax: A Progressive Consumption Tax by Laurence S.Seidman, reviewed by Roger W Garrison; The Future of Money in the Information Age edited byJames Dorn, reviewed by Steven Horwitz; Bank Deregulation and Monetary Order by GeorgeSelgin, reviewed by Parth 1. Shah; The Origins of Virtue by Matt Ridley, reviewed by George C.Leef; Pick a Better Country by Ken Hamblin, reviewed by James A. Woehlke.

Index 1997

THEFREEMANIDEAS ON LIBERTY

Published byThe Foundation for Economic EducationIrvington-on-Hudson, NY 10533Phone (914) 591-7230 FAX (914) 591-8910E-mail: freeman@westnet.comFEE Home Page: http://www.fee.org

President: Donald J. BoudreauxEditor: Sheldon RichmanManaging Editor: Beth A. Hoffman

Editor EmeritusPaul L. Poirot

Lewisburg, PennsylvaniaBook Review Editor

George C. LeefAdjunct Professor of Law and Economics,Northwood University

Editorial AssistantMary Ann Murphy

ColumnistsDoug Bandow

Cato Institute, Washington, D. C.Lawrence W. Reed

Mackinac Center for Public PolicyMidland, Michigan

Mark SkousenRollins College, Winter Park, Florida

Contributing EditorsCharles W. Baird

California State University, HaywardPeter J. Boettke

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American Textbook CommitteeWadley, Alabama

Thomas J. DiLorenzoLoyola College, Baltimore, Maryland

Joseph S. FuldaNew York, New York

Bettina Bien GreavesResident Scholar, FEE

John HospersUniversity of Southern California

Tibor R. MachanAuburn University

Ronald NashReformed Theological Seminary

Edmund A. OpitzChatham, Massachusetts

James L. PayneSandpoint, Idaho

William H. PetersonAdjunct Scholar, Heritage Foundation,Washington, D. C.

Jane S. ShawPERC, Bozeman, Montana

Richard H. TimberlakeUniversity of Georgia

The Freeman is the monthly publication of The Foundation forEconomic Education, Inc., Irvington-on-Hudson, NY 10533. FEE,established in 1946 by Leonard E. Read, is a non-political, educa­tional champion of private property, the free market, and limitedgovernment. FEE is classified as a 26 USC 501(c)(3) tax-exemptorganization.

Copyright © 1997 by The Foundation for Economic Education.Permission is granted to reprint any article in this issue, providedcredit is given and two copies of the reprinted material are sent toFEE.

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PERSPECTIVE

Property-Key toSelf-Determination

Private property is at the center of thefreedom philosophy. It has been said thatall human rights are ultimately propertyrights. It has been said that the right to lifeis a property right in one's person. It hasbeen said that without property rights, theright to life is an empty idea. Yet privateownership is an issue that divides peopleand dictates their positions on many otherissues. We can say that the two greatcompeting world views in political theory­individualism and statism-are irreconcil­ably at odds over the question of property.The conflict is more subtle than it used tobe, but it is just as real.

The strictly economic virtue of property ishardly in dispute anymore. The collapse ofcommunism and explicit socialism is inter­preted by many people as a victory forprivate property. Even stalwart socialisteconomists have conceded this point.

While the economic function of propertyis now virtually unquestioned, there arepolitical and social aspects to property thatdeserve attention. Property is vital to pri­vacy. One protects one's privacy ultimatelyby invoking private property. (See TiborMachan's article in this issue.) Thus, it isimportant for such things as freedom ofreligion (and nonreligion). It is required forfreedom of the press and speech. Imagine afree press where private individuals couldnot own paper, presses, and ink. Property isat the center of every issue relating tohuman liberty.

Imagine a society in which all propertywas owned collectively. Actually, that ishard to imagine. Ownership refers to thepower to use and dispose of things. Collec­tives as such cannot use and dispose. Onlyindividuals can do so because only individ­uals can act. When "society" appears to ownproperty, the actual power of use and dis­posal rests with a group of identifiablegovernment officials. They are the de facto,if not the de jure, owners. Even in ademocratic society, in which the people fill

714

political offices by voting, it is misleading tosay the people collectively own and controlproperty. The most we can say is that eachcitizen has a small say in who the de factoowners will be. In contrast, other apparentforms of "collective ownership," such as acorporation, suffer from no similar concep­tual problem, since they are the result ofexplicit contractual relationships enteredinto by specific individuals. Moreover, andthis is critical, each stockholder, unlike thecitizen "owner," can sell his share of thecompany whenever he likes.

In a society in which all property wascollectively owned, everyone would be, infact, an employee and tenant of the gov­ernment. That's not a comforting thought.Again, the right to cast a vote every fouryears for the administrators of the public'sproperty would not make these circum­stances any more comforting. Everyonewould in a significant sense be at the mercyof the state.

To be sure, in a free-market society, manypeople also will be employees and tenants.But there are two important differencesbetween that situation and collective own­ership. First, in the market there is compe­tition among employers and landlords; thatprocess benefits employees and tenants.Second, a person's status as an employee ortenant can be temporary. An ambitiousperson can save or borrow the money tostart his own business and to buy his ownhome. If the market is fully free, the pos­sibilities for transforming oneself from anemployee/tenant to an employer/home­owner are maximized.

This consideration, when added to thefact that private property is essential for afree press, free conscience, and privacy,adds up to a rather strong recommendationfor property rights: they are crucial toself-determination. Let's define self­determination as the ability to influence the

PERSPECTIVE

direction of one's life in a major way withinthe context of one's talents and capabilities.(Obviously, factors outside of anyone's con­trol may affect one's life.) It should beobvious that private property is an elementwithout which self-determination is impos­sible. One will have little say over thedirection of one's life if the state controls alleconomic life. In the marketplace, however,one has choices- even if one does not ownland or a business. Secure ownership ofone's wages and the acquisition throughlease of living space provides control overone's own life that cannot be approached inany collectivist scheme. It is no coincidencethat collectivists, while sometimes payingtribute to self-determination, don't reallylike when people assert too much power todetermine their life course. (See LorenLomasky's discussion of autonomy and au­tomobiles in this issue.)

Few people call for full-fledged socialismanymore. Today semi-socialists favor heavygovernment regulation of property in thename of the environment or social justice orsome such reason. But the principle re­mains. To the extent government regulatesthe use of private property, it steals thepower of self-determination from people.(One example: if the government can wreckyour retirement plans by declaring yourproperty a wetland, what has happened toself-determination?) Nominal private prop­erty that is regulated by the state does notfully escape the flaws of socialism. Fascism,which is the name of such a system, is morelike socialism than it is different. Nazism,that virulent brand of fascism, means na­tional socialism.

If the freedom philosophy is to prevail,advocates of private property will need tomake it clear that without full protection ofproperty rights we are all poorer-and notjust in the economic sense.

-SHELDON RICHMAN

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THEFREEMANIDEAS ON LIBERTY

Freedom and the Car

by Loren Lomasky

Years before the automobile evolved intoa transportation necessity, before me­

andering mudded ruts were replaced bymultilaned asphalt, pioneering motoriststook to the roads for pleasure. Today tensof millions still drive for pleasure, but in­creasingly it is a guilty pleasure. From amultitude of quarters motorists are indictedfor the harms they leave in their wake.Drivers generate suburban sprawl, exacer­bate the trade deficit while imperiling na­tional security, foul lungs and warm theatmosphere with their noxious emissions,give up the ghosts of their vehicles tounsightly graveyards of rubber and steel,leave human road kill in their wake, trapeach other in mazes of gridlock, and, addinginsult to injury, commandeer a comfy sub­sidy from the general public. It is only thepresence of unconverted cigarette smokersthat deprive them of the title Public Nui­sance Number One.

Barring a radical re-engineering of Amer­ica, there is no prospect that we will any timesoon toss away our car keys. Cars (andtrucks) are here to stay. But as the auto­mobile enters its second century of trans­porting Americans from here to there, mo­mentum for curbing its depredations grows.Construction of significant additions tothe interstate highway system has ground

Loren Lomasky teaches philosophy at BowlingGreen State University in Ohio. This essay wasoriginally produced as a working paper for theCompetitive Enterprise Institute. A longer versionappeared in Independent Review.

to a halt. Lanes on urban roads are declaredoff-limits to solo motorists. Federal fuel­efficiency standards require automakers toalter their mix of product to emphasizelighter, less gasoline-hungry cars. Taxes onfuel have been increased only modestly, butif critics of automobiles have their way,America will emulate Europe and the taxwill go up by a dollar or more per gallon.The revenues will be directed toward moremass transit, pollution relief, and researchon alternate modes of transportation. Someargue that employer-provided parkingshould be taxed as income to the employeeor disallowed as a business expense to theprovider. Others advocate following themodel of Amsterdam by barring nearly allautomobiles from entry into the center city.And supplementing policy proposals is moralsuasion. In the name of social responsibility,individuals are urged to car-pool or availthemselves of public transportation; scraptheir older, fuel-intensive vehicles; and toeschew unnecessary automobile trips.

Why this assault on the automobile? Ihave no wish to deny that some of thecharges advanced by critics are true. Auto­mobile carnage is indeed dreadful. Thenumber of people killed each year on ourroadways far exceeds the total who succumbto AIDS. Automobiles do pollute, all tosome extent, some much worse than others.Anyone who has ever been trapped inrush-hour gridlock, fuming inside at thedelay while being engulfed by the fumesoutside spewing from ten thousand tail-

716

pipes, knows that the simple job of gettingfrom here to there in one's automobile canbe the most stressful part of the day.

But even accepting all the above, it doesnot seem sufficient to explain the intensityof opposition directed toward the automo­bile. There are costs associated with anylarge-scale enterprise, and so a critique thatmerely reminds us of the nature and extentof these costs is only half useful. What is alsorequired is, of course, a statement of thebenefits derived from the enterprise and aplausible accounting of whether those ben­efits do or do not exceed the costs. How toidentify and measure costs and benefits ofautomobile usage poses very difficult meth­odological problems that I shall not addresshere. I do note that the overwhelming pop­ularity of the automobile is itself prima facieevidence that, from the perspective of or­dinary American motorists, the liabilitiesof operating a motor vehicle are more thancompensated by the benefits. Just as theo­rists speak of people "voting with theirfeet," we can count those who vote withtheir tires. And the vote is overwhelminglypro-automobile.

Critics may contend, though, that theelection has been rigged. They can maintainthat it is the absence of public transporta­tion and compact neighborhoods integrat­ing commerce, industry, and housing thatforce us so often into our cars. And even ifit is the case that each of us values theoptions and mobility that automobile trans­port affords, we might disvalue yet more thestress, delay, and pollution imposed on us byothers.

There is at least this much merit to thecritic's case: a purely behavioristic appraisalof automobile usage is insufficient for eval­uating it. We need also to think moreintently about how to classify and under­stand as a distinctive human practice theaction of driving a car. Opponents of theautomobile argue that the most telling wayin which to understand this is: creating apublic bad. That is the appraisal I shalldispute in this essay. My focus will not be onthe many practical uses to which the auto­mobile is put (driving to work, car-pooling

717

the kids, buying groceries). Rather, I shallconcentrate on what is intrinsic to automo­bility. As such, automobility is complemen­tary with autonomy: the distinctively humancapacity to be self-directing. To be auton­omous is, minimally, to hold values-endstaken to be good as such-and to have thecapacity to direct oneself to the realizationor furtherance of those ends through ac­tions expressly chosen for that purpose. Thisis what motorists do. Therefore, insofar aswe have reason to regard self-directednessas a valuable human trait, we have reason tothink well of driving automobiles.

I am making a strong claim. Automobilityis not just something for which people intheir ingenuity or idiosyncrasy might hap­pen to hanker. Rather, automobile trans­port is a good for people in virtue of itsintrinsic features. Because automobility is amode of extending the scope and magnitudeof self-direction, it is worthwhile.

Moreover, the value of automobility isstrongly complementary to other core val­ues of our culture, such as freedom ofassociation, pursuit of knowledge, eco­nomic advancement, privacy, even the ex­pression of religious commitments and love.If these contentions are even partially co­gent, then opponents of the automobilemust take on and surmount a strongerburden of proof than they have heretoforeacknowledged; for they must show not onlythat instrumental costs of marginal auto­mobile usage outweigh the benefits, but theyalso must additionally establish that thesecosts outweigh the inherent good of theexercise of free mobility. That heightenedburden will be difficult indeed to satisfy.

Movement, Choice, andHuman Potential

Concern about automobiles may be amodern phenomena, but analysis of thedistinctive nature of automobility is not. ForAristotle, being a self-mover is the crucialfeature distinguishing animals from plantsand, thus, higher forms of life from lower.That distinction is itself preceded by a yet

718 THE FREEMAN • DECEMBER 1997

more basic one that separates the organicrealm from that which is lifeless. To be aliveis to be possessed of an internal animatingforce, psyche. The customary translation is"soul," but in the context of Greek biologythat is misleading. For us "soul" tends tocarry a theological and thus elevated sense,but in classical Greek thought it marks thedivide between inert things and those im­bued with a vital principle. At the highestlevel is the rational soul, the intelligenceexhibited among the animals only by man.

The conception of motion has a widerscope than traveling from place to place. Weretain residual traces of this broader mean­ing in expressions such as "a moving expe­rience" and in the etymological history of"emotion," but in the philosophical lan­guage of the Greeks the more inclusivesense is primary. Any transformation of asubject from the potential to the actualwith regard to some quality is deemedmotion. Movement, therefore, is not simplydescriptive of getting from here to there butis normatively rich. To move is to progress­though, of course, it can also be to back­slide. For people there is not only a betterand worse but a chosen better or worsetoward which we deliberately direct our­selves. Crucial to the elevated status ofhuman beings as compared to other beingsis intelligent automobility.

Commuting and CommunityAutomobility is, by definition, promoted

by the automobile. The complementarynature of autonomy and the automobile isonly slightly less evident. Being a self-moverin the latter part of the twentieth century is,to a significant extent, being a motorist.Because we have cars to drive we can, morethan any other people in history, choosewhere we will live, where we will work,and separate these two choices from eachother. We are more able to avail ourselvesof near and distant pleasures and to do soat a schedule tailored to individual prefer­ence. We are less constrained in our choiceof friends and associates by accidents ofgeography. Our ability to experience an

extended immediate environment is nota­bly enhanced. The automobile is, arguably,rivaled only by the printing press (andperhaps within a few more years by themicrochip) as an autonomy-enhancing con­trivance of technology.

Noone who ever has been caught up inrush-hour gridlock will maintain that com­muting to and from work is unalloyed joy.Competing with tens of thousands of othermotorists for scarce expanses of asphalt canbe reminiscent of the Hobbesian war of allagainst all. For critics of the automobile thisis not a negligible point. But neither are itsimplications entirely clear-cut. Just as wor­thy of notice is how many people voluntarilysubject themselves to that ordeal. Have theynot realized how much time they are wastingbehind their steering wheels? Such inad­vertence isn't plausible. In their judgment,the costs of commuting are amply compen­sated by the benefits. The more the criticsemphasize the magnitude of the costs, themore these critics underscore, knowingly orotherwise, the extent of the benefits.

Commentators from the Greek philoso­phers to Adam Smith to Karl Marx havenoted that the nature of the work one doeslargely shapes the quality of life one leads.To do work suited to oneself in a satisfactoryenvironment is for nearly all of us a greatgood, while to perform alienating laborunder unfriendly and unhealthy conditionsis a correspondingly great evil. Similarly,to reside in a comfortable and functionaldwelling situated in a neighborhood onefinds hospitable is also a considerable good.For most people throughout human history,neither occupation nor place of residencehas afforded more than a negligible range ofchoice. One did the work one's father ormother did, or to which one had beenapprenticed, or which was the kind of workavailable in that place. And one lived whereone must or where one could.

The increased affluence and openness ofliberal capitalist society has vastly expandedthe range of choice. Previously one eitherlived close to one's work or else on acommuter rail line. But motorists are notbound by the geography of the New York,

New Haven & Hartford tracks. Dependingon how much time they are willing to investin transit, they can live at considerabledistance from where they work while alsobeing emancipated from mass-transit rigid­ities. Cultured despisers of suburban exis­tence can and do decry this circumstance,but millions of Americans (and, increas­ingly, the rest of the world) disagree. It canhardly be denied that the suburbs are anobject of choice by those who live there. Torespect the autonomy of persons is to ac­knowledge that expanding their optionswith regard to work and residence is a plus.

Nineteenth-century socialist reformersdecried industrial capitalism's exploitationof workers. Although it could reasonably becontended (asF. A. Hayek famously did inCapitalism and the Historians) that workersvoluntarily abandoned their rural domicilesfor the factory town only because theyregarded it as a net improvement, it mustnonetheless be conceded that their situationwas not enviable. The work was grueling,and opportunities for self-directed choicewere minimal.

Yet no syndicalist scheme or string ofworkers' cooperatives remotely approachesthe automobile as an instrument of eman­cipation. Insofar as it extended the feasiblerange of commuting between residence andwork place, the coming of the motor caraugmented the bargaining power enjoyed byworkers. In theory, under a legal regime offree contract, workers always enjoyed theright to terminate their employment whenthey wished to do so, but in practice thisliberty often proved discouragingly costly.Automobility significantly lowered thosecosts. Detroit has done more for the liber­ation and dignity of labor than all theSocialist Internationals combined.

Liberation can also be observed whenviewing the employment-residence nexusfrom the other direction. The ability tochoose where one will live makes a consid­erlilble difference to the exercise of self­determination. Life in the suburbs is notinherently better than life in the central city,but it is different. To the extent that onepossesses a real opportunity to choose be-

FREEDOM AND THE CAR 719

tween them, one is thereby able to giveeffect to significant values that shape a life.If one is mobile, the question of where tolive is answered by an act of positive choicerather than through inertia or extraneousconstraints such as the location of one'splace of employment.

Choice of residence is a major avenuethrough which Americans exercise theirright to free association. One thereby de­cides with whom one will live. And perhapseven more importantly, one decides withwhom one won't live. An ethic that endorsesautonomy must acknowledge that, the con­tent of individual choices aside, it is a goodthing that people are able to make up theirown minds and then act on that decisionconcerning where they will live.

Mobility and KnowledgeFor much the same reasons that automo­

bility and autonomy are good things, so toois knowledge.· Like self-moving, knowingaffords us a firmer grip on our world.Indeed, choice and knowledge are comple­mentary. We might say that choice withoutknowledge is blind; knowledge withoutchoice is impotent.

Automobiles enhance mobility, and mo­bility enhances knowledge. Insofar as thearea within which one is able to move isincreased, so too is the range of one'sknowledge-gathering capacities. Knowl­edge need not be grand or profound to bevaluable in itself and as a complement tochoice. If I drive north along the lake to seehow the autumn leaves have turned andwhether the Canada geese are still millingor have flown, then I may have gainedexperience that I take to be inherentlyvaluable. Driving through the various neigh­borhoods of a city reveals where the bak­eries and hairdressers and Thai restaurantsare located, who is having a garage sale thisweek, and which parts of town are becomingdistinctly seedier.

When the range within which one movesabout becomes extended, so too does therange of one's potential base of knowledge.And the automobile is the quintessential

720 THE FREEMAN • DECEMBER 1997

range extender, not only by lengthening thetrips one can take but also by multiplyingthe number of available routes. Cars do notonly go to malls and theme parks but also tolibraries, universities, and museums. Urbancenters of learning are rendered accessibleon a regular basis to those who live manymiles distant.

The Wheels of PrivacyAnother complement to autonomy is pri­

vacy. Some quantum of privacy is requisitefor self-determination. The automobile isfor twentieth-century American society thequintessential bastion of privacy. For manyof us it's the Honda rather than the homethat is the castle. Ironically or not, thoseminutes between home and office on afreeway clogged past capacity with tens ofthousands of other cars may be one's mostprivate time of the day.

Social planners are wont to gnash theirteeth at the number of motorists who couldarrange to car-pool to work but instead"inefficiently" take up roadway space with asolitary-occupant car that could carry sev­eral times as many people. Diamond lanesand other inducements have only a limitedeffect on average occupancy statistics. Thismay be viewed as a failure of policy, butit can also be seen as a reasonable and insome ways estimable response to the validhuman desire for privacy. Privacy in virtu­ally all its forms, including that afforded bythe automobile, is a good to which signifi­cant costs come attached. I shall not disputehere whether the costs incidental to auto­motive privacy exceed the benefits; mypoint is that there are genuine benefits fromdriving solo. Any cost-benefit analysis thataims to be unbiased must acknowledge thatprivacy is a good and then proceed fromthere.

Being alone is one aspect of privacy, butit is not, I believe, the most central. What ismore salient is a (re)gaining of control overone's immediate environment. I may besurrounded by other people, but if I am ableto determine to a significant degree whatthey shall be allowed to perceive of me and

know about me and impose on me, then tothat extent I have retained a private self.Surely one reason for the fondness peopleoften hold for their cars and for automo­bility in general is the scope afforded withregard to that sort of control. Pushing onebutton turns on the radio. Pushing anotherchanges the station, lowers the volume,turns off the radio and switches to the tapeplayer. It is one's own choice whether tolisten to news reports, Beethoven, Beatles,or nothing at all. Next to the switches for thestereo are those for climate control, wind­shield washing, blinking one's lights, per­haps even a cellular phone. Individualsexercise control over the internal environ­ment of their cars in a manner that is notpossible with any alternate mode of gettingaround. Once we focus attentively on thegood that is privacy, it will no longer appearobvious that rush-hour gridlock on high­ways is an unacceptably high price topay for the opportunity to be one's own manor woman behind the wheel of one's owncar.

The Road from SerfdomIn light of all these considerations, why

has motoring fallen under such a cloud?Three possible reasons suggest themselves.First, although the critics acknowledge therange of goods afforded by automobility,they have identified accompanying evils thatin their view drastically outweigh the goods.Second, the critics may be oblivious to thevarious autonomy-enhancing features of au­tomobility. Third, they may recognize thesefeatures but regard them as goods of a muchlesser status than I have claimed or, indeed,even as detriments.

Could the automobile's critics have failedto observe that cars support autonomy? Ifthese effects were slight and subtle thatmight be a reasonable supposition. But wehave seen that they are not, that whencompared with alternate means of transpor­tation the automobile stands out as thevehicle of self-directedness par excellence.Not to observe this would be like visiting themammal area at the zoo and failing to notice

that the elephants are rather larger than thezebras, camels, and wart hogs.

I am convinced that the automobile'smost strident critics are well aware of thefact that automobility promotes autono­my-and that is precisely why they are sowary of it. To be in the business of formu­lating policy is to be professionally predis­posed to consider people as so manyknights, rooks, and pawns to be movedaround on the social chessboard in the serviceofone's grand strategy. Not all analysts succumbto this temptation, but many do.

People who drive automobiles upset thepatterns spun from the policy intellectual'sbrain. The precise urban design that he hasconcocted loses out to suburban sprawl. If

FREEDOM AND THE CAR 721

people rode buses and trains whenever theycould, less oil would be burned and feweracres of countryside would be paved over.Perhaps communities of an old-fashionedsort would be restored. Perhaps the centralcity would come alive again other thanbetween the hours of 9 and 5. Perhaps....But why go on? These lovely visions areblocked by the free choices of men andwomen who resist all blandishments to leavetheir cars in the garage. They wish to drive.Automobile motoring is good because peo­ple wish to engage in it, and they wish toengage in it because it is inherently good. Sothe intellectuals sulk in their tents andgrumpily call to mind utopias that mighthave been. D

The Mainspring of Human ProgressBy HENRY GRADY WEAVER

New Introduction by John Hood*

FOR SIX THOUSAND YEARS PEOPLE DIED OF HUNGER. WHY DON'T WE?

This is the basic question dealt with in MAINSPRING.But the attempt to find the answer leads into a wide range ofsubjects, such as:

• What is the greatest of all our modern inventions?• Who invented zero (0) and why?• Just what is the difference between a republic and a democracy?• What simple invention contributed most to our national wealth?• What was the "bestseller" in 1776?• Is there one sure-fire formula for personal security?

In MAINSPRING, Henry Grady Weaver answers these and countlessother questions with a truly bold narrative, while taking you on afascinating journey through history to trace and thus identify-

THE MAINSPRING OF HUMAN PROGRESS*President, The John Locke Foundation, and author of

The Heroic Enterprise: Business and the Common Good (Free Press, 1996)

Published byThe Foundation for Economic Education, Inc.30 South Broadway, Irvington-on-Hudson, NY 10533

ISBN 1-57246-064-4 • 272 pages • paperback $12.95Printed in larger type for easy reading.

Visa and MasterCard orders: 1-800-452-3518

THEFREEMANIDEAS ON LIBERTY

Paparazzi and Public Property

by Tibor R. Machan

I n the wake of the crash that killedPrincess Diana, many folks were hell­

bent on convicting paparazzi anywhere theycould be found. Hollywood celebritiesflocked to television talk shows and evennews programs to accuse tabloid publishersof complicity in various crimes that they saycome about because of the sleazy journalismthe tabloids practice.

As this is written, it appears the paparazziwho chased the car in which Princess Dianamet her demise may have helped cause thecrash. There are also the matters of thedriver's apparent inebriation and the pas­sengers' failure to stop the speeding; thepaparazzi could have been dealt with dif­ferently.

Deeper questions remain. Do journalistshave a right to gather the news by engagingin the kind of conduct they allegedly exhib­ited on the night of Diana's death? Whyaren't outspoken celebrities vigilant in thedefense of individual rights apart from theirown privacy concerns? Nevertheless, theissue of the apparent clash between pressfreedom and privacy is important. Howshould the press's freedom be conceived of,especially in public places?

The press, of course, has no right toinvade anyone's private property to obtain

Tibor Machan is professor ofphilosophy atAuburnUniversity, Alabama (on leave), distinguished fel­low and professor at the Leatherby Center ofChapman University, California, and researchfellow at the Hoover Institution, Stanford, Cali­fornia. He is author of, among other books, PrivateRights and Public Illusions (1995).

stories or pictures. But what about publicproperty? Journalists and photographersare able to operate on vast public domainsof streets, parks, beaches, highways, andwaterways. Because public areas exist, thepress-including the paparazzi-are able tooperate in intrusive ways largely with im­punity.

If a paparazzo wants to invade someone'shome or business to take pictures, that canbe prevented, or at least discouraged, by thethreat of prosecution for trespass. Moredirectly, a security guard can expel a tres­passer. But if he hangs out on the closest"public" street corner waiting for a promi­nent person to emerge from his home, itwould be problematic to chase the photog­rapher because public property supposedlybelongs to us all.

Why "Public" Property?The first point to be made then is that

there is no reason for the existence of somany large public, meaning tax-funded,areas. In a free society, public spheres wouldbe confined to where government housesits legitimate activities: military bases,courthouses, and so on. Even roads do nothave to be public. They could well be theproperty of various transport, recreation,or other firms and would be better off forit. (Professor Walter Block explained thisnicely in his essay on private roads in T. R.Machan, ed., The Libertarian Reader [Row­man & Littlefield, 1982].)

As long as public domains are so perva-

722

sive, albeit unnecessarily so, some way ofdealing with the clash of claims to their usemust be found. In the United States andmany Western countries, it is widely thoughtthat when people occupy a public space,they can freely engage in any kind ofconduct that does not involve direct per­sonal injury to others, such as assault, rape,battery, or murder. On a few occasions thatdoctrine has been challenged, for example,when panhandlers or abortion protestershave made it nearly impossible for others togo about their business. Huge legal battleshave ensued. (In one celebrated case, theAmerican Civil Liberties Union sued onbehalf of a homeless man of highly dubiouspersonal hygiene, who sat in a municipallibrary glaring at other people. The libraryofficials expelled him, but the man and theACLU prevailed in court.)

Thus the legal right of those who use thestreet for transportation may clash with thelegal right of those who use it for demon­strations or protests. It has been difficult tofigure out which legal rights deserve greaterprotection. The institution of "public prop­erty" creates this problem. It generallydoesn't exist on private property, where theowner sets the rules. (An exception is shop­ping malls, where some courts have said thatowners cannot prohibit the distribution ofleaflets.)

The same problem faces relatively freesocieties regarding the paparazzi and othernews gatherers. Indeed, at times membersof the press are convinced that their goalof gathering information justifies behaviorthat is quite aggressive and invasive, not tomention cruel and insensitive (as when theychase relatives of the victims of a planecrash to ask, "How do you feel about losingyour children in this tragic accident?").

The Right to KnowThe issue is often misunderstood when

people think in terms of the "public's rightto know." There is no such basic right atall-it's a myth. No one has a right to beinformed by others unless they have freelycommitted themselves to provide such a

723

service. Then and only then does one havea (contractual) right to get the informationin question. And the taxpayers, by virtue oftheir relationship to the government, maybe said to have a right to know what thegovernment is up to. On the other hand, ifthe public had a general right to know,holders and providers of information would,in effect, be the slaves of the public.

We know that if a person, celebrity or not,is doing something newsworthy in his pri­vate home, the press has no right to enterthe property to investigate. If the public hada "right to know," this would not be the case.But scouting for news on private propertywithout the owner's permission is an inva­sion of privacy and a violation of rights. Noalleged "right to know" trumps such genu­ine basic rights.

Public property, again, muddies theseprinciples. Theoretically, public spaces be­long to everyone, so whatever goes on therein some sense is the public's business. But isthat the same as the public's right to know?

The provisional solution to the clash ofuses on public property, say, between thepress and celebrities walking down thestreet, involves something that may notplease the paparazzi: the law ought toclearly designate the purpose of publicrealms and make sure they are devotedprimarily to that purpose. For example, ifthe paparazzi interfere with a celebrity'sappropriate use of public property, forexample, driving on a road, it would be (andis now) legally actionable.

The same, of course, would apply to anyobstructive demonstration. When theTeamsters used public roads to block trans­portation to and from UPS centers, or whenthe Hare Krishna at public airports intrudeon passengers going about their business,they are using public areas for objectivesunrelated to the purposes for which thoseareas exist, namely, transportation. Like­wise, in parks and on beaches, recreationcomes before agitation and other activities.Until these assets are privatized, the onlysolution to the clash of uses is to considerthe purposes served by public areas. Theseare usually expressed in the semi-

724 THE FREEMAN • DECEMBER 1997

democratic procedures of federal, state,county, and city governments. For instance,when a sports arena is built by and for thepublic (taxpayers), in line with the outcomeof a referendum, sports events must betreated as its primary function. Other usesare secondary.

A Responsible PaparazziThe implication is that if the paparazzi,

while on public property, cannot engage intheir special activities without obstructingothers who are using it for its primarypurpose, they are violating rights. Further­more, if they harm others or contribute to adangerous situation, they are culpable. Asteady prosecution of such conduct couldabate some of the adverse, at times disas­trous, consequences of the often zealouspursuits for which people use publicspheres.

The press in America enjoys a specialstatus among all the professions: it is ex­plicitly, constitutionally protected from gov­ernment regulation. This is, of course, goodas far as it goes; all honest work should beprotected from government regulation. Butdespite that status, people in the news­gathering business should not get the im­pression that for them everything is permit­ted. By having nearly unlimited access topublic realms, the press already has thebenefit of lower costs for its operations. Itsraw material, the news that originates inpublic spaces, can be obtained withouthaving to purchase it, quite unlike any othercommercial undertaking. If the paparazzihad anything to do with Princess Diana'sdeath, perhaps it will draw attention to thisdistorted legal situation and the dilemmasof so-called public property. The basic rights ofthe press will be best protected when all indi­vidual rights are protected. 0

Back in Print!

GOVERNMENT-AN IDEAL CONCEPTby Leonard E. Read New Introduction by Hans F. Sennholz

To Leonard Read, government was neither a manager ofeconomic activity nor an almoner of gifts to the people, but anecessary instrument of social order. Its only basis is justice, notpity. Government is represented by agents who are expected toenforce and defend man's natural rights and protect him againstwrongs of his fellowmen. But these agents should not do whatthe individual must not do. The agents of government should bemen and women of integrity. Unfortunately, Read observed,political office tends to rob a person of modesty, humilit)T, and

integrity, which make it advisable never to accept a political office.

Leonard Read's eloquent discussion of the nature of government and a newbeginning in freedom will endure as a principled work of great value. It is aguidepost for readers seriously interested in the limits of public regimen and thecause of liberty.

152 pages, indexed, paperback $12.95

A few years before Leonard E. Read authored this book, he created The Foundation for EconomicEducation. He was convinced that every generation must defend its freedom anew against theintellectual forces that seek through ever new devices to enslave it. Therefore, he dedicated his greatstrength and ability to the study and dissemination of freedom ideas. He managed the Foundationfrom its beginnings in 1946 until his death in 1983.

THEFREEMANIDEAS ON LIBERTY

Where Does Law Come From?

by Bruce L. Benson

T he legal scholar Lon Fuller defined lawas "the enterprise of subjecting human

conduct to the governance of rules."l Itincludes basic rules of conduct as well asinstitutions or mechanisms for clarifying,changing, and applying the rules. Further­more, as David Hume observed almost twoand a half centuries ago, a primary motiva­tion for developing rules and governinginstitutions is the attempt by rational indi­viduals to find ways to expand their personalwell-being or wealth in the face of scarcity.2

But, as Franz Oppenheimer explained,there are two ways for individuals to expandtheir wealth: "economic" processes, whichconsist of cooperative voluntary interaction,including production and trade; and "polit­ical" processes, which take wealth producedby others through the use or threat of force(or guile).3 Understanding the evolution oflaw requires recognition of the conflictingincentives to establish rules for the purposeof creating wealth versus rules for thepurpose of expropriating it.

Wealth-Seeking and theEvolution of Law

How can law evolve from self-interest?Competition over the use of scarce re­sources is inevitable. Unilateral efforts to

Bruce Benson is De Voe Moore Professor andDistinguished Research Professor in the depart­ment ofeconomics at Florida State University. Thisarticle draws from a research project supported bythe Earhart Foundation, the Institute for HumaneStudies, and the Independent Institute.

turn a property claim into actual ownershiprequires a sufficiently strong threat of vio­lence to exclude others from making con­flicting claims. Since several individuals arelikely to have similar incentives with regardto any scarce resource, violent competitioncould consume vast amounts of resources. Issuch a Hobbesian "war of all against all"inevitable? No. For instance, individualswith similar capacities for violence (andtherefore small expectations of winning awar) might agree to recognize an equalinitial distribution of private-propertyrights to scarce resources. The incentives tolive up to that agreement are largely posi­tive: as a result of reciprocal commitmentsto respect property claims, individuals ex­pect to grow richer by focusing resources onproductive activities rather than on protec­tive or aggressive activities.

Of course, a Hobbesian war can arise ifsome parties believe they are probablystrong enough to take more wealth. Buthistorical and anthropological evidencesuggests that the earliest men lived ingroups that were largely cooperative.4 Thisis not surprising since people's capacity forviolence was probably similar until wealthbegan to accumulate; thus, mutual deter­rence tended to prevent the taking of re­sources, leaving cooperation as the onlypotential means of increasing wealth.

Even when one party's capacity for vio­lence is substantially greater than that ofothers, continual violent conflict is still notlikely to occur. Indeed, if an individualhas an absolute advantage in violence, he

725

726 THE FREEMAN • DECEMBER 1997

will be in a position to induce others toaccept slavery, thus concentrating all prop­erty rights (including the ownership of otherpersons) and wealth in the hands ofthat one"authority." Of course, he will also have tomaintain his position of dominance to as­sure continuation of that uneven distribu­tion of rights and wealth. After all, theslaves' incentives to accept the situation are"negative"-they accept subjugation onlywhen they expect it to be better than thehigh-probability alternative of losing every­thing.

Between the extremes of voluntary agree­ments and slavery many other nonviolentpossibilities exist. Those possibilities entailforms of extortion, or "protection" fromthe very individuals demanding paymentrather than from other threats. Some pro­tection rackets involve large payments (forexample, tribute or taxes), while others arecharacterized by dispersed private-propertyrights and modest payments to someonewith a comparative advantage in violence.

It may well be that a person choosing topay for "protection" could produce suffi­cient counterforce to overthrow the extor­tionist. But if the payment demanded is nottoo great, an individual capable of produc­ing considerable wealth could decide thatthe cost of counterforce is too high to makeit worthwhile. But if so, the extortionist isconstrained in how much he can demand.

Let's consider a spontaneously evolvingvoluntary legal order before turning to theimplications of extortion and law.

Law Through CooperativeInstitutions

Voluntarily recognized "trust rules," touse Viktor Vanberg and James Buchanan'sterminology, essentially involve explicit orimplicit agreements to adopt predictablepatterns of behavior, or norms, in dealingwith a limited number of identified individ­uals.5 Since the primary source of conflict isscarcity, trust rules focus on the allocationof property. Each individual better secureshis property claims by accepting an obliga­tion to respect the property rights of others,

who of course are expected to reciprocate.As this occurs, people can make plans overlonger periods and get the highest returnfrom their resources.

But how does governance occur? Imaginean evolutionary process in which individualsrecognize the high cost of unilateral vio­lence as a means of establishing propertyrights. Individuals with similar capacitiesfor violence and facing the likelihood ofrepeated dealings (for example, with neigh­bors) will form tentative bilateral relation­ships that include promises to recognizeeach other's property boundaries. If indi­viduals significantly benefit from a continu­ing relationship, a violation of a rule can be"corrected" through the so-called "tit-for­tat" strategy. Essentially, the wronged partyresponds in a similar fashion (so the re­sponse need not be violent) in the nextround in order to punish the wrongdoer, butthen signals a willingness to return to be­havior consistent with the rules if the orig­inal violator will do the same. The ruleviolator sees that if he wants the benefitsfrom ongoing cooperation he must followthe rules.

Another option, when there are compet­itivealternatives, is to simply refuse to dealagain with someone who has proven himselfuntrustworthy. As more bilateral relation­ships are formed and a loose-knit groupwith more elaborate reciprocal dealingsdevelops, such competition arises. Thus,individuals can cooperate unconditionallywith anyone known to be trustworthy, whilerefusing to deal with anyone known to haveviolated a trust rule with anyone in thegroup. If information spreads quickly andeveryone spontaneously responds to a ruleviolation, the violator is excluded frominteraction with all members of the com­munity. Social ostracism is the result, and itcan be a significant punishment. In fact, anindividual's incentives to exact physicalpunishment are weak when competitivealternatives to the violator exist and infor­mation is easily spread. Investments incommunication mechanisms substitute forinvestments in the capacity for personalviolence. Indeed, Vanberg and Buchanan

explain that once a group is formed basedon intermeshing bilateral trust rules, "soli­darity rules" (obligations that are expectedto be upheld because everyone benefits) canalso develop.

Solidarity rules include "inform yourneighbors about individuals who violate trustrules" and "boycott untrustworthy individu­als." They evolve spontaneously as individ­uals substitute ostracism for violence. Relatedrules, such as "look out for your neighbor"and "inform everyone when a rights violationoccurs," tend to follow, and multilateral co­operative policing to insure property rightsultimately evolves. Members of close-knitgroups often do things to prevent theft againstfellow members and cooperate in pursuit andprosecution when a theft occurs.6 Individualswho do not follow solidarity rules (for exam­ple, who do not contribute to cooperativepolicing) may also be ostracized, so free-riderproblems are not significant.

Threats and sanctions are not the primaryincentives to recognize rules in an evolvingcooperative group. Important positive in­centives also develop. Unexpected drasticlosses of wealth (from fires, storms, acci­dental death of the breadwinner) can createincentives to turn to theft. To avoid this, agroup may establish insurance arrange­ments to protect people from occurrencesthat might force them to steal in order tosurvive. Self-interested individuals will vol­untarily help someone in distress in order toencourage him to continue respecting theirproperty rights. They might do so with thereciprocal assurance that they can receivehelp if they need it in the future.

Other institutional arrangements alsoevolve. Because policing is imperfect, some­one accused of a rule violation may not beguilty and may dispute the charge. In suchan event, "prosecution" could be violent,but in a close-knit group violence can havesignificant costs, particularly if opinionsabout guilt are mixed. Those costs can bereduced by developing nonviolent means ofresolving disagreements and clarifyingproperty rights, and by making acceptanceof a judgment relatively attractive for theloser.

WHERE DOES LAW COME FROM? 727

For instance, a mutually acceptable me­diator or arbitrator might be chosen fromamong the most reputable members of thecommunity or from a pool of dispute­resolution specialists. Since this third partymust be acceptable to both disputants,"fairness" is embodied in the dispute­resolution process. The loser might also beallowed to buy his way back into the com­munity by paying appropriate restitution,rather than being subject to physical pun­ishment or exclusion. Of course, fulings canbe backed by threats of ostracism, but ingeneral, resolutions are likely to be ac­cepted because even losers recognize thatthe long-term benefits of behaving accord­ing to expectations probably exceed resti­tution payments (or the costs of exclusion).Many historical and anthropological studiesdemonstrate that restitution and voluntarymediation or arbitration are common insti­tutions in the legal systems of close-knitgroups.7

All such institutional developments tendto be spontaneous and unplanned. Theresult is a movement toward increasinglysecure private property rights under "cus­tomary law." Indeed, as Robert Ellicksonwrites, "There is abundant evidence that a... group need not make a conscious deci­sion to establish private property rights....People who repeatedly interact can gener­ate institutions through communication,monitoring, and sanctioning."8 Thus, nocentral authority with coercive powers isnecessary to produce law in such a cooper­ative social order. Coercion is only requiredwhen there are strong incentives to resist,generally because the law grossly discrimi­nates between individuals or groups in theallocation of rights and wealth.

Extortion and theEvolution of Law

Suppose an individual is better than oth­ers at wielding violence and chooses to takethe wealth produced by them. The result isa "negative sum" undertaking since theforcible transfer and any efforts to resist itconsume resources that could be used to

728 THE FREEMAN • DECEMBER 1997

create new wealth. Nonetheless, such anindividual may expect to be better off byappropriating wealth than by cooperating,producing, and trading.

Obviously, that person will develop areputation for using violence. The reputa­tion can be valuable because the merethreat of violence may be sufficient to obtainwealth. Once such a reputation develops,however, his potential for entering cooper­ative relationships is reduced, since anyonewith whom he does not have a prior trustarrangement will doubt his word. There­fore, the decision to take wealth ofteninvolves a permanent commitment to extor­tionist behavior. Moreover, he will wish toestablish an environment that will producea steady income. He will establish rules andinstitutions to minimize the costs of contin­ual extortion. Among other things, thisimplies the extortionist will attempt to es­tablish a monopoly in violence. After all, ifa victim can find some person or coopera­tive group to protect him, the extortionist'sability to extract wealth will be severelylimited. Thus, the extortionist must erectbarriers to keep people from escaping his"jurisdiction."

The scale of violence required to competefor and maintain power will be greater thanany single individual can produce, of course.Therefore, an "entrepreneur" in extortionwill generally establish a "firm," which willuse part of the seized wealth to buy servicesfrom others who have a comparative advan­tage in violence but less entrepreneurialskill. (These will include strong-arm enforc­ers, army or police personnel, and produc­ers of the tools and symbols of violence.)Such "protection firms" will require internalcooperation, so the dealings between peo­ple within the firm will differ from thedealings with the targets of extortion. Manycases of organized aggression involved co­operative communities with establishedtrust relationships, such as those describedabove, that were persuaded by an entrepre­neurial leader (for example, a tribal warchief) that they could get rich through raidsor conquest. But if powerful enough, such afirm itself can threaten the entrepreneur, so

he will have incentives to keep the organi­zation decentralized (raising the cost ofcollusion) and to create competition for thebooty among the factions.

The extortionist can also help avoid rivalsby buying cooperation from potentiallypowerful individuals. As a result, the pro­tection racket can combine extortion of theweak with protection of the relatively pow­erful. To maintain power, the extortionistalso has incentives to redistribute wealth asthe relative power of subgroups within hisjurisdiction changes. The redistributionwould aim at obtaining the support of sub­groups that could become powerful enoughto threaten his power. Thus, while mutualinsurance arrangements in cooperative sys­tems aid the weak who may have littleincentive to respect property rights, extor­tion-based systems aid the powerful whootherwise have little incentive to respect theleader's claim to sovereignty. Of course,since there is a potential danger that thepoor also could organize and revolt, theleader might give them something too. Buttransfers to the wealthy or powerful willpredominate, and any transfers to the poorwill mainly flow from others who lackpower.

The extortionist might even develop in­stitutions through which the competitionfor transfers can be channeled and ob­served. Focusing such competition in "ad­visory councils" or "representative assem­blies," for instance, could reduce the cost ofmonitoring and dealing with groups. As theexchange of support for privileges is insti­tutionalized, powerful subgroups might seetheir interests linked to those of the "sov­ereign."An effective entrepreneur in ex­tortion might also be able to lower his costsand legitimize his claim as the monopolysource of rules and interpretation by estab­lishing "adversarial" dispute-resolution fo­rums (courts or assemblies) backed bythreats of violence.

The political means of gaining wealth isparasitical on the economic host, so anextortionist faces a tradeoff. Large levels ofextortion in the short term reduce produc­tivity and the potential for income in the

long run. How much the leader takes willdepend on how long he expects to holdpower. He is likely to recognize some pri­vate-property rights and allow some coop­erative organizations in order to createincentives for producing more wealth.Nonetheless, the threat of appropriationmeans that allproperty is in a common pool,open to some extent to political competi­tion.

To the degree that the extortionist suc­ceeds in legitimizing his claims to sover­eignty and preventing people from fleeing,his subjects will see him as the singlelegitimate source of rules in the geographicjurisdiction. The sovereign may attempt todesign and impose his own rules, but he isalso likely to claim to be the source of thecustomary laws already in force becausethey are low-cost mechanisms for facilitat­ing the creation ofwealth, which he can thenappropriate. His "law," however, must besuperior to customary law. Many early codesof kings were largely codifications of custom­ary law but with changes to permit the sov­ereign to dictate the distribution of wealth.9

Many such claimants to sovereignty musthave succeeded, because people generallybelieve the state is the source of all law.Most (if not all) modern nation-statesclearly evolved from nonstate extortionistinstitutions-for example, tribal war chiefsbecame kings and kingdoms became nation­states. The "law" of the state serves manyconflicting functions, simultaneously ha­rassing and protecting private interests,extorting wealth and encouraging its pro­duction, maintaining the class structure andcutting across classes, integrating parts ofsociety and disintegrating other parts. Law(in a positive sense) and justice (in a nor­mative sense) are not synonymous.

Political Distortion and theEvolution of Law

The power of a sovereign almost neverbecomes absolute, but the cooperativegroups' customary law, a product of "spon­taneous order," is always distorted. As F. A.Hayek explained, "spontaneous order arises

WHERE DOES LAW COME FROM? 729

from each element balancing all the variousfactors operating on it and by adjusting allits various actions to each other, a balancewhich will be destroyed if some of theactions are determined by another agencyon the basis of different knowledge and inthe service of different ends."lO The extor­tionist and his officers cannot fully antici­pate the consequences of their actions be­cause those actions inevitably cause a longtrain of readjustments.

The possibility that the extortionist willexpropriate wealth (tax) reduces the pro­ducers' long-term planning and the ex­pected gains from cooperation. Further­more, the legitimization of coercive rulesand institutions stifles the development oftrust relationships; the motive for honoringcommitments becomes avoidance of pun­ishment by the sovereign. Therefore, fewervoluntary organizations are formed andthose formed often perform fewer func­tions. To the degree that such functions aredemanded by powerful political interests,the sovereign may try to force continuedproduction, and if that fails, he may attemptto produce them through his growing bu­reaucratic apparatus. ll

Even in a society with a very strong ruler,however, some cooperative groups will ex­ist. Those groups may still be able to enforcesome of their own norms, even when doingso violates the sovereign's "law" (for exam­ple, through vigilantism). If, in his effort tomonopolize law, the sovereign preventspractices that voluntary groups want to use(formal agreements to ostracize, third-partydispute resolution, restitution instead ofpunishment), the groups may resort to se­crecy and the sovereign may use violenceto prevent what he sees as crime.12 Whenpolitics dominate a society, it may notemerge very far from the Hobbesian jungle.

Some voluntary groups are strong enoughto maintain formal alternatives to the ex­tortionist's legal system. This is most likelyto happen where the benefits generatedthrough voluntary interaction are large orthe relevant group operates across differentjurisdictions, creating competition amongauthorities. The international merchant

730 THE FREEMAN • DECEMBER 1997

community of medieval western Europe isan example.13 Similarly, modern interna­tional commercial law remains a largelyvoluntarily produced and enforced systemof customary law, despite many attempts tosubjugate it over the centuries. 14

ConclusionMany other examples of parallel systems

of rules and institutions exist. These arecases in which a political system is estab­lished, but alternative predominantly cus­tomary systems support most behavior.1s Itis generally within those groups that "law"and "justice" are synonymous, or at leastcomplementary concepts.

The lesson here is that law and gover­nance are natural institutions that arise outof people's interest in prospering throughproduction, the division of labor, and trade.They do not depend on a central coerciveauthority for their genesis. States can arisewhen a powerful group, bent on institution­alized extortion, co-opt and alter existingcustomary law to serve its own particularinterests. D

1. Lon Fuller, The Morality of Law (New Haven: YaleUniversity Press, 1964), p. 30.

2. David Hume, An Inquiry Concerning the Principles of

Morals, ed. Charles Hendel (Indianapolis, Ind.: Bobbs-Merrill,1957 [1751]).

3. Franz Oppenheimer, The State: Its History and Devel­opment Viewed Sociologically, trans. John Gitterman (India­napolis, Ind.: Bobbs-Merrill, 1914 [1908]).

4. Robert Ellickson, "Property in Land," Yale Law Jour­nal, vol. 102 (1993): 1315-1400.

5. Viktor Vanberg and James Buchanan, "RationalChoice and Moral Order," in From Political Economy toEconomy to Economics and Back?, ed. James Nichols, Jr., andColin Wright (San Francisco: Institute for ContemporaryStudies, 1990).

6. See for example, Bruce Benson, "The Development ofCriminal Law and Its Enforcement: Public Interest or PoliticalTransfers," Journal des Economistes et des Etudes Humaines 3(1992): 79-108.

7. Ibid.8. Ellickson, "Property in Land," p. 1366.9. Benson, "The Development of Criminal Law and its

Enforcement"; "The Spontaneous Evolution of CommercialLaw," Southern Economic Journal 55 (1989): 644-61; and"Law Merchant," in The New Palgrave Dictionary ofEconomicsand the Law, ed. Peter Newman (London: Macmillan, 1998,forthcoming).

10. F. A. Hayek, Law, Legislation, and Liberty, vol. 1(Chicago: University of Chicago Press, 1973), p. 51.

11. Benson, "The Development of Criminal Law and itsEnforcement."

12. Ellickson, Order Without Law (Cambridge, Mass.: Har­vard University Press, 1991), pp. 213-14; Hernando de Soto,The Other Path: The Invisible Revolution in the Third World(New York: Harper & Row, 1989).

13. Benson, "The Spontaneous Evolution of CommercialLaw" and "Law Merchant."

14. Benson, "Customary Law as a Social Contract: Inter­national Commercial Law," Constitutional Political Economy 2(1992): 1-27; and "Law Merchant."

15. See for instance, Lisa Bernstein, "Opting Out of theLegal System: Extralegal Contractual Relations in the Dia­mond Industry," Journal of Legal Studies 21 (1992): 115-58;Ellickson, Order Without Law; and Benson, "An Explorationof the Impact of Modern Arbitration Statutes on the Devel­opment of Arbitration in the United States," Journal of Law,Economics & Organization 11 (1995): 479-501.

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Ideas and Consequences

Will RetirementBecome a PersonalResponsibility?

With Social Security benefits pro­jected to exceed the system's reve­

nues within 15 years, young Americans areincreasingly skeptical that the governmentwill take care of them when they reach theirmid-sixties. That's a healthy developmentbecause in a free society, responsibility forone's retirement is too important to relin­quish to the vagaries of politicized pro­grams.

A recent report from the Board of Trust­ees of the Social Security Trust Fund pro­jected that payroll tax revenues alone will beinsufficient to pay current benefits as earlyas the year 2012. The system can draw uponits revenues plus interest on the surplusesof previous years for a while longer, butwhen that's all gone, we'll be staring gar­gantuan tax hikes in the face. Withoutcutting benefits, the trustees estimate thatpayroll taxes would have to quickly rise fromthe current 12.4 percent to a whopping 18.8percent.

Of course, don't rule out the prospect ofa reduction in benefits, which might come inone or more disguises such as raising the ageat which one can begin collecting checks.This much is clear: trusting to politicians totake care of you in your old age is costly,unpredictable, and therefore dangerous.Those who warned of this when the systemwas established in 1935 were pilloried as

Lawrence w: Reed, economist and author, ispresident ofthe Mackinac Center for Public Policy,a free-market research and educational organiza­tion headquartered in Midland, Michigan.

by Lawrence W. Reed

heartless and stingy but they now look likethe wisest prophets of their day. It's too badmany of them are not around in 1997 to helpus untangle the mess they foretold.

As a solution, advocates of the privatiza­tion of Social Security often point to Chile'sremarkable success in that very endeavor.But Americans need not look any furtherthan Great Britain for some of the samelessons. British workers, optimistic abouthow they'll fare in their senior years, arerelishing the prospect of a pool of pensionfunds greater than that of all other Euro­pean countries combined.

Why do the British have far less anxietyabout their financial future than theirAmerican counterparts? They are not, as aHeritage Foundation report recentlypointed out, "locked into a rigid, financiallytroubled government-run system." A fewyears ago, Britain partially privatized itsretirement program, allowing workers toinvest a portion of their payroll taxes inprivate pension funds. While Americans arenot permitted to invest any amount of their12.4 percent Social Security payroll tax inprivate equities or retirement plans, three­quarters of all British workers are enrolledin private plans through their payroll taxes.

Since 1986, Britons have been earningdouble-digit rates on their retirement fundswhile today's young working Americansmust hope to live well beyond the age of100 before their "investment" in SocialSecurity begins to payoff. What's good forthe workers is good for the Treasury as well.

731

732 THE FREEMAN • DECEMBER 1997

The Heritage Foundation report, "SocialSecurity Privatization in Britain: Key Les­sons for Reformers," says that by restruc­turing and privatizing their pension system,allowing consumer choice and competitionamong private pension plans, and control­ling entitlement spending, the British haveamassed a pool of financial assets (or cap­ital) second only to the United States andJapan. Officials are even predicting thatat the rate things are going, Britain willpayoff its entire national debt by the year2030!

While both Chile and Britain are valuablemodels, Americans have domestic examplesto learn from. Three counties in Texas hadthe good sense to get out from under theSocial Security pyramid scam years ago.

A loophole in the original Social Securitylaw allowed municipalities the freedom toopt out, an escape hatch Congress closed in1983. Three Texas counties took advantageof it while it was in effect and as a result,retirees under the private plans in use thereare getting several times the monthly re­tirement check they would have receivedhad they stayed in the government system.Recently, the Oregon legislature over­whelmingly passed a resolution calling onthe federal government to allow states to getout of Social Security.

Of course, those who worship govern­ment, and who think that you and I can't betrusted to take care of ourselves, are work­ing their PR machine overtime to preservethe precarious status quo. A new study fromthe Cato Institute, however, is giving theprivatization side plenty of ammunitionwith which to rebut the statists.

Would putting your retirement nest eggin the private sector be too risky? The Catoreport, "Common Sense Objections to aMarket-Based Social Security System: AResponse," shows that even if a worker

invested his payroll taxes during the stockmarket's worst performing quarters in his­tory, he could still retire better with privatesavings than with Social Security. Over thelast 70 years, a period that includes thebiggest stock crashes in history, stocks andbonds have averaged an annual rate ofreturn of over nine percent-far in excess ofthe average annual Social Security return ofa paltry two percent.

Would paying the cost of private pensionfund management make the idea too ex­pensive? It's true that the governmentspends less to manage Social Security mon­ies than private firms spend to manage theirassets, but that's because the governmentinvests poorly in its own low-paying securi­ties. You get what you pay for. Paying pri­vate managers to generate a far higher returnis a good investment, pure and simple.

While it is encouraging to see privatiza­tion of Social Security become a genuinetopic of wide discussion, every plan putforth so far retains a core element ofcompulsion. "A privatized system," writesone prominent limited-government advo­cate, "should require a mandatory contri­bution to ensure that those opting out ofSocial Security are actually saving moneyfor their retirement." It's a sad commentaryon the many decades of increasing relianceon government that even many friends offreedom believe that Americans might notsave if the government didn't order them to.

Social Security, make no mistake aboutit, will ultimately be privatized partially orwholly. America will not forever lag behindChile and Britain just so it can maintainan antiquated and politicized pension sys­tem that's headed for bankruptcy. It's timethat Americans take back a responsibilitythey should never have trusted to govern­ment in the first place, one way or another,the sooner the better. D

THEFREEMANIDEAS ON LIBERTY

The Efficiency of Natural Rights

by Wendy McElroy

The Hobbesian contention that an almostbiological conflict of interest exists be­

tween human beings, who must compete forscarce necessities, is a stumbling block forthose who espouse natural rights. Certainly,it is a common avenue of attack used bycritics of natural law. They demand to knowhow, in a Hobbesian state of nature, whereone man's life requires the death of another,can it make sense to speak of a natural rightto life, liberty, or anything else? Nature her­self seems to argue against the possibility.

The goal of such an attack is to reducenatural rights to a code of morality divorcedfrom the nature of man and of reality. Yetthese are precisely the two foundationsupon which any useful principle addressinghuman action must rest.

Few contemporary thinkers devotedmore energy to the study of human actionand its underlying principles than Ludwigvon Mises. He called that study praxeology.In his touchstone work, Human Action: ATreatise on Economics, Mises, although nobeliever in natural rights, suggests an in­genious approach by which its theory isstrengthened by a Hobbesian world-view,rather than destroyed by it.

Mises's Reversal of theHobbesian Argument

In part four of Human Action, "Catallac­tics or Economics of the Market Society,"

Wendy McElroy is author of Sexual Correctness:The Gender-Feminist Attack on Women (Mc­Farland, 1996).

Mises speaks of how economic cooperationwithin society springs directly from aHobbesian state of nature. Indeed, he pre­sents "a war of all against all" almost asthough it were a prerequisite for the evo­lution of a market society. In the sectionheaded "The Harmony of the 'Rightly Un­derstood' Interests," Mises argues that be­cause many or all people want shoes theseitems become the focus of large-scale pro­duction, which makes shoes more widelyavailable at lower cost than small-scaleproduction could achieve. He concludes,"The fact that my fellow man wants toacquire shoes as I do, does not make itharder for me to get shoes, but easier....The catallactic competition of those who,like me, are eager to have shoes makesshoes cheaper, not more expensive" (YaleUniversity Press, 1949, p. 670).

Summing up the general implications ofthis insight, Mises concludes: "What makesfriendly relations between human beingspossible is the higher productivity .of thedivision of labor. It removes the naturalconflict of interests. For where there isdivision of labor, there is no longer questionof the distribution of a supply not capableof enlargement." The intensification of so­cial cooperation "becomes paramount andobliterates all essential collisions. Catallac­tic [or economic] competition is substitutedfor biological competition" (p. 669).

To those versed in Austrian economics,the preceding passage may seem to be analmost trite statement of the beneficentinfluence of the division of labor upon the

733

734 THE FREEMAN • DECEMBER 1997

availability of cheap goods. But Mises de­rives a deeper message from the socialdynamic. "The very condition from whichthe irreconcilable conflicts of biological com­petition arise-viz., the fact that all peopleby and large strive after the same things-istransformed into a factor making for har­mony of interests.... This is the meaning ofthe theorem of the harmony of the rightlyunderstood interests of all members of themarket society" (pp. 669-70). The "irrec­oncilable conflicts of biological competi­tion" perhaps even create the harmony ofinterests among human beings.

Although the mechanism of the freemarket may seem to reconcile what Misesreferred to as an "irreconcilable" conflict,the fact is that the conflict remains. Men willstill desire the same scarce goods. What thefree market solves are the problems thatmight attend such shared desire. Instead ofbeing translated into expressions of conflict,the shared desire becomes the motive forcebehind expressions of cooperation.

Through this ingenious logic, Mises re­verses the usual conclusion of the critics ofliberalism. It is precisely because man livesin a Hobbesian world that a market societynaturally arises. Instead of killing eachother to secure the means of survival,human beings naturally cooperate out ofpure selfishness for no other reason thanthat a market society offers otherwise un­imaginable access to cheap goods. As a farmore peaceful arrangement, the marketsociety also provides the stability necessaryfor people to make long-range plans, such asthose implied in raising a family.

In essence, Mises uses the division oflabor as a principle of resolution. Theproblem is mankind's war of all against all,which, many philosophers assure us, doomsour species to live in constant violence.But through the division of labor, thisHobbesian conflict of interests can be, andnaturally is, resolved. The resolution throughcooperation reduces the likelihood of realbiological conflict among human beings to aminimum. Mises reveals that social coop­eration is a vastly more efficient means toachieve self-interest than social conflict.

Benjamin Tucker on Property

The nineteenth-century individualistBenjamin R. Tucker made an importantcontribution to these matters. Tucker firstraised the issue while considering the natureof property, specifically, intellectual prop­erty. On one side of what evolved into aheated debate, advocates of copyright andpatent argued that intellectual property waswealth whose ownership had been acquiredeither through discovery or through labor.Lysander Spooner, for example, definedproperty as "wealth, that is possessed-thathas an owner; in contradistinction to wealth,that has no owner, but lies exposed, unpos­sessed, and ready to be converted into prop­erty, by whomsoever chooses to make it hisown" (Law of Intellectual Property, p. 15;emphasis in the original).

But several aspects of intellectual prop­erty bothered Tucker. For example, howcould one claim ownership of an intangiblething or transfer that ownership? Suchconsiderations led him to address the ques­tion "what is property?" in more philosoph­ical terms.

Tucker believed ideas arose within manand persisted within society only becausethey served a need or answered a question.As an illustration of this theory, consider auniverse parallel to our own but which runsalong different metaphysical rules. The in­habitants of that alternate universe fulfilltheir needs simply by wishing for goods orother forms of satisfaction. Food magicallyappears in their hands, clothes miraculouslydrape their limbs, and a bed pops intoexistence under their tired bodies. In such asociety, it is unlikely that the concept ofmoney would evolve, simply because thatpeculiarly human concept arose as a meansto solve the problems of transferring andstoring wealth-problems that exist in ouruniverse but not in the parallel one.

Tucker used the same problem-solvingapproach to analyze the concept of prop­erty. He asked: what is it about the natureof our universe and the nature of man thatgives rise to the concept of property in thefirst place?

THE EFFICIENCY OF NATURAL RIGHTS 735

Tucker concluded that property arose asa means of resolving conflicts caused byscarcity. In our universe, almost all goodsare scarce, and this leads to an inevitablecompetition among human beings for theiruse: a Hobbesian state of nature, if you will.Since the same chair cannot be used in the

~ same manner at the same time by twoindividuals, it is necessary to determine whoshould use the chair. The concept of prop­erty resolved that social problem. Theowner of the chair should determine its use."If it were possible," wrote Tucker, "and ifit had always been possible, for an unlimitednumber of individuals to use to an unlimitedextentand in an unlimited number of placesthe same concrete thing at the same time,there would never have been any such thingas the institution of property" (Liberty VIII[1891],.p. 3).

Here again, the state-of-nature argumenthas been reversed. The Hobbesian world­view,rather than destroying the possibilityof property, is precisely what gives rise totbeconcept.

Combining Mises and TuckerHow do the insights of Ludwig von Mises

and Benjamin Tucker apply to natural rights?In Human Action, Mises argues that irrecon­cilable· biological conflicts between humanbeings can lead-and may naturally lead-toa state of cooperation. But what is the mech­anism through which human conflict isresolved into human cooperation? In thepages of his nineteenth-century periodical,Liberty, Tucker argued that principles, ideasthemselves, are problem-solving devicesthat arise to address man's needs, includingsuch competing needs as the desire forscarce goods. Why call those principles

."natural rights"? The answer is that they areclaims derived from necessities dictated bythe objective nature of man and of reality.

How does the principle of rights as prob­lem-solving devices apply to specific rights?Consider the natural right known as free­dom of speech.

Human beings value society because itprovides them with great benefits, not only

material goods and emotional sustenance,but also information and knowledge, both ofwhich are necessary to life. Useful informa­tion can be extremely difficult to obtain sincethe truth, falsehood, or utility of ideas is notas intuitively obvious as the ripeness or rot­tenness of an apple. History is replete withabsurd ideas that eventually provedto be true.

Obtaining knowledge is made more dif­ficult by the fact that no one has a monopolyon truth or insight. And no one knows howuseful any particular idea may eventuallyprove to be. For example, when mathema­ticians invented the imaginary number i, thesquare root of -1, they were thrilled by thisentirely abstract construct. Electrical engi­neers were also thrilled. Little did mathe­maticians suspect that the concept was themissing and invaluable tool to describe howalternating currents flow through a circuit.The utility of any idea can be judged onlywith reference to the user's unique, subjec­tive purpose.

Since information and knowledge arenecessary to life, the question becomes: howcan human beings maximize the chances ofobtaining this survival good? One alterna­tive is to allow only true or valid statementsand arguments to circulate. But this pre­supposes an absolutely impartial and om­niscient entity that would regulate this flow.It also presupposes a God-like awareness ofthe use to which every idea will be put.

In the absence of such an entity, the bestsolution to the problem of maximizing in­formation is to let all information flow. Letall human beings have the right to speak sothat the worth of their words can be judged.In this manner, freedom of speech becomesa principle of resolution. Although freespeech certainly does not guarantee truth,the chances of getting good information ismore likely to occur in a society that re­spects free speech than in one that censors.

Similar arguments can be made for theother specific natural rights.

Disp:roving CasesWhenever a theory is proposed, disprov­

ing cases quickly follow. If natural rights are

736 THE FREEMAN • DECEMBER 1997

problem-solving devices that are necessi­tated by the state of nature, it will be asked,what of those conflicts that cannot be re­solved in this manner? Do they not invali­date the theory?

The answer is no. The above-sketchedapproach postulates natural rights not asmoral truths, but as social tools to solve theproblem of human needs and human con­flict. For this theory to be "proven"-that is,for natural rights to be seen as desirableprinciples-it is necessary only to demon­strate that they are more efficient than anyother competing system of problem-solvingdevices.

Nevertheless, we should not ignore dis­proving cases. In general, the sorts of con­flicts that are immune to resolution bynatural rights fall into two broad categories:moral dilemmas and emergency situations.

The first category-moral dilemmas-ismost commonly found in textbooks on eth­ics or posed by professors who wish topuzzle their students with an allegedly pro­found moral problem. The presented di­lemma usually involves a situation akin tothe following: by pushing a magic button,you can eliminate all heart disease in theworld. But by doing so, you will cause thedeath of an innocent stranger. The questionis: morally, should you push the button? Theconflict here is that in order for a great manypeople to live, you must kill an innocentperson. This is almost a definition of a state-ofnature dilemma: one person's life necessitatesthe death of another.

Such puzzles are not profound moralproblems at all: they are philosophicalsleights of hand. To take the button-pushingscenario seriously you would have to inhabita universe so vastly different from ours thatyour moral code would not even remotelyresemble the one you hold today. After all,your morality has been constructed uponthe realities as you know them. You havederived a code of behavior based on certainassumptions about the nature of the uni­verse and your own nature as a humanbeing. These assumptions did not include amagic button that causes both miracle cureson a global level and instant unexplainable

deaths. If the universe ran along principlesthat included magic buttons, you wouldundoubtedly have had an entirely differentcode of behavior from the one you have now.

If natural rights are tools for addressingthe realities of our universe and our nature,then changing the realities that determinedthe content of rights will-of course-re­duce their usefulness or render them irrel­evant. To dismiss qatural rights on suchgrounds is like declaring a hammer to beuseless because it cannot pound water intoshape.

In essence, these sorts of moral dilemmasare perplexing not because they constitutemoral problems, but because they constitutemetaphysical ones. The moral dilemma be­ing suggested-if it would be a moral di­lemma at all-would exist only in anotheruniverse that ran by rules inapplicable toour own.

The second category of a disproving in­stance is not so easily dismissed. These areemergency cases in which the life of onehuman being literally requires the death ofanother. The most famous emergency caseis undoubtedly the lifeboat example: twomen are adrift in a lifeboat without suppliesand unless one of them cannibalizes the.other, they both will die of starvation. I fullyagree that, in these circumstances, naturalrights will probably be ineffectual as a toolof resolution.

Two points should be weighed regardingemergency cases, however. First, such sce­narios present an extraordinary challengeto every system of social organization. Nosystem provides an answer that would allowboth men to live; no system offers a reso­lution that would prevent someone's death.As such, the real question is not whethernatural rights can resolve a lifeboat situa­tion, but whether natural rights address thesituation better or worse than competingsystems. Frankly, I think all systems of socialresolution fail equally at this point.

Second, true emergency cases, in whichyour life requires another's death, consti­tute a minuscule percentage of the socialconflicts you will encounter during yourlifetime. Indeed, most of us will never be in

THE EFFICIENCY OF NATURAL RIGHTS 737

a lifeboat situation. It makes no sense toaccept or reject the social tools of daily lifeon the basis of how well they address highlyimprobable emergencies that will probablynever occur.

ConclusionNatural rights are not only problem­

solving devices. They are also moral prin­ciples that can be rationally defended. I seeno tension in holding both views side by

side. Indeed, if a theory is true, or univer­sally applicable, it would be surprising todiscover that there was only one useful wayto approach it. Many intellectual pathsshould lead you in the same direction.

The conception of social principlesas morally neutral problem-solving devicesis meant merely to explore the more prac­tical aspects of natural rights, and to providenew answers to old criticisms, such as thatembodied in Hobbesian state-of-nature argu­ments. 0

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Probing the most difficult and pressing of social and economicquestions, articles range across economics, political science, law,history, philosophy, sociology, and related fields. Edited by RobertHiggs, The INDEPENDENT REVIEW features in-depth examina­tions of current policy issues viewed in comprehensive historical,ethical, and economic perspectives. Undaunted and uncompro­

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THEFREEMANIDEAS ON LIBERTY

The Future of the UnionMovement: Clues Fromthe ups Strike

by Charles W. Baird

·Thefirst Monday in September is LaborDay. lIowever, the media, both print

and broadcast, seem to think it is UnionDay. This year, as the media's Union Dayapproached, the two most-quoted and most­televised. personalities were John Sweeney,president of the AFL-CIO, and Ron Carey,preside.nt of the Teamsters. They boasted ofthe victory of the Teamsters over UnitedParcel Service (UPS) last August and pro­claimed the beginning of a resurgence ofthe American union movement. They werewrong.

The overwhelming majority ofAmericanlabor is union-free. Only 10 percent of theprivate-sector work force is unionized. Thatnumber has been declining since 1953, whenitwas 36 percent, and it will continueto de­cline. By 2000 it will be, at most, 7 percent,the same as it was in 1900. Neither the UPSstrike nor all the bluster of Sweeney, Carey,and their surrogates about bold new ven­tures in· union organizing can stem the tide.The future of the American union move­ment as we know it (at least in the privatesector) is decay. In contrast; the future ofthe American labor movement is increasing

Charles Baird is prOfessor of· economics anddirector ofThe Smith Center for Private EnterpriseStudies at California State. University, Hayward.

prosperity based on competition and entre­preneurship.

Economists have always understood that.,a labor union is merely a carteL It is a groupof sellers of labor services in collusion toeliminate competition among themselvesand to try to quash competition from others.The unions' rallying cry has always been,"Take wages out of competition."

Competition is the enemy· of all cartels.Even if a union can impose discipline onits own members, it always has to contendwith union-free workers and union-freefirms. In the modern American economy,with substantial (albeit insufficient) dereg­ulation in hitherto heavily unionized indus- ..tries-for example, trucking and airlines~

even unionized firms . cannot pass above­market wage costs forward to customers.Moreover, competition is increasinglyglobal in scope. Every entrepreneur in everycountry has the potential of causing unex­pected changes in market .conditions •.. towhich American firms and American work...ers must respond.

Firms and workers under the yoke ofSweeney-style unionism are too inflexible torespond adequately to rapidly changingmarket conditions. And John Sweeneyknows it. That is why he and his agents in

738

Congress always struggle against free trade.As free trade expands, Sweeney-styleunions must wither.

A Worker Victory or aUnion Victory?

The 1997 strike of the Teamsters againstUPS certainly looked like a union victory.UPS capitulated on the two key issues inthe dispute-converting part-time jobs intofull-time jobs and preventing UPS fromwithdrawing from 21 Teamster-controlledmulti-employer pension funds and settingup its own fund for its own workers. How­ever, it never looked like a victory for allUPS workers. First, the additional full-timejobs were to be created by combining largenumbers of part-time jobs. Thus, many ofthe 75 percent of part-time workers whodidn't want full-time jobs were hurt. Sec­ond, if UPS had set up its own pension fundfor its own workers, all beneficiaries wouldhave received 50 percent higher pensionsthan they do in the Teamsters' multi­employer plans.

One clear winner in the strike was, pre­sumably, Ron Carey, whose earlier electionas president of the Teamsters was under acloud of suspicion concerning illegal cam­paign financing. (I guess his defense wasthat everyone does it.) Because of its pastrecord of corruption, Teamster electionsmust be certified by a federal electionsoverseer. Right after the strike, the over­seer, Barbara Ouindel, announced that anew election had to be held. Carey knew ofOuindel's decision before he called thestrike on August 4. He knew he would haveto stand for re-election against his rival,James P. Hoffa, the son of the notoriousTeamster leader of the 1970s. The strike wasan ideal way for Carey to prove his ma­chismo to Teamster voters. I have no doubtthat was a major reason why he called thestrike rather than continue negotiations.After the strike Carey also raised pensionbenefits in the midwestern states, the areain which Hoffa's support is strongest. (Atpress time, the new election had not beenheld.)

739

Striking a Blow AgainstUPS Workers

Despite the general impression, the UPSstrike was no long-term victory for thecompany's employees. Before the strike,UPS had an 80 percent market share inpackage deliveries in the United States.Although it had always been unionized, ithad never before been subject to a nation­wide strike. It had a well-deserved reputa­tion for dependability at competitive prices.It no longer enjoys such a reputation. Dur­ing the 15-day strike most of its customersdiscovered that they were totally dependenton UPS. They tried desperately to findalternative ways to deliver their packages,but most of them failed. While UPS hasmany competitors-for example, the U.S.Postal Service, FedEx, Emery Worldwide,ETA Express, DHL Worldwide Express,RPS Inc., and even Greyhound Bus Lines­they were not able to handle anywhere nearthe 12 million packages that UPS shippedeach day. FedEx has been UPS's strongestand most aggressive competitor, activelytrying to capture market share at UPSexpense, but most of the others seem tohave been resigned to UPS dominance.They no longer are.

The strike alerted existing and potentialcompetitors to the profit opportunities infighting UPS for market share. Apart fromthe Postal Service, most of the other com­petitors are union-free and thus are ablequickly to respond to profit opportunities.They are unburdened with the yoke of unionwork rules and union costs. UPS inevitablywill try to push its increased union costsforward onto its customers. When it does so,even more profit opportunities will open upfor competitors. Since UPS customers havebeen reminded that it is unwise to rely on amonopoly provider of anything, they will bereceptive to the blandishments of competitors.

Moreover, as this is written UPS faces thethreat of another strike. The IndependentPilots Association (IPA), the union thatrepresents the pilots who fly UPS planes,refused to cross Teamster picket lines in theAugust strike, and the Teamsters promised

740 THE FREEMAN • DECEMBER 1997

they would not cross IPA picket lines in theevent it strikes. Even if IPA doesn't strike,the reality of the strike-threat presentsanother opportunity for UPS competitors toremind UPS customers of how unreliable,and costly, a union-dominated firm can be.

As it becomes clear that UPS and theTeamsters are losing market share in thepackage delivery business, workers will re­alize that in this globalized, competitiveeconomy unions are not their friends. Atbest, unions can generate short-run gainsfor workers they represent. But, sinceunionized firms have a competitive disad­vantage in the modern economy, those sameworkers will eventually discover that theiremployers have fewer and fewer jobs to offer.

Unionism has always depended on hoarymyths: that employees and employers arenatural enemies, that employees have aninherent bargaining power disadvantagerelative to employers, that the only wayemployees can gain bargaining power isthrough unions, and that unions are respon­sible for the improvements in living stan­dards enjoyed by workers over the last onehundred years.

The UPS strike will hasten the day whenmost workers come to realize that compe­tition and entrepreneurship, not unions, arethe source of lasting prosperity for workersand investors alike. When that day comes,the labor movement will, at last, be freefrom the union movement. D

The Industrial Revolution and Free TradeEdited by Burton W. Folsom, Jr.

Most historians give the Industrial Revolution low marks. This volumetells the rest of the story. The advent of the factory system and massproduction made more goods available to more people less expensive­

ly than ever before. Even though factory workers often labored long hours underhard conditions, they also increased their wealth, lengthened their lives, andimproved their standard of living. The economic policy of free trade, whichoften followed when nations industrialized, fostered increased commerce, theexchange of information, and greater understanding among countries.

"The Industrial Revolution and Free Trade is a rich, informativeanthology. A veritable gold mine offacts about the history offree trade and

of the free market, it is a book worth owning and consulting. Professor Folsomhas done well to provide us with this collection and with his

own learned introduction. /I

-PAUL GOTTFRIED, Professor of HistoryElizabethtown College, Pennsylvania

DR. BURTON W. FOLSOM, JR., is a Senior Fellow in Economic Education at theMackinac Center for Public Policy in Midland, Michigan. A former college pro­fessor, he is the author of several books and many essays on economic history.

Published byThe Foundation for Economic Education, Inc.30 South Broadway, Irvington-an-Hudson, NY 10533

ISBN 1-57246-057-1 • Paperback $14.95Available in bookstores nationally, or call FEE: 1-800-452-3518

Potomac Principles

Kill BigBusiness's Bank

T he federal government is full of pro­grams designed to benefit one or an­

other special interest. Like the Export­Import Bank.

The Bank, which provides loans, loanguarantees, and loan insurance for thepurchase of American goods, has long beenknown as Boeing's Bank, given its supportfor Boeing aircraft sales. But most majorU.S. exporters share in the windfall. In fact,ExIm beneficiaries are a Who's Who of theFortune 500: 80 percent of its subsidies goto medium and large companies, with abouthalf of those benefits collected by just 15 bigfirms. Like Boeing, which, after its mergerwith McDonnell Douglas, will have totalsales of $48 billion.

And those firms are not shy about show­ing their support. When the Senate Sub­committee on International Finance of theCommittee on Banking, Housing and Ur­ban Affairs held hearings earlier this year onreauthorizing the Bank, eight of nine wit­nesses endorsed more money for the insti­tution. Half of them represented companiessupping at the federal trough. Businessorganizations like the National Associationof Manufacturers, which always extoll theircommitment to free enterprise, devote al­most as much energy to increasing benefits

Doug Bandow, a nationally syndicated columnist,is a senior fellow at the Cato Institute and theauthor and editor of several books, includingTripwire: Korea and U.S. Foreign Policy in aChanged World.

by Doug Bandow

to business as to battling regulations onbusiness.

Of course, none of the firms admits thatself-interest animates its lobbying on behalf ofExIm, which has spent $3.7 billion over the lastfive years. Bank supporters argue that if the U.S.government doesn't provide cheap credit,American companies will lose out to foreignfirms, many of which are subsidized by theirhome governments. The result would be lostjobs. Thus, ExIm advocates contend, their fightfor subsidies for their firms is actually a fight forjobs for America.

A Flawed ArgumentThere are two major flaws with this

argument. The first is the belief that gov­ernment can provide a free lunch, that themoney channeled to the purchasers of U.S.exports is somehow costless. But it isn't.When the Bank makes a loan, or usesguarantees or insurance to direct someoneelse's loan, less credit is available for use byother firms and individuals. University ofArizona economist Herbert Kaufman esti­mates that every $1 billion in federal loanguarantees crowds out between $736 mil­lion and $1.32 billion in private investment.That means fewer deals and lost jobs. As theGeneral Accounting Office acknowledges,"Government export finance assistance pro­grams may largely shift production amongsectors within the economy rather than raisethe overall level of employment in theeconomy." The ExIm Bank, then, redistrib-

741

742 THE FREEMAN • DECEMBER 1997

utes rather than creates jobs-after exactingan administrative charge.

There's neither moral nor economic rea­son to enrich those companies lucky enoughto benefit from Bank activities at the ex­pense of the rest. Rather, the institutionoffers lawmakers political benefits: visiblesubsidies to companies that reciprocate withcampaign support and invisible costs to thepublic, who remains inert.

The second misleading claim made byExlm enthusiasts is that the Bank under­girds U.S. exports. In fact, the vast bulk ofexport financing comes from the privatesector. Bank deals account for but 2 percentof total exports. And the $16.5 billion insubsidized trade this year, a record, is amere blip for a $7 trillion economy.

Equally important, it is virtually impos­sible to assess which deals are dependent onExIm subsidies. Undoubtedly some are, butevery participant in the process-borrower,banker, exporter, bureaucrat-has an in­centive to claim that the subsidy clinchedevery transaction. Yet surveys have longshown credit to be but one of many factorsin making a purchase; one review of aircraftsales ranked credit terms eighth of twelve.And that is America's experience in prac­tice. Last year ExIm dropped any financingof work for China's massive Three GorgesDam project (allegedly for environmentalreasons). That hasn't stopped severalAmerican firms from providing as much as$100 million worth of equipment and ser­vices so far. Thus, in many cases the buyerdoes what he would have done anyway andsimply pockets ExIm's gift.

Underwriting BrutalityThe Bank, created in 1934 to help under­

write trade with the Soviet Union, has neverfound a government too brutal to subsidize.Today China is a leading beneficiary, havingborrowed some $5 billion. Nevertheless,ExIm supporters complain about the Bank'swithdrawal from the Three Gorges Damproject, as if $5 billion was not enoughtaxpayer support for the globe's last majorcommunist state.

Nor is China the only thuggish recipientof the forced largesse of American taxpay­ers. Indonesia is another major Bank client.Over the years ExIm handed out cash toNicolae Ceausescu's Romania, a regimebizarre even by communist standards, andSaddam Hussein's Iraq. Haiti, Nigeria, theSoviet Union, Sudan, and Yugoslavia havealso been beneficiaries of Bank aid.

As for the argument that foreign coun­tries and companies couldn't purchase U.S.products without ExIm subsidies, IanVasquez of the Cato Institute points outthat "44 percent of the Bank's guarantees inFY 1996 went to Argentina, Brazil, China,Indonesia, Korea, Mexico, Singapore, andThailand-all emerging economies thathave no problem obtaining investment fromthe private markets." Other nations havemore trouble raising funds and paying theirdebts, of course, but that is a reason to denythem Bank credit.

ExIm has also interfered with markets athome and abroad. For instance, by subsi­dizing Boeing sales to foreign airlines, theagency has effectively used taxpayer dollarsto put American airlines at a competitivedisadvantage. The Bank has had the samedeleterious effect in foreign nations, rou­tinely underwriting failing state enterprisesthat should have been privatized rather thansubsidized. Mexican economist RobertoSalinas-Leon points to the Bank's $5.6 bil­lion loan to Pemex, the oil monopoly, adecade ago. More recent has been Exlmsupport for Gazprom, the Russian gas mo­nopoly.

But let's assume the theoretical case forthe Bank. Other nations are subsidizingtheir exporters and there are some dealsthat, all other things being equal, should goto American firms. Exlm can restore "bal­ance" and shift the work back to America.It all sounds very nice, but what evidence isthere that federal officials have specialcommercial or political knowledge that jus­tifies turning them into international loanofficers? Surely Washington has had enoughexperience with grant and loan programs todemonstrate that they always operate tofulfill political, not economic, objectives. There

is not the slightest chance that ExIm providesmoney only when it is "efficient" to do so.

More basic still is the issue of principle.What justifies mulcting Americans to en­hance corporate profits? The fact that othergovernments loot their citizens to boostexports is no argument. The fact that someU.S. firms suffer when other nations do sois no argument. The money being spent andlent by ExIm does not belong to it or to

KILL BIG BUSINESS'S BANK 743

Washington. Rather, it is the taxpayers'funds. Businesses have no moral claim toseize that money for their own benefit.

There is perhaps no better example of cor­porate welfare than the ExIm Bank. The deal issimple: taxpayers provide· the cash, exporterscollect the profit. That's neither fair nor effi­cient. It's time for legislators to acknowledgethat 60 years ofcorporate welfare is enough andto dismantle the Export-Import Bank. D

Faith of Our FathersEdited by Mary Sennholz

God-given natural rights were the guiding light ofthe Founding Fathers. The stirring closing paragraphof the Declaration of Independence was not only theformal pronouncement of independence but also apowerful appeal to the Creator of all rights: "We,therefore, the Representatives of the United States ofAmerica, in General Congress, Assembled,appealing to the Suprem.e Judge of the world for therectitude of our intentions, do, in the Name, and byauthority of the good People of these Colonies,solemnly publish and declare, that these UnitedColonies are and of Right ought to be free andindependent States." In the final sentence of defiancethey appealed to the Almighty for His protection:/IAnd for the support of this declaration, with a firm

reliance on the protection of divine Providence, we mutually pledge to each other ourLives, our Fortunes and our Sacred Honor."

The moral precepts and the self-evident truths that guided our Founding Fathersmay not be fashionable in our time, but they are as inescapable and inexorableasthey have been throughout the ages. We are free to ignore and disobey them, but wecannot escape the rising price we must pay for defying them.

Faith of Our Fathers includes an incisive introduction by Mary Sennholz and powerfulessays by Clarence B. Carson, John Wesley Young/ Robert A. Peterson, Wesley H.Hillendahl, Gary North, Ridgway K. Foley, Jr., Hal Watkins, James C. Patrick, Hans F.Sennholz, George C. Roche III, F. A. Harper, Jarret B. Wolstein, Leslie Snyder, Bruce D.Porter, Benjamin A. Rogge, Paul L. Adams, Ken Ewert, Ben Barker, John K. Williams,Edmund A. Opitz, Erik von Kuehnelt-Leddihn, and Calvin D. Linton.

Published by The Foundation for Economic Education, Inc.Irvington-on-Hudson, NY 10533

Special holiday pricingISBN 1-57246-063-6 398 pages (indexed) paperback $16.95To order, call(800) 452-3518 • Fax (914) 591-8910

THEFREEMANIDEAS ON LIBERTY

What's So Bad About BigGovernment Anyway?

by George C. Leef

I n a recent conversation I used the term"big government," clearly in a pejorative

way. Another person spoke up to challengeme, asking, "What's so bad about big gov­ernment?" He went on to name some ben­efits that he supposed were possible onlywith a powerful state. We debated whetherit was true, for example, that you couldn'thave old-age security without a governmentsystem like Social Security, but afterwards Iwished that I'd had a more thorough answerto his question prepared.

Since then, I have thought about thisquestion and have boiled the answer downto five points. But before we get to thosepoints, we first need to have a good idea ofjust what we mean by "big government."

"Big" isn't usually a pejorative. There isnothing wrong .with big airplanes, whichcan carry more people more safely andeconomically than can small airplanes.There is nothing wrong with a big serve intennis, although I don't like to see onecoming at me. But there is no "right" size forairplanes or "right" speed for tennis serves,so we have no grounds for calling them "toobig." There is, however, a "right" size forgovernment. The right size relates not to itsbudget or number of employees, but ratherto its functions.

George Leefis director ofFEE's Freeman SocietyDiscussion Clubs and book review editor of TheFreeman.

Right-Sized Government

The functions performed by a right-sizedgovernment are those things that are nec­essary to protect the life, liberty, and prop­erty of the people. The word "necessary" isimportant here. There are many things thatpeople can do for themselves to protecttheir lives, liberty, and property, and these,therefore, are no business of government.The government shouldn't buy and installlocks on your doors. You can do that.

The right-sized government simply pro­tects the right of people to live their lives asthey choose, so long as their actions arepeaceful. The title of one of Leonard Read'sbooks neatly encapsulates the boundary ofgovernment action: It should not interferewith "Anything That's Peaceful." Once gov­ernment begins to do that, it becomes anaggressor against its citizens, compellingthem to do things they would not choose todo (participating in Social Security, forinstance) or preventing them from doingthings they would like to do (such as build­ing a home that's not in compliance withevery paragraph of the building code), andtaking away their money to support thingsthey would not support voluntarily (such asforeign aid). When a government starts todo those things, it has become too big.

Thinking back to my questioner, whyshouldn't government force people to do x,prevent them from doing y, or tax them to

744

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December 1997

The Benefits of Immigration

I n my October "Notes from FEE" I chal­lenged a case, made by some marketadvocates, for immigration restrictions.

I have since received scolding letters andE-mails from numerous people predictingthat open borders would bring all mannerof calamities. While some writers were lesscertain than others about the baleful conse­quences of unregulated immigration, onlyone correspondent fully shared my sup­port for eliminating all immigrationrestrictions.

These many letters have prompted meto think longer and harder about immigra­tion. Alas, my opinion remains unchanged:we should welcome all immigrants. Gov­ernment should not redistribute income toimmigrants, but neither should govern­ment prevent immigration.

Each immigrant comes to America tomake himself better off. Suppose govern­ment no longer redistributes income toimmigrants. Would immigrants still relo­cate here? You bet! A handful will comebecause some Americans are willing to usetheir own resources to care for them. Mostimmigrants will come because each hassufficient skill and ambition to profit in themarket.

Absent government welfare payments toimmigrants, immigrants who do not seekwork burden no one other than family orfriends who voluntarily assume this bur­den. I here ignore such non-working immi-

grants who receive no government hand­outs. These immigrants do not raise the ireof anti-immigrationists. Opponents ofimmigration object most vehemently toimmigrants who are eager to work.

Such objections are mistaken. Let's seewhy.

Juan is a hypothetical immigrant. Hearrives in America and immediatelybegins looking for employment. Beforefinding a job, he must secure food, cloth­ing, and shelter. He may do so from fundsbrought with him from his native country,or he may depend upon the kindness offamily, friends, or charitable organizationshere in the United States. In either case,because such transfers are voluntary, noAmerican is harmed.

If Juan resorts to theft, however, thestory is different. Some Americans areindeed harmed. But criminal law is theappropriate tool for dealing with suchthievery. Restricting immigration on thegrounds that a handful of immigrantsbehave criminally would be like denyingdrivers licenses to everyone just because asmall percentage of people drive reckless­ly. More focused and less ham-fistedmeans are available in both cases forweeding out the bad apples from the good.

Juan, however, is no thief. He's a work­er. Suppose that Juan has no skills of anyvalue to any American. He can do nothingthat any American is willing to pay for. In

this case, Juan will eventually returnhome. No American is harmed. (Actually,Juan would probably not come to Americain the first place. People so destitute ofskills are unlikely to leave home in searchof work in a foreign and highly competi­tive economy.)

But Juan is extremely unlikely to lackany skill for which Americans are willingto pay some mutually agreeable wage.Readers who doubt this claim should con­sult that cornerstone of economics calledthe theory of comparative advantage-atheory, by the way, that exposes the sense­lessness of identifying people economical­ly as being"above average" or "belowaverage." The theory of comparativeadvantage makes clear that everyone isabove average at some tasks and belowaverage at many others.

When Juan finds employment, not onlyis Juan made better off, but so, too, is hisemployer. Consumers are also made betteroff, for the higher output or lower cost thatJuan's availability makes possible for hisemployer is shared with consumersthrough reduced prices or improved prod­uct quality. Nothing to complain of so far.

Some people, however, are harmed byJuan's availability-namely, Americanworkers who compete with Juan. If Juan'smost marketable skill is nearly identical tothe most marketable skill possessed bySam the American, Juan is a potential rivalfor Sam's job. Because of Juan, Sam'sincome may fall.

Protecting Sam from income loss,though, is inappropriate. To prevent Juanfrom entering America is to do nothingmore virtuous than to protect Sam fromcompetition. But it is also to prevent Georgeand Bill and other Americans from freely deal­ing with Juan, who is someone they would oth­erwise choose to deal with! To restrict immi­gration is to deny to Americans their free­dom of association. Sam, then, becomes amonopolist under immigration restrictions.If Sam suffers income loss when theserestrictions are lifted, he is no more worthyof our solicitude than is any other monopo­list whose monopoly privilege unravels.

Suppose that government grants me theexclusive privilege to write newspaperop-eds. No longer can publishers carry thelikes of Walter Williams, George Will, Mau­reen Dowd, or Russell Baker. Protected fromsuch competitors, my income skyrockets.

Now imagine that government withdrawsthis privilege. Publishers-and readers!­are again free to patronize op-ed writersother than me. My income plummets.

Should you feel sorry for me? Of coursenot. Would you conclude from the fact thatthis heightened competition reduces myincome that the wealth of the nation falls?Of course not. Likewise, productivelyemployed immigrants invariably increasethe nation's wealth by intensifying compe­tition and expanding the division of labor.Immigration restrictions, in contrast,reduce economic growth. Prosperity can­not be bred by monopoly protections.

Immigration opponents also fear thatopen immigration means overcrowding.This worry is overblown. First, the UnitedStates is sparsely populated. Second, own­ers of private property have incentives tokeep their properties from being over­crowded. The proper solution to over­crowding is privatizing those propertyholdings not yet privatized, not forciblystopping productive people from comingto our country.

Third, overcrowding is an elusive con­cept. Among the people who wrote tocomplain that immigration spawns over­crowding was a resident of New YorkCity. But this person clearly doesn't mindcrowds. If he did, he'd move to Oklahomaor Mississippi.

Manhattan is one of the most denselypopulated spots on earth. Yet it is also oneof the wealthiest. New Yorkers often com­plain of crowds, but no one is compelled tolive in that city. The reason people livethere is because economic opportunity inNew York is vast. Living in close contactwith lots of people is a price that many ofus voluntarily pay for the opportunity totake advantage of the wealth-producingcapacities of an extensive division of labor.

New York and Los Angeles are crowdedbut wealthy. Oklahoma and Mississippiare sparsely populated but much poorer.This fact alone is ample evidence of thegreat economic benefits of immigration.

Donald J. BoudreauxPresident

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support z, as long as these objectives are "inthe public interest"? That mind-numbingphrase has been the cover for untold humansuffering. The truth is that there is no suchthing as "the public interest." Only individ­ual human beings have interests. Whenpeople talk about "the public interest," whatthey really mean is that some members ofthe public want something, and they wantit at the expense of others. If, for instance,you hear a politician say that his nationalhealth insurance program would be "in thepublic interest," he means that he and thebackers of his plan want it, perhaps believeit is good for everyone, and don't care thatmany other people disagree.

People want to and have a right to at­tempt to maximize happiness in their lives.Every time the government forces peopleto do things they would prefer not to do,prevents them from doing things they wouldlike to do, or taxes them for things theydon't want, it reduces their ability to max­imize their happiness. That is fundamen­tally wrong.

Big Government vs. LibertyThis leads me to the first of my five

reasons why big government is bad. Biggovernment is the enemy of liberty. Gov­ernment actions that go beyond its defen­sive, rights-preserving functions necessarilyentail some form of coercion that dimin­ishes the freedom of at least some people todo what they would like to do. The biggerthe government gets, the more it reducesliberty.

Examples abound. Consider the monop­oly the government has conferred on itselfin the delivery of first-class mail. Anyonewho would like to peacefully contract withothers to deliver certain kinds of writtencommunications violates the law and facesprosecution and penalties for doing so. Hisliberty has been attacked so that the gov­ernment's postal workers won't have to facecompetition. The government also has thearrogance to prescribe rules for the use ofmailboxes. Even though my mailbox is onmy property and I purchased it, federal

745

regulations say that no one, but postalemployees delivering mail, may put any­thing in it. I might prefer to allow others toput advertising in my mailbox rather thanother places where they're apt to blow awayor get soaked, but big government says no.

Or think about government licensing re­quirements. In many cities, no one is al­lowed to go into the business of transportingpeople without a license, and licenses areunobtainable. Those caught violating thelaw, transporting people who desire theservice and are willing to pay for it, aresubject to prosecution and penalties. Theirliberty to engage in a peaceful, beneficialtransaction is attacked.

Big Government vs. ProsperityThe listing of government attacks on

liberty could take up an entire year's worthof The Freeman, so let's go on. Big govern­ment is also the enemy of prosperity. Thisis so because big government invariablywastes resources.

Individuals strive constantly to make thebest use of their resources-their time,money, and physical resources, from foreststo carpenter's tools, coal mines to comput­ers. They carefully examine their optionsand decide how to allocate their resourcesto obtain the maximum benefit from them.Sometimes people make bad decisions, butthey will change them as soon as it becomesevident that they brought undesirable re­sults.

Self-interest produces the decisions thatmaximize our wealth and happiness. Noone, not even the most ardent statist, likeshaving his freedom to choose how to spendhis time and money usurped by others. Mostpeople realize that turning decision-makingauthority over to others is apt to leave themworse off. What is true at the personal levelis also true at the macroeconomic level,since the entire economy is merely the sumof untold individual decisions. The freerpeople are to make their own choices, themore prosperous the economy will be.

Big government, however, interferes withthose decisions by diverting resources from

746 THE FREEMAN • DECEMBER 1997

the realm of individual decision-makingand putting them in the realm of politicaldecision-making. Political decision-makingmeans that the use of resources will bedetermined by people who don't own themand therefore do not stand to gain frombeing right or to lose from being wrong.(Being right means using resources in away that best satisfies consumers.) Com­paring private and political decision-makingis like comparing how you drive your owncar to how joy-riding teenagers would driveit.

Examples of wasteful government use ofresources abound. Here is one of my favor­ites. In my hometown of Milwaukee there isa large federal office building, built in theearly 1980s, that soaked up a lot of resourcesfor which taxpayers had to foot the bill.Was there any need for the building? TheGeneral Accounting Office had issued areport showing no shortage of office space indowntown Milwaukee for the many federalagencies (themselves busy wasting re­sources). But politicians and the construc­tion unions (guaranteed a lot of high-pricedwork under the Davis-Bacon Act) wantedthe project,and that settled it. Resourceswent .into an unnecessary office buildingrather than into whatever more usefulprojects they would have gone into had thegovernm.ent not interfered. A few peoplegained, but overall prosperity was lowered.

Big G.overnment vs. ProgressHuman·beings have a natural inclination

to search for better ways to do things. Whenwe succeed, we call it progress. The discov­ery can be as simple as a housewife figuringout a faster way of getting her shoppingdone or as headline-grabbing as a break­through in medical technology. The questfor progress is universal.

When government is doing its proper jobof protecting the rights of individuals, itindirectly assists progress by helping toprotect innovators against attacks by thosewho don't want them to try new and differ­ent things. In arresting and jailing theLuddites, the early nineteenth-century

workers who violently opposed progressin textile production (power looms andfactories threatened their old-fashionedways of weaving cloth), the British govern­ment aided progress. When governmentprotects liberty and property, progress ismaximized.

Big government, however, often fails toprotect liberty and property. Frequentlyspecial-interest groups that feel threatenedby some innovation will lobby the govern­ment to do what they cannot legally do ontheir own, namely, interfere with the free­dom of the innovators. As a political favorto those groups, big government often locksin the status quo with laws and regulations.Progress is thereby stifled.

Here again, there are many examples thatcould be cited. Consider building codes.Building codes specify, sometimes in minutedetail, how a building must be constructed.The owner and his architect can usuallydecide cosmetic issues (although if thebuilding has been designated as "historic,"they may not have freedom even here),but the structure, plumbing, wiring, and soforth must be "to code" even if the ownerand experts whom he might consult agreethat money could be saved or operationsimproved by doing something different.Builders have pointed out for years thatbuilding codes significantly raise the cost ofconstruction while adding nothing to safety.Why do we have them?

Locking in the status quo on housingconstruction makes two politically potentgroups happy: construction workers andcode officials. Suggestions that buildingcodes be liberalized or repealed send shiv­ers down their spines. Building codes pro­tect some of the jobs of the former andguarantee the jobs of the latter. To arguethat codes drive up costs and get in the wayof progress will elicit salvos of red-hotrhetoric about the "need to protect thepublic." Code defenders conjure up horrorstories about what might happen if peoplewere free to construct buildings any waythey pleased. But owners (and their insur­ers) have an incentive to construct safe,sound, durable buildings; the codes merely

WHAT'S SO BAD ABOUT BIG GOVERNMENT ANYWAY? 747

get in the way of their search for the bestways of constructing them.

Try this little thought experiment. Imag­ine that the British government had assistedthe Luddites instead of thwarting them.Furthermore, suppose that every interestgroup that stood to lose by some innovationsucceeded in obtaining government protec­tion against it: candlemakers, carriagebuilders, ice cutters, and so on. What if, inother words, the government had locked inplace the technology and social arrange­ments of 1800? How much shorter andpoorer would people's lives be? The answeris obvious. They would be much worse off.Big government, by making it easier andeasier for our modern Luddites to obstructprogress through the proliferation of regu­lations and regulatory agencies, is doingthat to us now.

Big Government vs. HarmonyWhen government is right-sized, it out­

laws and punishes aggressive acts againstpeople and their belongings. That raises thecost of aggression, thereby helping to deterit and channel people's desire to get morefor themselves into peaceful means. Co­operation and trade flourish in this envi­ronment. People come to realize, at leastimplicitly, that there is a natural harmonyamong their interests. (For an intriguingdiscussion of human cooperation, see MattRidley's The Origins ofVirtue [Viking, 1997],and the book review in this issue.) Antag­onisms and hatreds may not disappear, butthey are minimized.

Big government, however, holds and in­evitably uses the power to make somepeople better off at the expense of others.This creates hostility, bitterness, and some­times violence where there would otherwisebe none.

Big government's labor laws have helpedto perpetuate a false and counterproductive"us versus them" attitude among workersthat gets in the way of harmonious laborrelations. Many people have been injuredand even murdered in strike-related vio­lence that foolish labor laws indirectly en-

courage. "Affirmative action" laws createantagonism between members of the pre­ferred and nonpreferred groups. In theUnited States hostility over affirmative ac­tion is largely a matter of simmering bitter­ness, but in other countries, as ThomasSowell documented in Migrations and Cul­tures (Basic Books, 1996), it has led to muchbloodshed. Social Security creates antago­nism between older and younger people."Public education" creates hostility be­tween those who benefit from that enor­mous subsidy and those who are forced topay for it. And so on.

Trying to get big government to interferewith the rights of others wastes resources,contributing to its attack on prosperity;but the greater loss, I submit, is in socialharmony. An important but immeasurablecomponent of the quality of life is a peacefuland happy frame of mind. By creatingenemies where there would otherwise benone, big government changes many apeaceful and happy frame of mind to onethat is angry and resentful. Some peoplewant to ban products that might lead to highblood pressure, heart attacks, and otherhealth problems. I think we'd accomplishmore good in that respect if we banned biggovernment as a risk to health and happi­ness.

Big Government vs. MoralityRight-sized governments do not try to

make their people moral. Instead, theypreserve the freedom of individuals to actas they think best to promote morality.Churches, civic groups, writers, and oratorsare free to try to persuade people to livewhat they regard as a moral life. Govern­ment should protect the right of all to enterthe marketplace of ideas about moralitybut should draw the line at actions that forceothers to live by those ideas. Arguing thatalcoholic beverages are evil and should notbe consumed is fine; smashing bars andburning down distilleries is not.

One of the most important foundationsof morality, and one that is reinforced byright-sized government, is the live-and-Iet-

748 THE FREEMAN • DECEMBER 1997

live philosophy. So long as a person violatesno one's rights-deprives no one of any­thing to which he is entitled-this philoso­phy says we may not coerce him. Live-and­let-live adherents may not approve of thingsthat others do, but they do not believe theyhave any right to use force to make thembehave differently. Might never makes right,and the willingness to renounce it is ahallmark of morality.

But big government undermines morality.It does so by seducing people into the beliefthat might does make right-provided thatit is exercised democratically.

When big government stands ready toenact laws and regulations that take fromsome and give to others, and when politi­cians campaign by promising to do exactlythat, it leads people to believe that coercionis morally proper. Do you want food, hous­ing, education, or medical care provided toyou at the expense of others? The leaders ofbig government say, "Don't steal from oth­ers to get those things, but come to us andmaybe we will do it for you." Do you wantto cripple your competitors? Politicians say,"Don't burn down their businesses, but ifyou play the game right, I might cripplethem with regulations." Do you want to seemore handicapped people with jobs? Leg­islators say, "You may not punish employers

who prefer not to hire someone with ahandicap, but come to me and perhaps I willdo it for you."

Prior to the advent of big government,when people wanted to accomplish some­thing, whether personal enrichment or therealization of some lofty social dream, theyknew they had to go about it throughpeaceful means. Big government encour­ages them to use politics to accomplish theirobjectives, thus legitimizing coercion.And with the legitimization of this variety ofcoercion, is it any wonder that manypeople conclude that coercion is permissi­ble even without playing the political gamefirst?

The Bill of IndictmentWhat is so bad about big government? My

indictment of big government is that it isbad because it attacks liberty, prosperity,progress, harmony, and morality. Thanks tobig government, we have significantly less ofall of those good things than we would if wehad been able to keep government right­sized.

Big government is cancerous. Like a can­cer, it hurts the body and tends to spread,doing more and more harm as it grows. It istime for some radical surgery. D

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THEFREEMANIDEAS ON LIBERTY

Or Else ...

by Russell Madden

Extortion has always been a favoriteactivity of governmental agencies. Or­

dinarily, threatening someone with harmunless he accedes to another's demands isrightfully a crime. Whether the perpetratoris a neighbor seeking to use your lawnmower or an organized-crime thug remind­ing you to pay your monthly "protectionfee," such behavior is condemned and pros­ecuted rigorously. No normal person enjoyshaving his desires thwarted or his valuesseized against his wishes.

Webster's dictionary says that to extort is"a) to wrest or wring (money, informa­tion, etc.) from a person by violence, in­timidation, or abuse of authority; obtain byforce, torture, threat, or the like, b) to takeillegally under color of office."

What can a citizen do in the secondinstance, when the extortionist knocking athis door is someone whose job it is to protecthim from that very crime? Unfortunately, intoday's political reality, legal extortion isthe guiding principle that authorities at alllevels of government practice with enthusi­asm. Few citizens realize precisely what isoccurring when the state shakes them down.Typically, a property owner or businessowner is required to comply with govern­ment demands in return for being permittedto engage in some activity. Compliance, inother words, is the payment for protectionfrom state prohibition. This type of theftdoes them far more damage, results in a

Russell Madden is a communications instructor atMt. Mercy College in Cedar Rapids, Iowa.

much greater loss of wealth, and diminishestheir freedom to a greater extent than all thecriminals currently preying on honest citi­zens.

At a local level, such extortion manifestsitself in myriad rules, regulations, taxes,permits, and demands for compliance. Aperson's property becomes not a resource tobe used by him in furthering his personalgoals and values, but an extension of "pub­lic" property, to be controlled, limited, orexpropriated according to the whims andpreferences ofwhoever directs the agents ofthe state.

A Man's Home Is NoLonger His Castle

Building codes force a homeowner toconstruct or remodel his house-his prop­erty-in alignment with the judgment of agovernment-certified "expert." Regardlessof whether an individual prefers to addcertain safety devices or use particularmaterials, the building inspector dictateswhat is acceptable or not. Where a propertyowner can site his home; whether he canhave an office or run a business on hisproperty; whether he can rent out a roomto a boarder; where he may plant a tree orcut one down; how many cars (of a certainage) he may park in his own drive; whetherhe may build at all-the number ofways thatgovernment may require compliance fromcitizens is nearly limitless. And if a home­owner has the misfortune of purchasing aproperty designated as "historical," esthet-

749

750 THE FREEMAN • DECEMBER 1997

ics alone (that is, the aesthetic choices ofstrangers who did nothing to help the indi­vidual purchase his property) can forcehim to use a certain color paint, erect onlycertain styles of fencing, or alter the looksof the house according to narrowly delim­ited standards. Whether one can afford suchchanges or even likes the results of thesedemands is irrelevant. The homeownercomplies-or else....

Developers and entrepreneurs are like­wise politely assaulted by those governmentofficials who demand certain perks or ben­efits. For every new house built, a munici­pality may demand a small fee to be deliv­ered into the city or county coffers. Theofficials may require that a certain portionof land be set aside for parks, trails, andplaygrounds or placed into a land bank to"preserve the natural environment." If thebuilder resists or attempts to negotiate amore acceptable situation, the governmentagency may simply state, "Do it our way orwe'll just take the property we want througheminent domain." (The government prefersthe first course; a taking under eminentdomain requires "just compensation," ac­cording to the U.S. Constitution.)

Other agencies may interfere with anentrepreneur in order to have him locatehis business in an area with a particularracial make-up. For example, the NuclearRegulatory Commission licensing board re­cently told Louisiana Energy Services(LES) that its license for a new uraniumenrichment plant would require "furtherstudy." Why? The board feared the selec­tion of the site may have been influenced byracial considerations and might result in"environmental injustice," that is, subject­ing black residents to more pollution thanwhite residents, even though the regulatorshad earlier declared the plant safe. HadLES chosen a predominantly white location,perhaps it would not have been threatenedwith the termination of its $855 millionplans. Refusal to knuckle under to theintimidation may result in denial of permis­sion to build. In other instances, businessowners who violate "environmental" lawssuch as wetlands regulations face financial

ruin and even imprisonment. The messageis clear: "Do it our way-or else...."

Officially Reviled BusinessesIf a businessman creates products that are

under official censure or that suffer frompublic distaste, the extortion rises to newlevels. Tobacco companies are threatenedwith ruinous Medicaid litigation and poten­tial prohibition of their product though theyhave violated no laws. Various draconiandemands are made on them. The extortionattempt is eagerly joined by nearly everystate and supported by the federal govern­ment. Then the extortion is compounded bythe demand for billions of dollars in returnfor immunity from litigation.

Beer and liquor manufacturers areheavily taxed and regulated. Where andwhat hours they can sell their products, whatinformation they can place on their labels,and how much alcohol they can put in theirproducts are all determined by those whohave no financial stake in the success orfailure of the business. Perhaps not too fardown the line those who produce "junk"food, dairy or meat products, or even "gas­guzzling" sports vehicles will be requiredto pay protection money as well. They'llquickly learn that if they refuse "protec­tion," there will be no product to sell at all.

Cities, counties, states, and the federalgovernment save their boldest attempts atextortion for the realm of income taxation.Adding insult to injury, they have the au­dacity to label their actions with an Or­wellian usage of the term voluntary. Becausethe men with the guns rarely come directlyto your door, the politicians and theirminions pretend that no violence, intimida­tion, or threats are involved in getting youto surrender your property. Every year morethan a trillion of dollars are quietly extortedfrom those who have earned that money.Each of those dollars represents time stolenfrom the owners, a partial enslavement,another retreat from the freedom eachcitizen has as his right. Of course, in addi­tion to the income tax, there are sales taxes,property taxes (used primarily to support

schools whether you have children or not),estate taxes, luxury taxes, employment taxes(Social Security, Medicare, unemploy­'ment), and excise taxes on gasoline, ciga­rettes, and alcohol. Indeed, almost no hu­man activity is exempt from such extortion.An individual may voluntarily "choose" notto pay certain taxes, but the "or else" inthese cases does not pay even lip service todue process. Without a court order or atrial, the Internal Revenue Service can seizea person's bank account, padlock his busi­ness, garnishee his wages, or sell his prop­erty to satisfy a tax debt. The implicit threat:pay the IRS whatever it claims you oweit-or else....

These examples of officially sanctionedextortion could be extended indefinitely.Every behavior a citizen engages in onlyunder the threat of punishment, everypeaceful action he avoids due to officialintimidation, every bit of property or timesurrendered at the literal or figurative pointof the government's guns represents anabuse of his freedom and rights, a denial of

OR ELSE. .. 751,

his moral autonomy, an initiation of vi0­

lence that proclaims that neither his life nothis property are truly his.' Every citizen whoseeks to cash in on that booty, every personwho demands that his neighbor conform tohis. wishes,every individual who clamorsfor what he did not earn contributes to anatmosphere that permits, condones, andeven encourages expanding legal extortion.

An honest person does not seek to enrichhimself at the expense of his fellows. Amoral person does not claim that his desiresor his needs establish a claim on the time;wealth, or property of a neighbor. A personof integrity does not abhor extortion ollanindividual level while encouraging it on, asocial plane.

As a culture and most especially as indi....viduals, we need to recognize extortion,whatever its guise, and categorically re­ject it. The consequences of failing to rootout and eliminate such attitudes are toograve to ignore. We either increase free ..dom and respect for property rights-orelse. . . . 0

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Economics on Trial

Best Textbooks for aFree-Market University

by,Mark Skousen

"I don't care who writes a nation's laws ...if I can write its economics textbooks."

-Paul A. Samuelson

W hen I majored in economics in the late1960s and early 1970s, there were

precious few textbooks with a strong free­market bent. My introductory course re­quired Paul A. Samuelson's Economics, astrictly Keynesian work favoring heavy stateintervention. My class in the history ofeconomic thought relied on The WorldlyPhilosophers, by Robert Heilbroner, a so­cialist who said that Karl Marx was a goodfamily man. My economic history book wasHistory of the American Economy, byRoss M. Robertson, who wrote that highfederal deficit spending got us out of theGreat Depression. And this was at BrighamYoung University, a conservative institu­tion.

Fortunately, free-market economistshave gradually filled a gap by teachingsound principles at every level of econom­ics. There's still much more to do, but thedirection is clear-more textbook writersare producing books that teach marketprinciples.

Mark Skousen is an economist at Rollins College,Department ofEconomics, Rollins College, WinterPark, Florida 32789, a Forbes columnist, andeditor of Forecasts & Strategies. He is also theauthor of Economics on Trial (Irwin, 1993), areview of the top ten textbooks in economics. He iscurrently working on his own textbook, EconomicLogic.

Here are my choices for the best text­books in each category:

Introductory Texts:Significant Progress

There are quite a few introductory textsto choose from. Most of my colleaguesselect The Economic Way of Thinking, byPaul Heyne (University of Washington),now in its eighth edition (Prentice-Hall,1997). It focuses primarily on the microfoundations of the economy and avoidsdefective macro concepts such as aggregatesupply (AS) and aggregate demand (AD).Economics: Private and Public Choice, byJames D. Gwartney (Florida State) andRichard L. Stroup (Montana State), now inits eighth edition (Dryden Press, 1997), isanother favorite. It consistently appliesmarket principles to a host of problems,including the environment, taxes, and gov­ernment spending. It is the only textbook Iknow that spends several pages on SocialSecurity privatization.

The only drawback is that it begins itsmacro section with AS-AD, a fundamentallyKeynesian concept (the idea that the econ­omy can be stuck indefinitely at equilibriumat less than full employment). Gwartney andStroup should take a cue from Greg Man­kiw's popular new textbook, Economics(Dryden Press, 1997), which begins itsmacro section with the classical model(which he terms "the real economy in thelong run") and relegates the short-term

752

AS-AD model to the back of the book.AS-AD is introduced in chapter 8 of Gwart­ney and Stroup but chapter 31 in Mankiw!

Another free-market textbook that putsclassical economics ahead of the Keynesianmodel is Principles ofEconomics (Addison­Wesley, 1997) by Roy J. Ruffin and Paul R.Gregory, both professors at the Universityof Houston. They introduce AS-AD inchapter 27. Economic growth (the long-runclassical model) is emphasized over the upsand downs of the business cycle (short-runKeynesian model).

Ruffin and Gregory have many otheradvantages: They are the only major text­book to cite favorably the Austrian econo­mists Ludwig von Mises, Friedrich Hayek,and Joseph Schumpeter throughout thetextbook, including the first chapter. Mosttextbooks quote liberally from John May­nard Keynes, Milton Friedman, and KarlMarx, but Ruffin and Gregory break newground here. The authors focus on fourmajor historical events ("Defining Momentsin Economics") and their impact on eco­nomic thinking: the industrial revolution,the rise and fall of socialism, the GreatDepression, and globalization. They alsodevote major sections on privatization, pub­lic choice, the gold standard, and economicsuccess stories in Europe and Asia.

Overall, the works by Ruffin and Gregory,and Gwartney and Stroup, are quickly be­coming known as the most innovative text­books on the market today.

Breakthrough in AmericanEconomic History

Now let's turn to economic history. GeneSmiley (Marquette) has written a first-ratetextbook for American economic historyclasses: The American Economy in the Twen­tieth Century (South-Western Publishing,1993). It is the only textbook I know thatconsiders all the major conflicting theories

753

for explaining the major events of thetwentieth century. It even includes anAustrian interpretation of the Great De­pression and the World War II economy.I just wished Smiley covered events priorto the twentieth century; his book is thatgood.

History of Economic ThoughtMany economics teachers have wisely

replaced Heilbroner's Worldly Philosopherswith New Ideas from Dead Economists, byTodd G. Buchholz (Plum, 1990). Amongother things, Buchholz is much more criticalof Marx and central planning. Unfortu­nately, Buchholz's book says almost nothingof the Austrian school. One book that doesisA History ofEconomic Theory and Method,by Robert B. Ekelund, Jr., and Robert F.Hebert (McGraw-Hill, 1990). Murray N.Rothbard originally intended to write aone-volume history of economics, but hiswork gradually developed into a series oftomes, only two of which were completedbefore his untimely death: EconomicThought Before Adam Smith and ClassicalEconomics (Edward Elgar, 1995). Bothbooks are more appropriate for advancedcourses in economic theory and philosophy.

Other free-market books may be helpfulin various courses. For money and bankingclasses, Murray Rothbard's The Mystery ofBanking (E. P. Dutton, 1983) is useful.Dominick T. Armentano's Antitrust andMonopoly, second edition (Holmes &Meier, 1990) is an ideal supplement inclasses on industrial organization. And, ofcourse, there is a wide variety of books onfree-market economics to supplement thetextbooks-works by Ludwig von Mises,Friedrich Hayek, Israel Kirzner, HenryHazlitt, George Reisman, Hans Sennholz,and a host of others.

In short, free-market economics is back inthe college classroom. 0

754

BOOKSlfiJQ;gry'Ghosts:Mao's Secret Famine

·by Jasp'er BeckerThe Free Press. 1996 • 352 pages. $24.50

Reviewed by Steven W. Mosher

.S·ome of thoe darkest chapters in recenthuman history have been written in the

People's Republic of China. From the rad­ical .experiment in utopian engineeringknown as the Great Leap Forward, to thestate-sponsored terror of the Cultural Rev­()lution, to the Draconian one-child policyof today, China's communist rulers havevisited disaster after disaster upon the Chi­nese people. While much is known aboutthese' and other political campaigns goneawry, there is one man-made disaster ofmonumental proportions that has been kept'carefully under wraps.

From 1958 to 1962 Chinese peoplestarved to death' by the tens of millions. Buttbe"three difficult years," as the Beijingregime still daintily refers to this atrocity,saw not merely death· from famine on amassive scale. It was also a period of stateterror, during which Party officials ran­sacked villages, torturing and murdering

.peasants for refusing to hand over secretstores of grain that did not exist.

Hungry. Ghosts is the first full account ofwhat is arguably the worst famine in all ofhuman history. Jasper Becker, a BBC jour­nalist who lived for several years in China,spent years in painstaking detective workto· piece together both the cause of thistragedy, .an<l its final cost inhuman ·lives.Although he strays from the truth in ascrib­ing the famine, in part, to a .lack of popu­lation control, his book is an otherwise solidindictment of central planning and Maoisthubris..

As soon as·· the People's Republic ofChina was established in October 1949,Mao Zedong wanted to move as quickly asPQssible to create agricultural collectives.

This culminated in 1958 with the formationof the "People's Communes," huge, cum­bersome agricultural cooperatives with tensof thousands of members.

To make matters worse, Mao insisted thatthe communes adopt agricultural tech­niques from the Soviet Union, which wasreporting triple-digit increases in food pro­duction. Such techniques as deep plowing,close planting, and increased irrigation,based as they were on Marxist-Leninistpseudoscience, turned out to be disastersin practice. Deep plowing, for instance,effectively destroyed the fertility of the soilfor years to come, as peasants trenched theground to depths of four or five feet.Seedlings planted in extremely high densi­ties died, while the irrigation projects~

mostly small reservoirs-were so ill­conceived and executed that they were laterdismissed by the Ministry of Agriculture as"completely worthless."

Mao, in his great vanity, was oblivious toall this. Instead, he believed the reports ofsycophantic officials that food productionhad skyrocketed under the commune systemand his other innovations. When Mao vis­ited the model commune of Xushui in 1958,he saw piles of vegetables, turnips, cab­bages, and carrots strategically placed alongthe main road. As Becker writes, "Officialstold him that the peasants had dumped thevegetables because they had grown so muchfood they did not know what to do with it."

Buoyed by a flood of such false reports,the Beijing regime encouraged peasants toeat grain. It doubled its grain exports, evengiving away grain gratis to its friends in'North Korea, North Vietnam, and Albania.Although no one knew it at the time, everyship that left the docks condemned addi­tional thousands' to die.

By the winter of 1958-59 the communegranaries were bare, but Mao refused tobelieve that there was a food shortage.Instead, egged on by officials still boastingof record crops, he became convinced thatthe peasants were hiding their grain. Inplaces like Henan, where the provincialleadership was fanatically devoted to Maoand his illusions, this led to mass murders

that the Party would later describe as "aholocaust. "

As Becker writes, "The great terror beganin the autumn of 1959 ... when the prefec­tural Party committee declared war on thepeasants launch[ing] a brutal anti-hidingcampaign 'It is not that there is no food[one local official said]. There is plenty ofgrain, but 90 percent of the people haveideological problems.'" Virtually all of thegrain harvested was collected by officialswho used arrest and torture to achieve theirends.

"By the start of winter," Becker contin­ues, "it was clear that the peasants hadnothing to eat but tree bark, wild grass seedsand wild vegetables. [Local officials] de­clared that this was merely 'a ruse of richpeasants' and ordered the search for grainto be redoubled. Party cadres were alsoincited to smash the cooking pots in everyhousehold to prevent them from being usedat home to cook grass soup."

Becker concludes that Mao's famine was"a deliberate act of inhumanity" and assertsthat, as a mass murderer, Mao should beranked higher than Hitler and Stalin. Afterall, Hitler's concentration camps were re­sponsible for 12 million deaths, while Stal­in's gulags devoured some 20 million souls.Stalin's own famine, which raged in theUkraine during the early 1930s, cost only 11million lives. "Mao," Becker writes, "ex­ceeded even these ghastly totals." Far, farexceeded.

How could a disaster of this magnitudebe hidden from the world for so manydecades? The Chinese Communist Party'snatural penchant for secrecy offers us partof the answer. During the fifties and sixties,China was off-limits to Western, and espe­cially American, writers and journalists.Visas were forthcoming only for true"friends of China," who could be trusted tocheck their curiosity at customs, and writeonly what they were told during their stay.

Of that time, China historian EdwardFriedman has written that "foreigners werefed a diet of lies to spread outside thecountry, to the effect that there was nofamine in China." Perhaps the leading

755

China apologist of all time, Edgar Snow,who spent five months in China at the heightof the famine, flatly denied its existence:"One of the few things I can say withcertainty is that mass starvation such asChina knew almost annually under formerregimes no longer occurs.... I diligentlysearched, without success, for starving peo­ple or beggars to photograph." Although heconceded that some people were sufferingfrom "severe malnutrition," he thought thatit had probably not led to any significantnumber of deaths.

The British journalist Felix Greene re­turned from a visit to China to announce, intones reminiscent of Snow, that "the indis­putable fact is that the famines that in onearea or another constantly ravaged thefarmlands of China, and the fear of starva­tion, which for so long had haunted the livesof the Chinese peasants, are today things ofthe past."

The "firsthand" verdict of Snow and oth­ers on the famine was widely accepted,even by many American China-watchers,who for years afterwards denied or at leastdownplayed one of the greatest humantragedies of our century. Snow's views re­ceived a respectful hearing at Harvard andelsewhere after his return to the UnitedStates. They also found their way into text­books, such as John K. Fairbank's introduc­tory history of modern China, which devotesto the "three difficult years" precisely onesentence: "Malnutrition was widespreadand some starvation occurred."

The only point on which Becker and I partcompany concerns population control.Becker writes that "The Chinese are stillsuffering from the greatest and most far­reaching consequences of Mao's illusions. . . that modern science was the key to alimitless expansion of food supplies.... Inthe early 1960s, as China was starving, Maowrote ... 'China's big population is a verygood thing.' " Becker is saying, in effect, thatMao erred in trusting science, and erredagain in not imposing the one-child poli­cy-or its equivalent-on the Chinese peo­ple as soon as he took power.

But did either of these beliefs lead to

756 THE FREEMAN • DECEMBER 1997

errors on Mao's part? I think not. Thehistory of the last half-century has been oneof astonishing increases in food production.The scientific revolution in food production,the so-called "green revolution," has dou­bled crop yields worldwide. At the recentRome Food Summit, Stein Bie, a researcherfor the Food and Agriculture Organization(FAO), commented that "[food] disastersare not taking place," and that the earth caneasily support eight to ten billion people­double its current population-in the next25 years.

As far as the relationship between pop­ulation and hunger is concerned, FAO chiefanalyst Jacques Verceuil commented at thesame conference that, of the ten countriesworst off in terms of food supply, nine havesuffered serious warfare. Population sizeand density have nothing to do with it.

Now Becker, of course, knows all this.After all, he has written an entire bookproving that China's famine was the resultof political decisions and masked by cen­sorship. And I am sure that he would be thefirst to admit that he has offered absolutelyno evidence that the famine could have beenaverted, or even mitigated, had Mao earlierimposed a radical population control pro­gram on the Chinese people.

So what are we to make of Becker'smental tic when it comes to populationcontrol? It may mean nothing more thanthat he is a creature of this misanthropicage, which in general regards families andchildren with a kind of light disdain. Still,the point that communist politics and notthe Chinese people are the cause of China'sproblems is important enough to insistupon, not least because the Chinese Com­munist Party has it the other way around.

There will be no PRC edition of Becker'sbook, for it would never get past Beijing'sever-vigilant censors. But for those whowant the truth about the most disastrousfamine in world history, Hungry Ghosts isyour book. D

Steven Mosher is the president of the PopulationResearch Institute, and is the author ofA Mother'sOrdeal: One Woman's Fight Against China'sOne-Child Policy.

Why the Left Is Not Right­The Religious Left: Who TheyAre and What They Believeby Ronald NashZondervan • 1996. 222 pages. $10.99paperback

Reviewed by Doug Bandow

W hen it comes to religion and politics,most media attention is focused on

the right. And it usually isn't positive cov­erage. Religious conservatives are pre­sented as threatening America's constitu­tional balance, women's right to choose,gays' civil liberties, and much more.

Yet religious activism runs both ways. AsRonald Nash, a professor at the ReformedTheological Seminary in Orlando, Florida,notes in Why the Left Is Not Right, there isan active and diverse religious left in theUnited States. To be sure, these people,who once "proudly proclaimed their liberalor radical connections," now "describe them­selves as moderates and centrists," notesNash. But their policy positions remain un­ashamedly left-wing.

Nash divides the religious left into threeparts: liberal mainline Protestants, liberalCatholics, and left-wing evangelicals.There's no doubt where Nash stands. Heargues that these groups have been used(willingly or unwillingly) by the Democratsfor electoral purposes and have helped"demonize politically conservative Chris­tians." A prolific author and entertainingspeaker, Nash obviously views himself asamong the demonized right.

In his view, the central argument is notwhether people of faith should be con­cerned about peace and justice, but whatthose terms mean. The evangelical left hasappeared to have simply assumed the stan­dard liberal understanding of the words andthen discredited anyone (including theirpolitically conservative brethren) who un­derstood the terms differently and whopursued the objectives of peace and justicein a different way.

Perhaps the greatest value of Why the Left

Is Not Right is that it shows how politicalactivism by people of faith is neither newnor restricted to conservatives. Indeed,even as evangelicals were receiving exag­gerated public attention for entering thepolitical process, mainline Protestant de­nominations were promoting Democraticpolitical causes domestically and commu­nist revolutionary movements abroad. It isa story worth remembering when the mediaand political establishments pour obloquyon traditionally less active evangelicals andfundamentalists as they seek to protectthemselves and their values from govern­ment intrusion.

Much the same politics has been ondisplay within the Roman Catholic Church.Catholics were once "thoughtful enemies ofsecularism, humanism, and the liberal wel­fare state," writes Nash. Many still are, butas Nash puts it, "large cracks have appearedin the political and social thinking of manyeducated Catholics." The 1985 PastoralLetter on the economy, for example, was aspolitical as anything emanating from theChristian Coalition. Even more radical havebeen specific segments of the church, suchas the Maryknoll Order.

However, Nash devotes most of his at­tention to the lesser-known left-wing evan­gelicalism. He argues that the New Left and"the adversary culture" of the 1960sspawned political liberalism among Protes­tants who purport to hold a more conser­vative, orthodox theological view. Nash fo­cuses on three leading leftish evangelicals:Jim Wallis, editor of Sojourners magazine;Ron Sider, founder of Evangelicals forSocial Action and author of Rich Christiansin a World of Hunger; and Tony Campolo,sociology professor, well-published author,and presidential confidante.

The scrutiny is warranted, though Nashseems more skeptical of the trio's goodintentions than is justified. Wallis, for in­stance, lives his beliefs. Two decades agoWallis moved his magazine to a poor sectionof Washington, D.C., and formed a com­munity of the same name. At the same time,however, he has, as Nash points out, re­mained imbued with the leftist Zeitgeist of

BOOKS 757

the 1960s. The boat people fleeing commu­nist Vietnam, Wallis wrote, were leaving"to support their consumer habit in otherlands." Their departure should not be takento "discredit" Vietnam. Wallis's views to­ward Cuba and Nicaragua were similarlyskewed.

Wallis's economic opinions also werelong solidly collectivist. The collapse ofsocialism abroad seems to have chastenedhim- he now calls himself centrist andasserts that he is independent of Democratsand Republicans alike-but he remainswedded to interventionist policies. Conser­vatives, Wallis charges, retain an "attach­ment to institutions of wealth and power,preference for the status quo, and the lackof a strong ethic of social responsibility."Unfortunately, while Wallis now criticizesabuses by government, he underestimateshow the activist state promotes concentra­tions of wealth and power, supports thestatus quo, and undermines social respon­sibility.

Similar is Nash's case against Ron Sider.Sider is a gentle spirit who has bornesubstantial liberal criticism for his opposi­tion to abortion and gay rights. Unfortu­nately, however, on economic policy he hasalways placed intentions before results.Thus, as Nash documents, Sider has longadvocated the sort of government interven­tion that has been tried and found wantingthroughout this century. While criticism isrife of the Christian Coalition for seeminglyattaching itself to the GOP, Nash points outthat "Ron Sider, the person who comesclosest to being a moderate member of theevangelical Left, has himself spent yearstrying to elect liberal, typically Democratic,candidates to public office."

Tony Campolo is probably the most pub­lic of the three, given his high-profile con­tacts with President Bill Clinton. Campoloalso criticizes government, but seems com­mitted to statist remedies when it comes tosolving specific problems. Nash doesn't stophis criticisms here, however; he goes on toquestion Campolo's evangelical credentials,given the latter's views on such issues asabortion, feminism, and the environment.

758 THE FREEMAN • DECEMBER 1997

Through his analysis, which concludeswith chapters on economics and poverty,Nash shows how even the best-intentionedof religious believers can come up withsolutions inimical to the interests of thosethey wish to serve. But Nash, who has beenon the receiving end of endless left-wingbarbs, puts an unnecessary edge in his ownanalysis. Perhaps nothing irritates Nashmore than the evangelical left's flirtationwith Bill Clinton.

Yet the opinions of Wallis, Sider, andCampolo reflect ignorance rather than mal­ice. I've met and debated all three. All wantto help those in need, seem to have beenaffected by the decline of statism, and werewilling to acknowledge contrary arguments.They deserve to be criticized, not demon­ized.

Why the Left Is Not Right deals seriouslywith an important subject. Despite the pub­lic perception that religious activists gravi­tate toward the right, many people of faithhave embraced collectivist remedies despitethe ill effects on those most in need. Inshort, Nash's basic thesis is correct: the leftis not right. 0Doug Bandow, a nationally syndicated columnist,is a senior fellow at the Cato Institute and theauthor of Beyond Good Intentions: A BiblicalView of Politics (Crossway).

The USA Tax: A ProgressiveConsumption Taxby Laurence S. SeidmanMIT Press. 1997 • 160 pages. $20.00

Reviewed by Roger W. Garrison

Hot dogs, baseball, apple pie, and theUSA Tax: What is the relationship

among these pieces of Americana? Thefourth-listed one imposes a tax on the otherthree. USA stands for Unlimited SavingsAllowance. Taxes are to be imposed only onconsumption, as set out in the 1995 USATax bill sponsored by Senators Domenici,Nunn, and Kerry. Professor Laurence Seid-

man of the University of Delaware haswritten a book to argue the case for thisprogressive consumption tax and to defendhis relatively pure version of it against theversion in the actual legislation. The 1995bill involves a few needless complexities andinequities, but these legislative quirks donot unduly distract Seidman or his readersfrom the more fundamental issues.

Although the transition from an incometax to a consumption tax would involveradical change, the proposed tax systemwould be the same as the existing one inseveral important respects. The total taxburden would be the same, the distributionof that burden across the different incomeclasses (or consumption classes) would beabout the same, and the computation of thetax liability for each individual and for eachfirm would be complex-though maybe notas complex as it currently is. Most impor­tantly, some of the distinctive features ofthe proposed system are in serious conflictwith the basic principles of liberty. For oneexample, taxes themselves would be treatedas consumption (public rather than private)and thus would be subject to further taxing.For another, all deposits and withdrawals ofcash, the key determinants of consumption­tax liabilities, would be reported to thegovernment by financial institutions.

The supposed appeal of the USA Tax liesin its favorable treatment of saving andinvestment and in its "fairness." The favor­able treatment of saving and investment isachieved simply by excluding these activitiesfrom the tax base; the "fairness" (so judgedon the basis of survey results believed toreflect the majority opinion among Ameri­cans) is achieved by the progressivity of themarginal tax rates. In comparison with theUSA Tax, our current income tax is foundinferior because it taxes both consumedincome and (with some exceptions) savedincome. A national sales tax and the Hall­Rabushka Flat Tax are found inferior becausethey do not allow for enough progressivity.

The two main features of the USA Tax(pro-saving and progressivity) are pre­sented separately in Seidman's book.Weighing strongly against this tax scheme,

however, is the conflict between these fea­tures-a conflict that Seidman does notnotice (or, at least, does not mention). Thesteeply progressive tax schedule may welldiscourage saving and/or encourage bor­rowing. A simple example can make use ofthe tax schedule to be applicable for the year2000 and beyond, together with an assumedinterest rate of 10 percent. The marginal taxrates for the four consumption brackets are°percent, 8 percent, 19 percent, and 40percent, the top rate applying to consump­tion levels of $24,000 and higher. Supposeour taxpayer is in a position to consume$24,000 worth annually. He could, instead,spend only $23,000 this year so as to be ableto spend $25,000 (plus some interest) nextyear. This year's $1,000 reduction in con­sumption allows our taxpayer to take ad­vantage of the tax-free status of savings. Hewould pay $190 less in taxes this year (19percent of $1,000). Next year, after collect­ing $100 in interest, he can spend $25,100.But the taxes he owes on that last $1,100worth of consumption is $440 (40 percent of$1,100). For the two-year period, his initialsaving has allowed consumption to go up by$100, but his corresponding tax liability goesup by $250! In this example (and in otherswhere consumption levels are close to thebracket breaks) the anti-saving effect of the"fairness" feature swamps the direct effectof the pro-saving feature. This net anti­saving bias is even stronger when incomes(and levels of consumption) are increasingover time-as they generally are. A tempo­ral smoothing of consumption to avoid highmarginal rates requires borrowing-dis­saving-in the lean years.

If considerations of fairness keep peoplefrom saving this year in order to consumenext, maybe the more farsighted among uscan take advantage of tax-exempt saving bywaiting until retirement to consume. Butthis is the one component of saving that isexempt even under the existing system.Further, retirement years are low-incomeyears, not necessarily low-consumptionyears. Many people in their 60s and 70stravel extensively as they never could be­fore. They consume. Many in their 80s and

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90s pay dearly for their daily keep in aretirement center. Should these people payeven more dearly on April15? Our haplesstaxpayer may once again be foiled by fairness.

In comparing income and consumption asalternative tax bases, there seems to be noclinching argument that allows for an un­ambiguous preference. Each is deficientwhen judged by the standard set by theother. If we take consumption as the ap­propriate base, we see that an income tax isapplied to some of it twice. If we takeincome as the appropriate base, we see thata consumption tax lets some of it go un­taxed. Ultimately, Seidman's case for thepro-saving feature of the USA Tax is itselfbased on considerations of fairness: "[I]tseems fairer to tax a person according towhat that person subtracts from, rather thanadds to, the economic pie." It is true--andseems eminently fair-that when we "sub­tract from the economic pie," we pay, andwhen we "add to the economic pie," we getpaid. But this truth, which reflects theordinary working of the market system,leaves unanswered-and unasked-thequestion about how much each of us shouldpay for government and about how muchgovernment we should have. The holisticnotion of the "economic pie" provides littleor no scope for claims about fairness. Thesize of the pie is a consequence of thevarious preferences of market partici­pants-for enjoying leisure rather than sup­plying labor and for consuming now ratherthan consuming later. What seems fair isthat each of us should make his or her ownchoices in this regard. The notion of fair­ness, however, provides no clear link be­tween changes in the size of the pie andobligations to pay for government.

Opponents of the current tax system whobase their criticism on the tenets of classicalliberalism will be equally critical, if notmore so, of the USA Tax. For the classicalliberal, meaningful reform is better aimedat reducing taxes and, more generally, inreducing government. 0

Roger Ga"ison is a professor of economics atAuburn University, Auburn, Alabama.

760 THE FREEMAN • DECEMBER 1997

The Future of Money in theInformation Ageedited by James DornCato Institute. 1997 • 171 pages. $12.95paperback

Reviewed by Steven Horwitz

I f there's one lesson that we've learned inthe computer age, it's that George Orwell

was wrong: technology is not the enemy ofliberty, but its friend. It was the personalcomputer, the fax machine and the telecom­munications satellite that were central tothe liberation of Eastern Europe and theSoviet Union (and China, to an extent)because they broke down the informationbarriers that enabled those regimes to con­tinue to lie to their citizens. Because of theireconomic implications, the latest technolo­gies, advanced personal computers, and theInternet, offer new, and perhaps greater,promises for human freedom, as the papersin this collection make clear.

All but two of the papers in the book werepart of the Cato Institute's annual monetaryconference in 1996. They represent a widerange of expertise and perspectives on theset of issues surrounding the implicationsthat modern information and communica­tion technology have for money and itsassociated institutions. The contributors in­clude academics, traditi9nal bank execu­tives, computer experts, electronic moneyentrepreneurs, policy analysts, and centralbankers. The papers are mostly short andaccessible, and the book would make a goodsupplement for an undergraduate course onmoney and banking.

Although there are some significantpoints of disagreement among the authors,two beliefs seem to represent a consensus.First, as more transactions take place overthe Internet and as money itself becomesincreasingly "digital," it will be harder forgovernments across the world to monitorand control both money and the. exchangesmade with it. Second, this change in thenature of money is more evolutionary thanrevolutionary. The history of money is the

story of the substitution of more abstractforms of money for more concrete ones. Inthis way, the use of so-called "electronicmoney" is not fundamentally different fromthe substitution of paper for commoditymoney, or checks for currency.

The papers in this book explore a varietyof different forms that electronic moneymight take. The simplest is what is known as"smart cards," or "stored-value" cards. Wecan already see an early version of these inthe form of prepaid phone cards. Imagine,however, that you had such a card thatcontained a bank balance and that you couldspend it anywhere by swiping it through astore's or vending machine's card reader.Imagine further that you could "reload"that balance by inserting the card into anATM, or your personal computer linked viathe Internet to your bank, or through a cardreader located at a place of business, or evenby a direct hookup with another card user.Such a card could replace currency foralmost all uses and would be far safer, asit would require a PIN or an even moreadvanced security device.

More sophisticated versions of electronicmoney would include money both createdand stored in electronic form over theInternet, and used for transactions madethere. Internet banks could give loans in theform of encrypted strings of digits that othercomputers would recognize as a moneybalance created by the bank. So to "spend"this money, one could simply send the stringof digits to the seller of the product, whowould then pass that string on to his bank,who would pass it on to the issuer, whowould then verify it and credit the mer­chant's bank for the amount. This kind ofmoney would have no physical form (unlikethe smart card) and could be quite useful forthe booming. world of Internet commerce.If the encryption procedures are secureenough, this kind of digital money would besafer than using a standard credit card overthe Internet, which is the way most businessis done there now.

Aside from the obvious conveniences forconsumers, these innovations have signifi­cant implications for monetary policy and

central banking. Most important, the morethese electronic forms of money displacecentral bank-created currency, the largerwill be the proportion of the money supplythat is privately created. Smart cards anddigital currency are liabilities of the banksthat created them, not the Fed. In theextreme, should paper or "analog" currencydisappear, the Fed will then only control thesupply of bank reserves. That power wouldstill give the Fed the ability to create muchmischief, but it would have a few benefits.

As George Selgin's paper argues, if papercurrency disappears, the Fed would nolonger have to worry about the degree towhich the public wishes to convert its bankdeposits into currency. Right now, the Fedneeds to estimate that magnitude in order tocorrectly predict the effects on the moneysupply when it conducts open-market oper­ations. In a paperless world, the Fed wouldhave much more control over the supply ofbank reserves and, as Selgin argues, couldmuch more successfully implement a Fried­man-like monetary rule. Even given theexistence of a central bank, the advent ofelectronic currency might usher in a new eraof relative monetary stability by makingrule-based policies easier to implement.

The move away from paper could alsolead to the even more desirable outcome ofthe eventual fading away of the centralbank. Electronic money opens up the mar­ket for "hand-to-hand" money by puttingthe equivalent of a printing press in everybank's computer. Private banks will likelyoutcompete the Fed in such a market,further undermining the argument for hav­ing a central bank in the first place. As thesophistication of the technology increases,so will the ability of banks to manage theirportfolios and so will the ease with whichconsumers can use progressively more ab­stract forms of money.

One can easily imagine a world wherebanks offer balances on the basis of assetssuch as private-sector bonds and stocks (asmutual funds do now) and customers takethose balances in the form of smart cardsthat can be used in place of currency,checks, and credit cards. In such a world

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there is no need for a central bank, only anetwork of institutions that enable the in­dividual banks to clear their balances amongthemselves. The need for a central source ofreserves would disappear, as would theFed's lender-of-Iast-resort function, as mu­tual funds cannot be "run" on the way bankscan. The progress of electronic money isrendering both central banks and the na­tional borders within which they operateincreasingly obsolete.

Lest we get too heady about all of thischange, it is important to realize that it isevolutionary not revolutionary. First of all,money already exists in electronic formthrough wire transfers, and secondly, moneyhas been evolving away from the concretetoward the abstract since it was first used. AsLarry White's paper notes, the first timebalances were transferred by bookkeepingentries, money was separated from thephysical world. That is, in principle, notfundamentally different from the variousforms of electronic money this collectionexplores. The leap from paper· to encodeddigits is the equivalent of the leap from goldcoins to paper.

In addition, there is a certain sense ofgoing back to the future here. As several ofthe papers in this volume point out, thebanking system we will likely end up with inthe electronic future will look an awful lotlike the U.S. banking system did before theFed was created. In particular, hand-to­hand money issued by individual banks wascommonplace in the nineteenth century,and remains the primary currency in a fewcountries even today. The natural responseto this point is to wonder whether theelectronic money future might fall victim tothe same problems as the past. After all, thepre-Fed banking system is no longer with us,so it must have ended for a reason.

And this brings up the key issue facing thefuture: what sorts of regulations, if any,should there be on the production of elec­tronic money? As the papers by AlanGreenspan and R. Alton Gilbert rightlynote, recent scholarship on nineteenth­century banking in America and elsewherehas argued that the failures of those systems

762 THE FREEMAN • DECEMBER 1997

were largely due to poorly chosen regula­tions, such as limits on branch banking andthe requirement that banks buy bonds ascollateral for their currency issues. Thehistory of banking is littered with suchexamples of often well-intentioned attemptsat regulation that wind up creating unin­tended problems, and create a demand forfurther intervention. It is just such a processthat has brought us the Fed and the numer­ous problems banks have faced in thiscentury.

Perhaps with the advent of a new century,and new mechanisms for delivering mone­tary services, we will finally heed the lessonsof the past and give these new technologiesand institutions the freedom to develop inresponse to the needs of the market. TheInternet and other computer technologieshold open the promise of an era of unimag­inable wealth and progress. The question sowell addressed by this collection is whetherwe can learn those lessons of the past andresist the temptation to regulate new formsof money and thereby destroy their enor­mous promise. 0Steven Horwitz is Eggleston Associate Professor ofEconomics at St. Lawrence University in Canton,New York.

Bank Deregulation andMonetary Orderby George SelginRoutledge. 1996 • 288 pages. $69.95

Reviewed by Parth J. Shah

T he classical gold standard is generallyconsidered to be the only monetary

system consistent with the principles oflaissez faire. In that system, the currencyissued by the government is convertible ondemand into a specified amount of gold.The government's ability to issue currencyis limited by the amount of gold it possesses;there is less room for the hidden tax ofinflation. The government, however, retainsa monopoly on the issue of currency.

F. A. Hayek's pioneering essay, "Choice inCurrency" (1976), offered an alternative oflaissez-faire banking-a system of privatelyissued competing currencies. Since then,the novel alternative of free banking has at­tracted considerable attention from youngAustrians.

George Selgin's Bank Deregulation andMonetary Order reprints 12 of his recentarticles (two coauthored with Larry White)that further support the proposition thatmoney is not unlike other goods and can bebest supplied by the market. Though thearticles were written for an academic audi­ence, they are accessible, with some effort,to any interested individua1. They exemplifySelgin's ability to write for academic andnonacademic audiences simultaneously.

The conventional view maintains thatbanking systems are inherently unstable andprone to crises, and therefore governmentregulation and control are essential. Selgindemonstrates that the conventional view isfalse, both theoretically and empirically.Historical evidence from several countriesover a period of about 200 years suggeststhat "genuine banking crises have been rarein most well-studied fractional-reservebanking systems and entirely absent in sev­era1." What explains, then, the conventionalview of banking? This view, like most eco­nomic theQries, is largely due to British andAmerican economists whose judgments arecolored by the banking histories of theirown countries.. Among the countries stud­ied, "banking crises appear to have been aU.S. specialty, with England earning secondplace. A global historical perspective onbanking, however, indicates a generally ac­ceptable performance."

For the period of 1793-1933, Selgin cat­egorizes banking systems as relatively "un­free" (United States, England, France, Ger­many, and Italy) and relatively "free"(Canada, Scotland, Sweden, Australia,China, and South Africa). The "unfree"systems had "privileged" banks and/or re­strictions on bank charters and currencyissue. The "free" banking systems had mul­tiple private issuers of currency convertibleinto specie. "Of forty-eight record.ed crises,

all but seven occurred in unfree systems.""[B]anking crises," Selgin concludes, "havebeen more frequent in heavily regulatedbanking systems than in relatively unregu­lated ones."

Government regulation of bankingthrough monopoly issue of currency, lenderof last resort, deposit insurance, branchingand asset restrictions, interest-rate ceilings,and other means has made this system less,not more, stable. Inherent instability ofbanking systems is used to justify restric­tions, but their presence is actually respon­sible for the instability. The restrictions,then, are self-fulfilling-they create insta­bility which in turn justifies their existenceand even expansion. In opposition to theconventional "market failure" theory, Sel­gin proposes a "legal restrictions" theory ofbanking crises and instability. Even bank­lending manias are usually caused and sus­tained by restrictions on banking and not byexcessive "confidence" or "optimism" or"animal spirits" as the folklore alleges.Selgin supports this contention theoreti­cally by showing the effectiveness of theclearing mechanism under free banking,and historically by examining several al­leged episodes of financial "bubbles."

The infamous banking crisis of the 1930s,the cause of the Great Depression, corrob­orates Selgin's legal-restrictions theory. Inthe first two years of the crisis, most of thefailures were of "small-unit banks in agri­cultural regions." Their failure, as those of6,000 banks in the 1920s, was due to the fallin the relative price of agricultural products.If the United States had allowed nationwidebranch banking, most of these "relative­price-induced" bank failures might havebeen avoided. Canada, which suffered thedecline in agricultural prices but had branchbanking, did not have a single bank failurein those two decades, except for one failurein 1923 involving fraud. Moreover, in re­sponse to the public's increased demand forcurrency, Canadian banks were able to issuemore notes in exchange for deposits, but theAmerican banks could not increase theirnote supply without relaxation of the re­strictions by the Fed. The troubles of agri-

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cultural banks could have been largely con­tained if only the United States had branchbanking and freedom in note issue.

Banks' inability to issue more notesprompted clearinghouses to seek permis­sion of the Treasury "to issue clearinghousecertificates as substitutes for bank notes, asthey had done during earlier crises. But theywere refused permission on the groundsthat such a private response was no longerneeded: the Fed was capable of issuing'plenty of money that looks like real money.'In the event, of course, the Fed's responseproved far from adequate." The crisis ofagricultural banks did not turn into a wide­spread panic until February 1933, whenstates began declaring bank holidays (Mich­igan on February 14, which led to thenational bank holiday on March 6), andwhen rumors spread about the govern­ment's plan to devalue the dollar. On top ofit all, in mid-1932, a two-cent tax on checkswas imposed, which further encouraged thepublic to withdraw currency from the bank­ing system. A restrictionless banking systemwould surely have mitigated, if not pre­vented completely, the Great Depression.

Many advocates of free markets (MiltonFriedman, for example) consider the centralbank as generally evil but absolutely neces­sary for smooth and efficient working of thefinancial system. Surprisingly though,hardly any systematic, scholarly case hasbeen offered to support the assumed neces­sity of the central bank. Its desirability issimply taken for granted. Charles Good­hart's The Evolution of Central Banks, at­tempts a defense of central banks. Selginprovides a detailed and persuasive critiqueof Goodhart's rationale for central banks aswell as his interpretation of the theory andhistory of free banking.

Selgin points out, among other things,that central banks of the world did notevolve "naturally" because of the econo­mies of scale in reserve holding and theneed for a lender of last resort in fractional­reserve banking. They were contrived by thefiscal necessities of states and by "advan­tages endowed by legislation." The econo­mies of scale in reserve holding can other-

764 THE FREEMAN • DECEMBER 1997

wise be achieved by branch banking andnon-bank clearinghouses. The need for alender of last resort is actually created bythe privileges (of note issue, access tocapital and such) granted to particularbanks, which weakened the other banks inthe system and made them unnaturallydependent on the "privileged banks."

Chapters 1, 2, 4, and 6 explain how,without state interventions, the bankingsystem would have evolved by using CarlMenger's theory of the evolution of moneyand his "conjectural historical" approach;how free banking adjusts the supply ofmoney to its demand; and how it provides asubstantially more stable monetary environ­ment and less room for "money mischief."For nonspecialists, these chapters offer aquick but thorough understanding of theworkings of a free banking system and itsadvantages over central banking.

Selgin addresses an important ongoingdebate among economists on "productivitynorm" versus "price level stability norm"(Chapters 7 and 8). This debate applies toboth free banks and central banks-howfree banks would behave and how centralbanks should conduct their monetary policy.The central bank of New Zealand is nowrequired by law to maintain stable prices orzero inflation. Stability of prices has becomea dominant concern ofmany a central bank.The productivity norm, which Selgin pre­fers, suggests that prices be allowed to fallin response to increases in productivity ofthe economy. Selgin contends that as thesupply of goods and services increases, thedownward pressure on their prices shouldnot be countered by expanding the moneysupply to keep them stable.

Suppose unexpected technological im­provements in the production of somegoods lowers their cost of production. Thatwould, under competition, lead to a declinein the prices of those goods relative to othergoods. Which norm requires changes inmore prices? Under the productivity norm,prices of only those goods whose produc­'tivity has increased must fall; allother pricesremain the same. Under the price levelstability norm-which is identical to keep-

ing a consumer price index constant-pricesof all other goods must be raised relative tothe prices of goods whose productivity hasincreased. Thus, the productivity norm, Sel­gin maintains, is superior to its commonlyadvocated alternative.

I am sure that this book will encouragethe reader to further explore the crucialfield of free banking-crucial to the evolu­tion of a laissez-faire society. 0Parth Shah is an economics professor and presi­dent of Center for Civil Society, New Delhi, India.

The Origins of Virtueby Matt RidleyViking. 1997 • 295 pages. $24.95

Reviewed by George C. Leef

I t is not uncommon for those who havebeen trained in economics or philosophy

to arrive at the conclusion that big govern­ment is a dangerous menace, but it is anevent worth noting when a scientist comesto that conclusion. The event becomes evenmore noteworthy if the scientist has done usthe favor of putting his thoughts into adelightfully readable book. Matt Ridley hasdone just that.

Ridley is an Englishman, trained in zo­ology and equipped with an excellent graspof many other disciplines-the book rompsthrough anthropology, history, game the­ory, economics, genetics, and more. TheOrigins of Virtue is a search for answers tothese questions: "If life is a competitivestruggle, why is there so much cooperationabout? And why, in particular, are peoplesuch eager cooperators? Is humankind in­stinctively an anti-social or a pro-socialanimal?" His answers echo the teachings ofAdam Smith, David Ricardo, F. A. Hayek,and other defenders of freedom.

Cooperation rather than aggression, Rid­ley argues, is in the long-run interest ofthose individuals and groups thatpractice it.Cooperators fare much better in the strug­gle for survival than. do aggressors or those

that attempt self-sufficiency. Among theevidence Ridley marshals for this conclu­sion are the many "prisoner's dilemma"computer tournaments that have been run,wherein the winning strategy turns out to beone of reciprocity: "Cooperate with me andI'll cooperate with you; cheat and I'll retal­iate." He maintains that this predispositionhas become deeply ingrained in the humanbrain (most of them, anyway). "[T]his in­stinctive cooperativeness is the very hall­mark of humanity and what sets us apartfrom other animals."

Other animal species can cooperate tosome extent within small groups, but wehumans have figured out how to cooperateon a vast scale. One of our most importantkinds of cooperation is, of course, trade.Ridley's Chapter 10, "The Gains fromTrade," is an excellent discussion (if youteach principles of economics, you'll findsome good material for lectures or examsthere), but it leads to an even more impor­tant point. Trading requires trust. Main­taining a reputation for honesty therefore isextremely important and that is why, theauthor concludes, people generally forbearfrom dishonesty and aggression. Even if, ona cold utilitarian calculus, such behaviorwould appear to payoff, most people resist.Ridley attributes this to millennia of humansocial development that has made us veryreputation-conscious.

Alas, we also have our bad instincts,especially a tribalistic "us versus them"proclivity that demagogues have been ex­ploiting since time out of mind. So, what canwe do to maximize the good that comesout of our cooperative side and minimizethe damage that can be done by our aggres­sive side? Answer: minimize the powerof the state. Contemplating the behemothstates of the current time and of the past,Ridley writes, "I do believe that therehave been glimpses of a better way, of asociety built upon voluntary exchange ofgoods, information, fortune and power be­tween free individuals in small enoughcommunities for trust to be built. I believesuch a society could be more equitable, aswell as more prosperous, than one built

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upon bureaucratic statism." Give Mr. Rid­ley an A.

Big government opens up a new meansfor people to get what they want, namelypolitics. Politics ultimately reduces to theuse of force, however. The more we polit­icize society, the more we lure people awayfrom voluntary, cooperative action. Ridley'sdiscussion of the effects of the Britishwelfare state is illuminating: "Because of itsmandatory nature the welfare state encour­aged in its donors a reluctance and resent­ment, and in its clients not gratitude butapathy, anger or an entrepreneurial drive toexploit the system. Heavy governmentmakes people more selfish, not less."

And there is much to praise in this bookbesides the author's sensible conclusionabout the proper role of government. Plentyof fashionable notions about man and na­ture receive smashing blows, for examplethe endlessly repeated idea that simple,native peoples· have a built-in environmen­tal ethic. There is overwhelming evidence tothe contrary. Or, on the subject of wildlifeconservation, the "green" penchant for de­manding government control takes a knock­out punch.. Clear, defendable propertyrights, Ridley shows, are far more effective.(If you want to try a sample of this book,start reading Chapter 11, "Ecology as Re­ligion" and I'm confident that you'll want toread it all.)

Ridley is a talented writer and The Originsof Virtue has a "page-turner" quality to it. Ihope that we will be hearing more from himin the future. DGeorge Leefis book review editor ofThe Freeman.

Pick a Better Countryby Ken HamblinSimon & Schuster. 1997 • 251 pages. $23.00

Reviewed by James A. Woehlke

The plot is now familiar: a youth spentcourting liberal utopia morphing into

a conservative middle age. Ken Hamblin's

766 THE FREEMAN • DECEMBER 1997

book is a patriotic romp, as he shares hisfaith in the enduring vibrancy of the Amer­ican Dream. Along the way, a lot of leftistmyths and cliches crash and burn.

Hamblin was raised on welfare by hismother, a first-generation immigrant fromBarbados. He didn't relish public assis­tance; in fact, he hated it. He hated hismother's need to mooch off relatives, to begcredit from the local grocer, and to movefrequently. He especially hated being forcedto wear his mother's shoes to school onewinter because there wasn't money to gethim his own shoes. Unlike so many oftoday's urban poor, however, Hamblin'smother desperately wanted not to be onwelfare and instilled this desperation in herson.

His first escape from poverty was courtesyof 1950s radio. Besides being entertained by"The Lone Ranger" and "The Shadow,"Hamblin was moved by Jean Shepherd'sinspirational stories of life throughoutAmerica. He dreamed of living outside hisnative Brooklyn. At 17, Hamblin joined themilitary, and got his first taste of life outsideNew York-and his first exposure to overtracism. He didn't permit himself to bevictimized, but laughed off the racist petti­ness and moved on.

Hamblin's first jobs after the service wereaffirmative action opportunities, but he wasdriven to succeed on his own merits, first asa journalistic photographer, then a docu­mentary producer, and ultimately a success­ful talk show host and columnist. (Some callhim the black Rush Limbaugh.)

Readers are cautioned. As an "unassum­ing colored guy," Hamblin, who is renownedfor his brash approach to social issues, hasthe luxury of callin' 'em as he sees 'em. Hehas little patience for people of color who

claim to purvey authentic black culturewhile espousing hatred, disrespect forwomen, and glorification of the drug cul­ture. Harsh epithets are also reserved forthose who make welfare their lifestyle andthose who reap huge political benefit fromchampioning the welfare dependency ofothers.

He saves the strongest vitriol, however,for the white intelligentsia who collaborateto preserve the "Myth of the HobbledBlack," the idea that inner-city social con­ditions hobble poor people of color the waychains hobbled black slaves 150 years ago.He accuses them of waging a "War onProsperity." Modern liberals, Hamblinmaintains, needed proof that Americadoesn't work, so they actively acculturatedpeople of color to see themselves as victimsof an evil capitalist system. The liberals'social experimentation and their unwilling­ness to hold inner-city sociopaths respon­sible for antisocial behavior have left abloody trail of murdered and maimed, in­ner-city victims. This is a racism of the mostinsidious kind!

Hamblin's message, for black, whites,everyone, is that in a free environment, eachof us must decide if we will be winners orlosers. "Once they decide they're not goingto be losers, nothing-not the KKK, not thewhite citizens council, not any group ofbigots, not the old laws of apartheid inSouth Africa-nothing can stop them be­cause they will be able to dig deep in theirsouls to acquire the strength to carry on.Welfare and liberal indulgence can neveroffer that kind of can-do attitude." May weall take these words to heart. D

James Woehlke is a CPA and freelance writer.

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