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FreemanVOL. 28, NO. 12 • DECEMBER 1978

Glory Be! Leonard E. Read 707True glory consists of the service of truth and freedom.

The "Invisible Hand" or theHeavy Hand? John Montgomery 711

A timely reminder of the dangers we face if we allow controls toclose the market.

Are Successful BusinessmenJust Lucky? Brian Summers 719

Not by pure chance, but by the foresight of businessmen, areconsumers served efficiently.

Government Spending Must Be Cut Hans F. Sennholz 721Meaningful tax reform hinges on the moral strength to resist spe-cial privileges government may arrange.

World in the Grip of an Idea24. The Cold War: The Spreadof Communism Clarence B. Carson 725

Communism is less a political theory than a set of claims andpromises-justifications-for holding and exercising power.

Native Pottery Only William L. Baker 739A study of the harmful effects of "protectionism," as applied dur-ing the Civil War-or today.

Austerity, Waste, and Need E. C. Pasour, Jr. 743In the absence of market signals, the regulator faces severe information problems-and consumers suffer needlessly.

A Human Action Taxonomy Dale Haywood 753We interact in society voluntarily or coercively-and the conse-quences make all the difference.

Book Reviews: 756"Adam Smith and the Wealth of Nations" edited by Fred Glahe"Adam Smith: Man of Letters and Economist" by Clyde E. Dankert"Government by Judiciary: The Transformation of the FourteenthAmendment" by Raoul Berger

Index for 1978 761Anyone wishing to communicate with authors may sendfirst-class mail in care of THE FREEMAN for forwarding.

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®A E~L~~N~~~N LIBERTYFOUNDATION FOR ECONOMIC EDUCATION

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Copyright, 1978. The Foundation for Economic Education, Inc. Printed in U.S.A.Additional copies, postpaid: 3 for $1.00; 10 or more, 25 cents each.

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Some articles available as reprints at cost; state quantity desired. Permissiongranted to reprint any article from this issue, with appropriate credit except "The'Invisible Hand' or the Heavy Hand?," "Government Spending Must Be Cut," "Worldin the Grip of an Idea," and "Austerity, Waste, and Need."

Leonard E. Read

True glory consists in doing whatdeserves to be written; in writingwhat deserves to be read; and in soliving as to make the world happierand better for our living in it.

-Pliny, The Elder

The Roman naturalist, Pliny, TheElder, was born in 23 A.D. When hepassed away at the age of 56, he hadwritten 37 books on the nature ofthe physical universe-includinggeography, anthropology, zoology,botany and other related subjects.

Pliny did, indeed, leave the worldhappier and better for having livedin it. His scientific findings havebeen far surpassed, as we would expect. And if we live our Iives

aright-in freedom-the miracles ofthe future will surpass our findings,as ours have his! He lived everymoment of his life with zestenthusiasm-perhaps the greateststimulus for noble works. WroteEmerson: UEvery great and commanding movement in the annals ofthe world is the triumph of enthusiasm. Nothing great was everaccomplished without it."

True glory consists in doing whatdeserves to be written; it consists innoble deeds worth recording. This isto be distinguished from blatantnotoriety. History presents far morewritings of the latter sort than theformer. Alexander the Great, Charlemagne, Napoleon, Hitler, Stalin,and countless other great destroyersloom too large in written history.

707

708 THE FREEMAN December

Why these lopsided recordings? It isthe bad, not the good, which attractsthe public eye. Observe today'smedia and the preponderance of reporting that does not deserve to beeither written or read, spoken orheard.

The following is an attempt tothink through and to understandPliny's three parts of True Glory. Ifeven partially successful, I willmake a small contribution to thedisplacement of that which shouldbe neither written nor read.

• True glory consists in doing whatdeserves to be written-In my studyof writing that deserves to be written, I've been surprised that most ofthe world's great writers-past andpresent-never kept a daily journal.Obviously, they had other disciplines that brought out their remarkable writings. We are all different in all respects. As for me, Ihave kept a journal for nearly 27years without missing a daycapturing every thought that comesto mind or that I have learned fromothers-a rewarding experience.What a discipline-writing such entries for nearly 10,000 days!

Recently I came upon my entry ofAugust 11, 1955, long since forgotten:

If it were not for the gravitationalforce pulling us down, there wouldbe no such concept as ttup."

If there were no darkness, we

would have no sense or appreciation of light.

If there were no evil, we wouldhave no awareness of virtue.

If there were no ignorance, wewould not know intelligence.

If there were no troubles, therewould be no pleasures.

If there were no obstacles, therewould be no aspirations.

If there were no insecurity, wewould not know of security.

If there were no blindness, wewould not be conscious of perception.

If there were no poverty, we wouldnot experience riches.

If no man ever imposed restrainton others, there would be no striving for liberty and the term wouldnot exist.

I now recall discovering, just a fewdays later, while reading Runes'Treasury ofPhilosophy, that around500 B.C. Heraclitus was saying thesame thing: ttMen would not knowthe name of justice if there were noinjustice." This made me laugh atmy Horiginality" and brought tomind Goethe's assertion: ttAll trulywise ideas have been thought already thousands of times."

Assuming the above observationsto be valid, then ttdoing what deserves to be written" is learning howto cope with and overcome life's

1978 GLORY BE! 709

countless obstacles. It is an observedfact that the art of becominghuman development-is composedof acts of overcoming.

Gravitation, for instance, is aphysical force drawing all and sundry toward the earth's center. Whatelse accounts for physical ascendancy! Were there no such force,there would be no ladders orairplanes or rain or snow-indeed,no life!

Obstacles are assuredly the sourceof aspirations. Human frailtieswhich lead to such things as governmental interventions of the kindthat destroy creative activitiesinspire their own overcoming. Why,then, do errors have their value?Their overcoming leads toevolution-human Liberty!

A Latin proverb: ~~Nothing is toooften repeated that is not sufficiently learned." This encompassesan enormous realm, including everythought that reveals truthrepeating it over and over again,seeking improvement. Learninghow to overcome may very well rankfirst in what deserves to be written!

• True glory consists in writingwhat deserves to be read-There arecountless thousands of books, articles and commentaries that deserveto be read. The vast majority ofthese writings are known to a merehandful of people. I shall refer toonly one that is an inspiring andinstructive example: You Are Ex-

traordinary by Roger J. Williams.!Professor Williams, a noted

biochemist, became convinced thathis wife's death was caused by thedoctor treating her as ~~an equal,"rather than as an individual. Thisled the Professor to his first study inhuman variation, having to do onlywith the variation in taste buds indifferent people. The findings, published in Free And Unequal, are fantastic. 2

Having an unusually inquiringmind, he began an investigationinto ever so many other forms ofvariation. The findings appeared in1956: Biochemical Individuality,somewhat technical for lay readers.3

Nevertheless, I read it with avidity,because it contained an importantkey to the freedom philosophy. Itwas this book that led to my acquaintance with the author.

We corresponded, and after answering a question of mine he addedthat he had just written a book, to beentitled You Are Extraordinary, designed, he said, for lay readers. Themanuscript was enclosed.

Professor Williams is extraordinary. So are you and so am I and sois each human being. Indeed, no oneis the same as a moment ago. Variation is a rule of all life-plant, animal and man.

lYou Are Extraordinary, Pyramid Books.2Free And Unequal, University of Texas

Press.3Biochemical Individuality, Wiley.

710 THE FREEMAN

Why does You Are Extraordinarydeserve to be read? It makes the casefor liberty. Wrote William Gifford:

Countless the various species ofmankind;

Countless the shades thatsep'rate mind from mind;

No general object of desire isknown,

Each has his will, and eachpursues his own.

Once variation is recognized as afact of life, there can be noendorsement-none whatsoever-ofknow-it-alls controlling the creativeactions of you or me or anyone. Authoritarianism dismissed as utternonsense! We would witness our16,000,000 public officials reducedto a mere fraction thereof. All but afew would return to that wonderfulstatus of self-responsible citizensAmerica's miraculous performanceon the go again.

• True glory consists in so living asto make the world happier and betterHow do we live to make others happier and better? Here are a fewguidelines, mostly gleaned fromothers:

A desire to stand for andstaunchly to abide by what is believed to be righteous-seekingapproval from God, not man.

Strive for that excellence in theunderstanding and explanation of

freedom which will cause others toseek one's tutorship. This bringshappiness to both the striver andthe seeker-and the world!

Live with zest and enthusiasm.Nothing great was ever accomplished in the absence of suchspirit.

Be optimistic. This does not meana blindness to dictocrats lording itover us. Rather, it is selfassurance that a turnabout is inthe offing. The world is not goingto the dogs as the prophets ofdoom proclaim. Optimism increases happiness for it is contagious.

If we would make the world happier and better, we might well heedthese words by Albert Camus whenaccepting the Nobel Prize in 1957:~~In all the circumstances of his life,the writer can recapture the feelingof a living community that will justify him. But only if he accepts ascompletely as possible the two truststhat constitute the true nobility ofhis calling: the service of truth andthe service of freedom."

To serve truth and freedom is ashigh as we can go. When more of usthan now attain this intellectualand moral height, the path towardglory will open:

Glory to God in the highest, andon earth peace, good will towardmen.

John Montgomery

The "Invisible Hand"or the

Heavy Hand?

IT WILL COME as no surprise to readers of the Freeman that the nationaldebate over inflation, recession andunemployment rests on a more fundamental issue-what kind ofeconomic system will work best forAmerica? Should it be a continuation of the free-market, capitalisticsystem which meant unparalleledgrowth and wealth in the past, or acentrally planned economy directedby government?

There is a superficial plausibilityto the argument for central planning. The public is generally inclined to leave problems of nationalscope to government and to assumethat centralized authority is eitherdesirable or inevitable. Looking onthe surface of things, people gener-

Mr. Montgomery is a newspaperman and writer onsocioeconomic issues who lives in Closter, N.J.

ally think no further than the immediate effects and short-term benefits of government action. Beset andbuffeted by· the workings of themarketplace, they are taken in bythe promise of ideal government action to correct the shortcomings ofthe market, and they forget thatgovernment promises often exceedthe results.

In contrast, economic thinkingshows that there is good reason tobelieve that government action canbe counterproductive. Economicthinking goes beyond the immediate, visible impact of a policy toforesee the longer-range, secondaryeffects. And it can recognize the realas opposed to the promised results ofa government policy which is basedon a misunderstanding of the workings of the market economy.

For example, government-

711


imposed price controls would seemto offer protection against inflation.But powerful economic forces comeinto play and cause widespreadshortages. Then, government mustintervene again. Rationing is imposed. The result of that is the rapidgrowth of black markets.

What's more, there is a conflictbetween successful politics andsound economic policy. Politics canwork to serve the interests of powerful pressure groups rather than thegeneral public.

An Invisible Hand

Two centuries ago the first greateconomist, Adam Smith, explainedthe operation of the free market bysaying it was as though there werean invisible hand directing the efforts of everyone-even though eachwas pursuing his own gain-in a waythat promoted the interests of society as a whole. And that is essentially what the advocates of a freemarket are saying today, leavingthemselves open to the charge thatthey are clinging to an archaic notion which no longer applies in modern times.

Smith's great work, The Wealth ofNations, came out in the watershedyear of 1776. The industrial revolution was just under way and it was atime of pervasive regulation of production and trade by the king andParliament. Smith was arguing fora laissez-faire, hands-off policy by

government. But it wasn't that hethought the invisible hand was tugging on puppet strings to guide eachproducer, merchant and trader.Smith believed that economic affairswere self-regulating, that internalorder was inherent in the competitive market process to the extentthat it was free of government intervention. He saw an order which,in the words of his contemporaryScottish philosopher, Adam Ferguson, was the Hresult of human actionbut not of human design."

In the two hundred years sinceAdam Smith, economics has developed in many directions. But forour own time only the economists ofthe so-called Austrian school,named for the place of its beginningsa century ago, have contributedmuch to that concept of Smith's. Inparticular, Friedrich Hayek, NobelPrize winner and dean of the Austrian economists of today, has drawnon the work of his great teacher,Ludwig von Mises, to address theidea repeatedly over the past 40years or more. Mises, Hayek andyounger ~~Austrians," mostly in theEnglish-speaking world, have builton Smith's concept in fundamentalways to show how it can apply to thevastly more complex economy of today.

In attempting to describe some ofthose ideas here, largely fromHayek's writings, only the essenceof the market process will be focused

1978 THE ~~INVISIBLE HAND" OR THE HEAVY HAND? 713

on. Major forces and mechanismswill go unmentioned and the picturewill be somewhat abstract andidealized. But if the advocates ofcentral planning can rhapsodizeover the economic utopia to berealized if their designs are carriedout, then there would appear to begood reason to portray the workingsof a truly competitive market economy, free of the distortions and constraints imposed in these times ofbig business, big labor and, most ofall, big government.

Hayek restates Smith's concept bysaying that the coordination of individual efforts in society is the resultof an immensely complicatedmechanism which exists, works andsolves problems but is not the resultof deliberate regulation. Or, as heputs it, ~~The spontaneous interplayof the actions of individuals mayproduce something which is not thedeliberate object of their actions butan organism in which every partperforms a necessary function forthe continuance of the whole, without any human mind having devisedit."l

General Rules of Order

The ~~ordering forces" in such social formations are the general rulesfor the behavior of individuals in asociety. Not that these rules are laiddown by the architect of a masterplan, or that the rules dictate whateach person must do. Rather, the

rules are largely negative, prohibitions against certain forms of behavior. Each person knows what hemust not do but is left free to choosewhat he will do from all the remaining alternatives. What these common rules give rise to are patterns ofhuman behavior, a certain range ofactions and an over-all order in society.

Such common rules have comedown through the ages, passed on inthe cultural traditions of humansocieties, and represent the accumulated experience of mankind. Theyhave shaped the spontaneous orderin human affairs which is nowwidely recognized in such social institutions as language, law, morals,writing and the use of money. Inthese cases it is no longer arguedthat they are the work of inventors,legislators or bodies of wise men.2

In certain ways the idea of centraleconomic planning dates back toMercantilism, which was dominantin the 17th Century and then wenton the decline as capitalism began totake shape. Its economic assumptions were finally put to rout byAdam Smith, but not before England's Mercantilist policies hadgoaded the American colonies to revolt. Mercantilism held that thepurpose of economic life in a nationwas to serve and advance nationalpower; accordingly, it was the rightof government to control economicaffairs. Throughout that period, the


trading nations of western Europewere engaged in commercial warfare with each other, in the struggledrawing on the resources of theircolonial possessions without regardto the interests of the colonists andnative inhabitants. The most intense international rivalry was inforeign trade, which yielded goldthe source of national wealth andpower.

In mobilizing its assets and peoplein the international struggle, eachnation tried to promote a forcedgrowth of its domestic economy, particularly in the small-scale manufacturing of the time and the production ofgoods and commodities forexport. Despite the embryonic stateof economic knowledge, each nationresorted to a planned economy,which gave rise to an overgrownthicket of regulations, trade restraints, currency manipulation,impoverishing controls over wagesand the movement of labor, grants ofmonopoly privileges, and subsidiesto favored industries. The similarityof the extensive intervention in theeconomy by the modern welfarestate in pursuit of its social goalshas suggested the name of neoMercantilism.

Utopian Socialism

But it is not so much that today'sadvocates of central planning wanta return to Mercantilism. Their sustaining vision came along a bit la-

ter, early in the 19th Century. Andit was a vision which has had enormous influence, inspiring generations of social scientists, writers andintellectuals to this day. Its patronsaint was an impoverished Frenchnobleman, the Comte de Saint Simon. His followers and successorsgenerated the major part of whatcame to be known as Utopiansocialism. Observing the great accomplishments of the physical sciences in 18th Century France, theysought to develop a social science ofsociety in which everyone in itwould be directed by an elite groupof philosophers and scientists usingtheir knowledge for the commongood.

Then, not long after and buildingat least in part on their ideas, cameMarx and Engels who foresaw thedownfall of capitalism in the revoltof the workers of the world to takeover the means of production fromthe capitalists who had exploitedtheir labor. But Marx was far from amere social visionary. Starting withcertain flaws in the classical economics of the time, he built his ownsystem which continues· to exert apowerful influence on manyeconomists. This influence can beseen in the insistence by many thatcentral planning is necessary tocompensate for «inherent" and(structural" weaknesses in the capitalistic system.

There are other reasons for the

1978 THE ((INVISIBLE HAND" OR THE HEAVY HAND? 715

continuing resistance to the idea of aself-regulating economy. For onething, it took a long time for man toconcede that any system with order,function and apparent purpose wasnot of human design; the belief incentral planning may be the lastvestige of that reluctance. But, mostimportant for politics and policy today, Keynesian economic theorywhich has been so dominant sincethe Thirties plus the developmentof mathematical models and statistical data which can be fed into acomputer seem to offer ways thatthe economy can be managed.

Too Complex for Planners

Ina recent article, Hayek responded to that idea by saying that((the very complexity which thestructure of modern economic systems has assumed provides thestrongest argument against centralplanning. It is becoming progressively less and less imaginable thatanyone mind or planning authoritycould picture or survey the millionsof connections between the evermore numerous interlocking separate activities which have becomeindispensable for the efficient use ofmodern technology and even themaintenance of the standard of lifeWestern man has achieved."3

But, then, if central planningcannot cope with such complexity,how would the free market do anybetter? It would, of course, have to

serve such basic economic functionsas the allocation of resources, theorganization of production, and thedistribution of goods and services.But these things cannot occur in avacuum. Information is required:about the availability of resources,about how production is progressingand whether adjustments are calledfor, and about what goods and services people want, and how much, ofeach.

The crux of the matter, as Hayekputs it, is that the necessary knowledge and information does not existin concentrated or integrated formbut solely as dispersed bits of incomplete and frequently contradictory knowledge possessed by different individuals throughout theeconomic system.

Market Pricing

So, how is this dispersed information to be conveyed to the decisionmakers, who are also scatteredabout the system? And how are thedecision makers to know what information of potential use to them isout there somewhere, beyond theirpurview but available for the asking?

In this connection, Hayek hasanother observation: knowledgecomes in two kinds. First, there isthe scientific knowledge vital to anadvanced technological society.That knowledge would be easilycommanded by the experts, and


would even be manageable by thecentral planners. But then there isthe second kind, that important butunorganized knowledge which hasto do with the particular circumstances of time and place. Of thislatter kind, nearly every participantin the market system possessesknowledge which is unique to his joband location. And, in view of thisexpertise, who better should makethe decisions that that knowledgemandates?

To illustrate the difference between these two kinds of information, Hayek points out how muchthere is to learn on a new job evenafter completion of scientific ortechnical schooling, and how important to any job is the knowledge ofthe people involved, of local conditions and special circumstances.

Response to Change

And then there is the problem ofchange. The market must respondwith dispatch to change which canoccur anywhere in the economic system: a transportation tie-up in andout of Chicago, a craze for sky bluejeans on the East Coast, and so on.Again, decisions are required wherethe change has occurred and wherethe knowledge of possible responsesis to be found. It is the man on thespot who must decide and take action.But he needs to know more than thefacts ofhis immediate surroundings.He must know something of the big

picture, what is going on out therein the rest of the economicsystem-so that he can dovetailwith the other decision makers andfit in with the workings of the wholesystem.4

If there were no change, at leastone of the insoluble problems confronting the central planners wouldbe done away with. They could drawup long-range plans with preciseand detailed instructions for the underlings throughout the system tocarry out. There would be no needfor adjustment to unforeseen events,for adjustments to eventualitieswhich had not entered into theircalculations. But, among otherthings, there would still be the practical impossiblityof obtaining anddistilling the enormous quantity ofinformation reflecting local conditions in all the interacting sectors ofthe economy.

Returning to the market economy,it is not enough that knowledge andthe ability to act on it be dispersedthroughout the economic system. Amechanism for communicating thatknowledge is needed. And there issuch a mechanism: the price system.

Prices are a numerical indexwhich determines the value of eachthing considered for purchase relative to all other things available toeach potential buyer, whether producer, consumer or middleman.Thus he can rank the urgency of hisneeds as a basis for his decisions

1978 THE ((INVISIBLE HAND" OR THE HEAVY HAND? 717

without being overwhelmed by all ofthe information which might conceivably be brought to bear on hischoices. Price fluctuations reflectchange wherever it has occurred inthe market system. The numericalindex of prices communicates sufficient information in condensed anddistilled form for the market as awhole to be coordinated.

Guidelines to Follow

Hayek illustrates how the pricesystem works as follows: ((Assumethat somewhere in the world a newopportunity for the use of some rawmaterial, say, tin, has arisen, or thatone of the sources of supply has beeneliminated. It does not matter forour purpose-and it is significantthat it does not matter-which ofthese two causes has made tin morescarce. All that the users of tin needto know is that some of the tin theyused to consume is now more profitably employed elsewhere and that,in consequence, they musteconomize tin. There is no need forthe great majority of them even toknow where the more urgent needhas arisen, or in favor of what otherneeds they ought to husband thesupply. If only some of them knowdirectly of the new demand andswitch resources over to it, and if thepeople who are aware of the new gapthus created in turn fill it from stillother sources, the result will rapidlyspread throughout the whole

economic system. This influencesnot only all the uses of tin but alsothose of its substitutes and the substitutes of these substitutes, and soon. . . . The whole acts as one market, not because any of its memberssurveys the whole field, but becausetheir limited individual fields of vision sufficiently overlap so thatthrough many intermediaries therelevant information is communicated to all. The mere fact that thereis one price for any commodity-orrather that local prices are connected in a manner determined bythe cost of transport, etc.-bringsabout the solution. . . .

((We must look at the price systemas .such a mechanism for communicating information. . . . Themost significant fact about this system is the economy of knowledgewith which it operates, or how littlethe individual participants need toknow in order to take the right action. In abbreviated form, by a kindof symbol, only the most essentialinformation is passed on, and this ispassed on only to those concerned. Itis more than a metaphor to describethe price system as a kind ofmachinery for registering change, ora system of telecommunicationswhich enables individual producersto watch merely the movement of afew pointers, as an engineer mightwatch the hands of a few dials, inorder to adjust their activities tochanges of which they may never


know more than their reflection inthe price movement.

~~... The marvel is that in a caselike that of a scarcity of one rawmaterial, without an order being issued, without more than a handfulof people knowing the cause, tens ofthousands of people whose identitycould not be ascertained by monthsof investigation, are made to use thematerial or its products more sparingly; that is, they move in the rightdirection. . . ."5

The Entrepreneur's Role

Austrian economist Israel Kirzner, citing the work of Mises, fills inanother part of the picture of themarket process. He describes threetypes of market participants: consumers, entrepreneur-producers andthe providers of productive resources, including labor. Again, thekey to the process is information,with the market participants starting out in ignorance of each other'sintentions and thus unable to join inexchanges as buyers and sellers.Prices estimated and offered are farapart but move closer together asthe market process goes on. Fromthe information derived in the process about each other's expectations,the market participants changeplans and set new courses.

The entrepreneur is the drivingforce in the process. It is he who is onthe alert for places in the economywhere conditions for exchange exist

and who seeks profit in the creationof new business, new productionmethods and new products. And inhis activities he conveys information in the form of successive priceoffers and estimates, nudging theplans of the market participantsinto closer and closer alignmentuntil an exchange is achieved. In sodoing, he exploits and createschange in the discovery of new resource sources, new technical opportunities and new consumer tastesand preferences. And he exploitssuch possibilities by changingprices, product specifications andselling effort. Impelled by the goadof competition, he seeks to close adeal, secure a resource or penetratea market sector before his rivals.The result is growth in businessactivity, in income and employment,and in the supply of new goods andservices.6

StUltifying Bureaucracy

There is no place in the centrallyplanned economy for the entrepreneur in search of profit. Bureaucratsare after job security and power inthe hierarchy. The search for profitsis risky and the bureaucrat mustplay it safe. Besides, he knows theprofits are not for him to keep. Thus,another signal required by the selfregulating economy, profit as indicator of the viability of a businessenterprise and guide to the use ofresources, is forgone.

1978 THE cCINVISIBLE HAND" OR THE HEAVY HAND? 719

And there is no place in the freemarket system for the central planners whose inflexible designs wouldstifle the free movement and initiative of those who make it work.Paraphrasing Hayek, planning in asociety consciously directed from thetop could never begin to utilize allthe knowledge and energies boundup in the countless individuals whomake up the community. Humanresources will waste away while allawait their marching orders. @)

SOME PEOPLE contend that free enterprise is nothing more than agame of chance-that business profits and losses are purely a matter ofluck. Is this true? Are successfulbusinessmen just luckier than therest of us?

Consider a simple example. Suppose a businessman has net earnings of $35,000 in a given year. Isthat $35,000 all profit? Not necessarily. If the businessman put his

Mr. Summers Is a member of the staff of The Foundation for Economic Education.

-FOOTNOTES-

1F. A. Hayek, uThe Trend of EconomicThinking," Economica, May 1933, p. 130.

2Hayek, ((Kinds of Order in Society," Institute for Humane Studies reprint, Menlo Park,Calif., 1975, pp. 6-11.

3Hayek, Morgan Guaranty Survey, January1976.

4Hayek, (The Use of Knowledge in Society,"Institute for Humane Studies reprint, MenloPark, Calif., 1977, pp. 5-13.

5Ibid., pp. 13-15.6Israel Kirzner, Competition and Entrepre

neurship (Chicago: Univ. of Chicago Press,1973), chapters 1 and 6.

Brian Summers

Are SuccessfulBusinessmenJust Lucky?

own labor into the business, and ifhe could have earned $20,000 working for someone else, the businesscost him, in terms of lost salary,$20,000. If he has $100,000 of hisown capital invested in the business,and the market rate of interest is 10per cent, his business cost him$10,000 in lost interest. The businessman made $35,000 by passingup the opportunity to make $30,000.His net profit was $5,000.

Was his $5,000 profit caused bygood luck? If he had earned only

720 THE FREEMAN

$25,000, would his $5,000 net losshave been due to bad luck?

Profits and losses could be attributed to luck only. if they were theresults of completely randomprocesses-such as the roll of dice. Ifbusinessmen randomly selectedproducts and factors of production,we could say that profits and losseswere purely a matter of luck.

But if businesses were operated ina completely random manner, therewould be no tendency for businessmen to emulate successful competitors. Businessmen would nevertend to enter a profitable industry,bid up production costs, and reduceselling prices through increasedoutput. If businessmen depended entirely on luck, they would neveradopt the methods of profitablecompetitors-they would just keeprolling dice.

In the real world, of course, businessmen don't depend on luck. Theyobserve competitors and try to learnfrom their successes and failures.Successful businessmen are notgamblers; they are alert followers ofmarket trends who use theirspecialized knowledge to anticipatefuture trends.

The First PrincipleIDEAS ();'\;

But what about innovators whotryout new products and newtechniques? Aren't they gamblers?

Even the boldest innovators don'trandomly select products and factorsof production. They know that tomake profits they must please consumers while minimizing costs.Thus, they study the market, perform marketing research, and try toreduce costs by conserving labor,capital, and scarce resources. If theyfail, the losses are theirs. If theysucceed, consumers enjoy a betterstandard of living. Businessmensucceed by correctly anticipatingconsumer preferences and efficiently using resources to satisfythese preferences.

Luck is a factor only when eventsare beyond our control. In a freemarket each person controls his ownproperty, thereby minimizing theimportance of luck. When government intervenes in the economy,however, luck becomes moreimportant-because with propertysubject to government regulation,economic success becomes less dependent on personal initiative andmore contingent on the vagaries ofpolitics. ,

L1BEHTY

THE FIRST and fundamental principle, therefore, if one would undertaketo alleviate the condition of the masses, would be the inviolability ofprivate property.

POPE LEO XIII

Hans F. Sennholz

THE CASE for lower taxes is clear andcompelling. Projected· federal expenditures total nearly $500 billionin fiscal 1979 and the budget deficitis expected to exceed $50 billion.Government spending has risen tothe point where its burden is feltthroughout the American economy.The three sources of governmentrevenue clearly reveal the strain:

1. For many taxpayers the leviesare higher than ever before, givingencouragement to tax evasion andoutright rebellion.

2. The capital markets show signsof utter exhaustion from government

Dr. Sennholz heads the Department of Economics atGrove City College and Is a noted writer and lectureron monetary and economic affairs. This article Isreprinted by permission from the September 1978Issue of Privete Practice.

demands, causing interest rates torise and security prices to fall. Thereis moaning among stockholders andbondholders, whose savings havebeen devastated in recent years. Butin the body politic they are outnumbered and outvoted and, therefore,constitute no threat to the politiciansin power.

3. Inflation, the favorite techniqueof deficit financing, is acceleratingagain, reducing the real earningsand savings of millions of people. Itis potentially more dangerous to thedeficit spenders who are resorting tocurrency and· credit expansion inorder to finance their favorite programs. But the spenders continue tohide behind the wall of public ignorance that permits them to put theblame for rising prices on merchants

721


and industrialists, on physicians anddentists, on anyone and anythingmaking the news.

The Burden

The public is aware, however, thatthe tax burden continues to grow.Some taxpayers are saddled withlevies that are greater than ever before. They are pleading for tax reliefand, in many cases, are organizingfor tax protest and rebellion. Manyvictims have reached the limit oftheir endurance. Others are submerging in the Hsubterranean economy," where economic transactionsare financed by cash and earningsremain unreported. According tosome estimates, more than $175 billion of annual income, or $3,000 perfamily, are ,escaping the IRS bite.And this amount is expected to growas inflation lifts everyone's incomeinto progressively higher income taxbrackets.

Moral Strength

Surely, we feel with the countlessvictims of government spendingthat consumes more than one-thirdof national income. We understandtheir anguish and sense the enduring morality of the cause of selfdefense and man's right to the fruitsof his labor. But we doubt that theircause embodies the moral strengthfor-overcoming the spending aspirations of contemporary society. It ishaunted by self-interest and projects

self as the central figure on thecause of tax rebellion, while government spending continues to drawits political strength from a loudconcern for the poor and underprivileged.

Progressive income taxation in itselfis an objective ofpolicy in searchof social and economic equality. Butit is also an inevitable consequenceof a social order that bestows expensive benefits on millions of beneficiaries. After all, government has nosources of income and wealth of itsown. It depends entirely on its ability to extract the means from itssubjects. It must find victims inorder to satisfy the clamor for socialbenefits and programs, governmentfunctions and services.

The tax rebellion is a viable political force, but it can become a moralforce only with a simultaneous renunciation of the claims to benefits.The public agitation for lower taxesfound powerful expression in theoverwhelming acceptance of Proposition 13 by California voters-a referendum slashing real propertytaxes. The California voters gavenew life to many other campaigns tosecure reduction in federal and statetax rates. But such campaigns skirtthe real issue if they focus exclusively on tax reductions. An essential ingredient of genuine relief anda truly successful tax rebellion is areduction in the size of government.Without it, a tax rebellion could

1978 GOVERNMENT SPENDING MUST BE CUT 723

merely result in changes in formthat in the end lack substance. Itmerely would shift the burden ofgovernment from some taxpayers toother victims.

Tax Cuts or Spending Cuts?

Some campaigns focus on the potential for increasing governmentrevenue as a result of tax cuts. TheKemp-Roth proposal seems to suggest that no spending reduction isneeded as a companion to tax cuts. Itsadvocates hold out the hope thattheir particular tax cuts will revivethe economy, cause it to expand,compensate for the. loss of revenuewith new revenue, and simultaneously reduce the relative size of government. They are promising relieffor taxpayers, more jobs to workers,higher profits to businessmen, andmore revenue to social spenders.

It may well be true that cuts incertain tax rates would spureconomic activity and generate increases in revenue despite the taxcuts. A reduction in the capitalgains tax, corporate income taxes,and other levies on capital and business undoubtedly would stimulateeconomic production. But it is unlikely that the relative burden ofgovernment would be permitted toshrink. The temporary loss in taxrevenue would immediately beoffset by revenue from the capitalmarket, causing interest rates torise and business activity to con-

tract, or from currency expansion,that is, inflation, causing prices torise. If, nevertheless, the net effectshould be expansionary, government, too, will expand. It may evengrow faster than the private sector ifthe deficit is financed by inflation.

Would the political forces pushingfor economic redistribution andmore government acquiesce in asmaller share of national income?They managed to extract their present share of benefits from a stagnant economy. Is it not likely theywould want an even larger sharefrom an expanding economy?

There is no easy escape from theconsequences of an ideology ofeconomic transfer· and social conflict. A tax cut as a stimulant administered by government surelydoes not weaken the position of government. It does not even questionthe transfer function, but insteadadds the role ofeconomic stimulator.A tax cut that is accompanied by aspending cut does effectively reducethe burden and size of government.Therefore, explicit limits on government spending are needed tolend substance to a proposal for taxreduction.

The Root of the Evil

It takes great political courage toconfront the root of the evil: theappetite for government servicesand benefits. Most Americans stillbelieve that government owes them

724 THE FREEMAN

certain favors, such as income security, public housing and urban renewal, free education and medicalcare, and so forth. Their call forbenefits is an implicit demand thatfinancial means be seized fromothers. They would not be asking forsocial programs if they were expecting to cover the costs in proportionto benefits.

Few Americans seek no government favors, and even fewer openlyreject them on moral grounds. It ismuch more popular to seek and accept the benefits of redistributionwhile objecting to the taxation thatcovers their costs. Most people freelypartake in the economic redistribution, but loudly oppose the necessaryallocation of costs. Most professors,for instance, live comfortably ongovernment funds from state colleges and universities, seek federalgrants and scholarships, send theirchildren to public schools and colleges, while all along bemoaningtheir income taxes. They considerthe things government does forthem as social progress, but decry

their tax burdens as oppression andabuse. Similarly, most physiciansapplaud their own benefits as socialjustice, but lament their tax burdensas social injustice. They accept theprinciple of redistribution and endeavor to get ((their share" of benefits, but bitterly oppose their allocated share of costs.

Social Conflict

A political society that engages ineconomic redistribution is torn bysocial conflict. The beneficiariesseek to impose even more levies andrestrictions on the victims, who inturn clamor for their share of benefits and lament their obligations andcharges. The bitter struggle iswaged in the political arena withever shifting forces and alliances.Victories or reverses are merelytemporary, to be followed by n~w

offensives and counter-offensives ina perpetual war for social benefits.To restore social peace and effect arebirth of freedom, we must ceasefrom preying on each other throughgovernment. @

IDEAS ON

L1BEHTY

The Power of the People

THE PRESCRIPTIONS in favor of liberty ought to be leveled against thatquarter where the greatest danger lies, namely, that which possessesthe highest prerogative of power. But this is not found in either theExecutive or Legislative Department of the Government, but in thebody of the people, operating by the majority against the minority.

JAMES MADISON

Clarence B. Carson

24. The Cold War:The Spread of Communism

THE IDEA that has the world in itsgrip is not as it is billed or the way itis made to appear by those who favorit. It is not fundamentally aneconomic idea or theory, though thatis the guise that it often assumedfrom the outset. It is not basically apolitical theory, although it oftenappears to be, and there is considerable temptation for those who oppose it to treat it in that way. Instead, it is in essence a power theoryor idea, a mode for attaining andIn this series, Dr. Carson examines the connectionbetween Ideology and the revolutions of our timeand traces the Impact on several major countriesand the spread of the ideas and practices aroundthe world.

exercising power. All its claims andpromises are, in the final analysis,but justifications for holding andexercising power. That is not to saythat the attainment or exercise ofpower is the motive of those whosubscribe to or advance the idea. Itmayor may not be, but that is irrelevant. Rather, the attainment andexercise of power are the unavoidable consequences of the triumph ofthe idea. Power unlimited is thedestination of the victorious idea.

The power motif is implicit in theformulation of the idea that is beingused here. Ther-e are three parts ofthe formula:

725


1. To achieve human felicity onthis earth by concerting all effortstoward its realization.

2. To root out, discredit, anddiscard all aspects of culturewhich cannot otherwise be alteredto divest them of any role in inducing or supporting the individual's pursuit of his own selfinterest.

3. Government is the instrument to be used to concert allefforts behind the realization ofhuman felicity and the necessarydestruction or alteration of culture.

It is, of course, the use of government which makes it a powertheory. But that only becomes clearby further examination of the idea.

The idea that has the world in itsgrip is not an economic idea. Some ofthe best economic minds of our erahave gone to great lengths to exposethe fallacies of Karl Marx. On alesser scale, some thorougheconomists have examined in detail,and found wanting, the work ofJohnMaynard Keynes. They did so· forgood reason, no doubt, because theeconomic thought of these men washaving great impact in the world ofaffairs.

Despite the fact that Marx engaged in a goodly amount ofeconomic analysis, or economic-likeanalysis, he was not grappling withthe problem of economics. The problem of economics is scarcity, and

Marx denied the validity of the problem, at least in the context withinwhich he wrote. He and Engelswrote these words, in The Communist Manifesto: ~~In these crisesthere breaks out an epidemic that,in all earlier epochs, would haveseemed an absurdity-the epidemicof over-production. . . . And why?Because there is too much civilization, too much means of subsistence,too much industry, too much commerce."l

No more did Keynes perceive theproblem as being one of scarcity, atleast not scarcity of consumer goods.So far as there was a problem it wasa problem of insufficient money withwhich to fuel demand. Hence, hisinvolved and intricate analysis insupport of inflation.

The Use of Political Powerto Distribute Wealth

John Kenneth Galbraith, anAmerican Keynesian, of sorts, denied the validity of the problem ofscarcity in advanced countries. Heput his position bluntly: ~~Given asufficiency of demand, the responding production of goods in the modern economy is almost completelyreliable. We have seen in the earlychapters of this essay why men oncehad reason to regard the economicsystem as a meager and perilousthing. And we have seen how theseideas have persisted after the problem of production was conquered."2

1978 THE COLD WAR: THE SPREAD OF COMMUNISM 727

The point is this. The formulatorsand advocates of the idea that hasthe world in its grip changed whathad once been conceived as aneconomic problem into a power problem. The problem of production hadbeen solved, they alleged; what remained was a problem of distribution. To solve this problem requiredthe use of political power.

It might be supposed, then, thatthe idea with which we are dealingis a political theory. It is not. Marxhad no political theory at all, certainly not one worthy of the name.He had a power theory to explainwhat government had been in thepast. It had been a means for particular classes to wield power overthe masses. When the revolutionhad broken the power of the classesand there remained only the oneclass-which is to say no class-thestate would wither.

Talk of rule by an elite or dictatorship of the proletariat does notconstitute a political theory. In anycase, this was to be only a transitional phase before the state withered away; no theory had to be constructed for how the power would bewielded. Lenin and Stalin (and Mao)enthroned the state, apparentlyperpetually, but their politicaltheory can be reduced to a sentence.Power in the hands of an elite isexercised for the working classes; itrequires no restraint so long as it iswielded for the masses. But this, too,

is a power theory, not a politicaltheory.

Faith in Gradualism

Gradualists, evolutionary socialists, social democrats, twentiethcentury liberals, or whatever theyshould be called, often appear tohave a political. theory. On' closerexamination, however, it turns outthat what they have are the residuesof earlier political theories and apolitical faith. By the nature of theirmethods, gradualists must give atleast lip service to the residue ofpolitical beliefs in their countries. Ifthey Iive in a land that has amonarch, they must profess theirloyalty to him. If there is a separation of powers, they may give lipservice to this arrangement. Butthey will be observed always to beworking to remove these as obstacles to the exercise of power.Monarchs are reduced to ceremonialnonentities. The separation of powers is evaded by the creation of instruments which bypass the principle, or those powers which obstructare made of little or no effect.

What gradualists have, in thefinal analysis, is a political faith.Their faith is in an ideologized democracy, which is best called socialdemocracy, though Americans arenot much used to the phrase. To bemore specific, their faith is in democracy which entails much morethan simply the process by which


those who are to govern are chosen.It involves also what the ends of thegovernment shall be. Only that government is democratic, according totheir faith, which is moving towarddistributive or substantive equality.While they ostensibly favor popularor democratic government, only thatgovernment which is socialistic intendency is truly democratic.Otherwise, it has come to power ontoo narrow a base or has succeededin misleading ((the people" (by corruptly acquiring campaign fundsfrom wealthy patrons, for example).Therefore, it does not legitimatelyhold ·power.

This is a power theory, not a political theory. The means by whichthose who govern are to be selectedhas been so entangled with the endsfor which government is to act thatthey have become indistinguishable.The will of ((the people" has beendetermined in advance of any election; it is none other than what hasbeen ideologically· pre-determined isfor the good of the people, Le., further redistribution of the wealth,greater direction by government ofthe life of the people, and morerestraints on all independent elements working in any other direction. If an election should turn outdifferently, it must be because thewill of ((the people" has somehowbeen thwarted. Such a theory is aprogram for the acquisition and exercise of power.

It is doubtful that there can beeffective political competition withthe idea that has the world in itsgrip. (The full import of this mustawait discussion at another point.) Ifit were a political idea among otherpolitical ideas this would not be thecase. But it is not. It is a power ideawedded to a seductive and most attractive vision. Political competitiongets turned into a contest for powerto realize the vision by different varieties of means. It becomes a contestover who could use the power mosteffectively to realize the vision.

In lands where gradualism holdssway, all political parties tend to bedrawn into the contest to administerthe programs by which a country isdrawn into the maws of socialism.Who can best exercise the power bywhich the people are controlled isthe issue. In communist lands, thereis only one political party; hence, theissue becomes a contest between individuals as to who shall exercisethe power.

The Promises of Socialism

Power, however, within theframework of the idea, is only ameans. It is not the quest for powerthat makes it so difficult, if not impossible, to compete politically withthose advancing the idea. All politics is a contest over who shall exercise power. It is the promises thatmake competition so difficult. Howdoes one compete with the idea that


all things shall be made right, thatjustice, peace, prosperity, and felicity shall follow upon their policies?And-and this is the clincherthose who have wronged us fromtime immemorial shall have theirproperty and wealth taken fromthem and divided among us.

Gradualists attempt to will out ofsight the power by which this is tobe accomplished. They do so by trying to hide from us, and perhapsfrom themselves, the use of force bymesmerizing us into believing thatwhen it is done democratically significant force is not involved. Thecommunists are much blunter. Theyrevel in power but identify it withthe people. Theirs is a kind of mesmerism, too, for the personal character of the exercise of power is hiddenbehind a variety of facades, the mostimportant being that of ideology.

But even the explicit promises donot convey the sweep of the visionthat stems from the idea that hasthe world in its grip. The sweep maynot be readily apparent from theopening phrase characterizing theidea, namely: To achieve humanfelicity on this earth by concertingall efforts toward its realization. Yetit is there, however implicit, and itentails a vision the like of which hasrarely, if ever before, been conceivedby mortal man. True, the vision ofworld conquest is not new to our era;it has even been very nearly accomplished within the limited

framework of earlier times. But thisvision is in significant ways different from and much more than thevision of an Alexander the Great orJulius Caesar.

The Temptation of Jesus

It may be best approached by conceiving it as the vision which Jesusrejected when he underwent thetemptations prior to his ministry.According to Matthew, following hisbaptism Jesus went into the wilderness. He fasted for forty days. Then,he underwent a series of temptations. The culminating temptationis the one that concerns us here:

Again, the devil taketh him up into anexceeding high mountain, and shewethhim all the kingdoms of the world, andthe glory of them;

And saith unto him, All these thingswill I give thee, if thou wilt fall down andworship me.

Then saith Jesus unto him, Get theehence, Satan: for it is written, Thoushalt worship the Lord thy God, and himonly shalt thou serve. 3

The conventional interpretationwould be that Jesus was tempted tobecome an earthly ruler, an emperorover all the earth. But it was surelymore than that. Given the circumstances, it does not seem likely thatto be an earthly ruler would havebeen much of a temptation. And weare to believe that Jesus was tempted, was drawn toward the idea. Hismood could hardly have been such


that being an emperor as suchthings are understood would haveappealed to him. He had spentforty days in fasting, in contemplation and preparation for fulfillinghis mission. How he was to proceedwas surely a live question. Thetemptation was to use power to accomplish his mission, not the mission of kings and emperors, but hismission.

His mission was to draw all menunto him, a holy, divine, and goodmission. Would it not be appropriateto use power-the great force residing in government of an empire-toaccomplish his purpose? Why notuse the glory of all the kingdoms ofthe world to draw all men into loving fellowship with one another andunion with God? There was a catch,of course. First, he would have to falldown and worship Satan, which is tosay, he would have to worship andserve power and force, even as itmust be served by those who woulduse it. Jesus answered him, ~~Get

thee hence, Satan: for it is written,Thou shalt worship the Lord thyGod, and him only shalt thou serve."Those who will may learn somewhatof God from that.

The Temptation Revived

The vision which Jesus rejectedhas been revived in our time. Likethe vision which Jesus rejected it isnot simply a vision of a world empireor even of world conquest. We mis-

understand it when we read it intothe framework of ancient empires,or modern ones either. Momentouschanges have occurred in the worldsince the times of such empires, andsince the time when Jesus wastempted. The most obvious of theseare the great changes in transportation and communication.

Not only is the whole world nowknown, but its furthest reaches areavailable within a few hours by jetairplane, and within moments byradio, telephone, and by televisionsignals transmitted by satellites. Avast array of inventions have madeavailable a technology such as hasnever before been available to man.There have been developments inthought, too, which have changedthe complexion of things. Ofparticular importance are those in psychology, sociology, and economics. Menonce conceived of ruling empires;today it is possible to conceive oftotal control over the peoples of theworld.

What can be, and has been, conceived is a vision of all the instruments of the world brought under asingle power, or concert ofpowers, ofall the possibilities known for organizing men to be centrally controlled. That is the end towardwhich all who embrace the idea thathas the world in its grip are driven.Communists press toward that goalbluntly, crudely, and, from the outset, oppressively. Gradualists move


toward it circumspectly, with greatoutward show of benevolence, andpragmatically. The instruments arethere, and the struggle to grasp andcontrol them, and through them allmen, is well advanced.

An Idea ActivatedCommunism was once only an

idea. In its Marxian formulation, itwas only one idea amongst a goodlynumber of other socialist notions.But a momentous event occurred inthe fall of 1917. The communistidea was joined to power in Russia.The power which Jesus rejected wasseized and embraced by Lenin andhis fellow Bolsheviks. At thatjuncture, communism ceased to bean idea only, or even mainly, andbecame a reality. Those who persistin thinking of communism as anidea will find difficulty in graspingthis point. Those who think in thisway are inclined to ponder suchquestions as these. Is Soviet Communism true Marxism? In whatways did Lenin, or Stalin, orKhrushchev alter Marxism? Whenwill the Soviet system pass fromsocialism to communism?

They are idle questions, of course.They have the same practical importas the question of how many angelscan dance on the point of a pin.Lenin put the matter bluntly:((Soviet power plus electricity iscommunism." It rnight be better toput it this way, since people get

hung up on his reference to electricity in the equation: At this stage inhistory, Soviet power is communism. Communism is whateverthose in power in the Kremlin, orPeking, or Havana, or wherever, determine that it is. Those who do notIive in those lands are free, ofcourse, to discuss such questions asthose above; those who do live inthem have no such happy options.Communism is what the powersthat be say it is. But such discussions do not alter the reality whichis proclaimed as communism.

My meaning might be clearer ifput this way. Prior to November of1917 communism was only a fantasy. When the Bolsheviks seizedpower, the fantasy became a reality.A change, big with future portent,occurred. The fantasy produced anew reality, the reality of communism in power. Communism inpower became, for all practical purposes, communism. If Soviet poweris communism, the reverse is alsothe case, and it may be phrased thisway: Communism is power. Not yetthe only power in the world, but theintention becomes clear when weunderstand that the aim is for communism to become all power, andthe only power. The idea is the driving force toward total power, but itis not something distinct from thepower, not in Marxian terms; it hasbecome power.

Power is central to communist


thought and action. ((The scientificconcept of dictatorship," Lenin said,((means neither more nor less thanunlimited power resting directly onforce, not limited by anything, norrestrained by any laws or any absolute rules."4 ((When the idea entersthe mind of the masses," Marx said,((it becomes a power."5

World Conquest

From the outset, it was the aim ofSoviet Communist leaders to extendthis power over the world. Lenindeclared that ((the existence of theSoviet republic side by side withimperialist states for a long time isunthinkable. One or the other musttriumph in the end. And before thatend supervenes, a series of frightfulcollisions between the Soviet republic and the bourgeois states will beinevitable."6 Stalin said, ((The victory of socialism in one country isnot an end in itself, it must belooked upon as a support, as a meansfor hastening the proletarian victoryin every other land. For the victoryof the revolution in one country ...is likewise the beginning and thecontinuation of the world revolution."7 In an even more famousstatement, Khrushchev blustered,((Our firm conviction is that sooneror later capitalism will give way tosocialism. No one can halt man'sforward movement, just as no oneman can prevent day from followingnight.... Whether you like it or not,

history is on our side. We will buryyoU."8

Although the entry of Red Chinahas brought about some differencesin the communist camp, the CentralCommittee affirmed its commitmentto the overall aim in these words:

The Chinese Communists firmly believe that the Marxist-Leninists, the proletariat, and the revolutionary peopleeverywhere will unite more closely,overcome all difficulties and obstacles,and win still greater victories in thestruggle against imperialism and forworld peace and in the fight for therevolutionary cause of the people of theworld and the cause of internationalcommunism.9

The spread of communism aroundthe world is one of the most remarkable, if not the most remarkable,developments of the twentieth century. Communism has now spreadinto every country in the world. I donot mean simply that communistideas have been spread in everycountry in the world. That is obviously the case. There is surely not amajor library in the world that doesnot have some books or compendiums of the teachings of Marx, Lenin, Mao, or others. It would hardlybe possible to teach a course ontwentieth century history withoutsummaries of and probably quotations from various communists, andthe same goes with greater or lesservalidity for philosophy, economics,political science, and sociology. Nor


is it simply the case that educatedpeople must be in some degree acquainted with communism. It is alsothe case that amongst those who areilliterate, or barely literate, theremust be few who have not picked upand embraced some of the communist doctrines.

A Universal Movement

Ideas know no boundaries, andthere is enough within Marxismthat is universal to assure us thatalmost everyone holds or has encountered at least some of the notions that have place in the ideology.In any case, twentieth centurytransportation and communicationmake it almost inevitable that allsorts of things are spread around theworld, quite often with great rapidity.

Something much beyond thespread of ideas has taken place.Communist power has spreadaround the world and into everycountry in the world. That is what isremarkable. The Bolshevik seizureof power in Russia was the preludeto the extending of the tentacles ofthat power into every land in theworld. The meaning and import ofthis is not readily grasped. Ourmodern notions of diplomacy, of national sovereignty, of internationalrelations, and of political theoryprovide no categories with which toconceive it. Even the conception thatcommunist power extends itself by a

conspiracy to take over the government is much too confined and narrow a concept. For when I say thatcommunist power has alreadyspread into every land, I mean toconvey the understanding that it isalready there and operating, notthat it may some day overturn thegovernment. The presence of communist power in every land has already reduced national sovereigntyand is contesting over the monopolyof that power.

Secret Pollee as theArm of Soviet Power

The manner of the spread of communist power may be best explainedby the description of the powermechanism of the Soviet Union. It is 'true that today there is a communistpower independent of the SovietUnion-Red China-but the SovietUnion has much the longer historyand has served as the model for allcommunist exercise of power. (Indeed, the ideological struggle between the two has been highlightedby differences over Stalinist tactics,championed by the Chinese, anddowngraded by the Russians.)

Soviet power is 'exercised by andconcentrated in the secret police.The secret police have been called bymany names over the yearsCHEKA, GPU, NKVD, MGB, andKGB-, but their role has remainedconstant since the beginning. Today,the KGB is supplemented by the


GRU, which is the military branchof the secret police. John Barron hasdescribed the role of the KGB thisway:

... In everything it does, within theSoviet Union and without, the KGBthinks of itself as being the ((Sword andShield of the Party," and this is probablyits best single definition. For the KGBserves not so much the Soviet state asthe Communist Party and, more particularly, the small coterie of men who control the Party. It is the sword by whichParty rulers enforce their will, the shieldthat protects them from opposition. Thecharacteristics of the KGB which distinguish it from other clandestine organizations, past and present, all derive fromthe inordinate dependency of the Partyoligarchy on the force and protection itprovides. Because preservation of theirpower depends so on the KGB, the Sovietleaders have vested it with resources,responsibilities, and authority never before concentrated in a single organization. 10

The secret police serve not only asthe arm of Soviet power within Russia but also around the world. Theyare present in all countries of theworld, always undercover, on embassy staffs, in legations, or engaging in any number of other operations. The gathering of intelligencefrom foreign countries is one of theirmajor activities, of course. But beyond that, they use whatever meansare available and necessary to enforce the will of the Kremlin on allwho fall under the sway of com-

munism. They are the invisiblemechanism of communist power.

The Role of the Party

The visible mechanism of communist power in any land is thecommunist party. Its presence inany country is the sign that therevolution has begun. Its task is toproclaim the revolution, to arousediscontent, to draw into its fold adherents who can be trained and disciplined, and, when the time comes,to provide the personnel for takingover the power of government. Although much party activity isundercover, and party membershipis usually kept secret, the party isitself a cover. It is a cover for theforeign character of the communistintrusion. It provides what appearance there can be that communismis a native movement. Yet thesecommunist parties have generallybeen captive parties, instruments offoreign powers who controlled them.

Elizabeth Bentley, who was forseveral years a communist espionage agent in the United States, saysthat Earl Browder, then head of theAmerican Communist Party, wasfearful before and but a figureheadfor the Soviet powers. 11

The size of a communist party isnot usually a crucial factor . Noparty anywhere has ever come closeto including a majority of the electorate. Nor would such a large, unwieldy, and undisciplined party be


considered desirable. Not politicsbut power is the object of communism. Leverage is the principleon which communists gain and occupy power. If a majority were tovote for a communist candidate orfor a party slate, leverage would begained by a small minority, usuallywithin the party.

In any case, conditions are supposed to provide the setting forcommunists to come to power, notnumbers. To Marx, the conditionswere supposed to be provided whencapitalism had reached a certainstage. For Lenin, and his successors,the conditions were right at anytime when a government becamesufficiently irresolute, weak, or divided and confused in its counsels.Any number of things can producesuch conditions: military defeat,military conquest, civil war, political elections, terrorized officials, andso on. It is at this juncture that theresolute and disciplined party playsthe decisive role at the forefront ofrevolution.

Post-War Expansion

In the countries of eastern Europethe conditions for a communisttake-over were right by way of military defeat and the presence of theRed Army after World War II.Soviet leaders had carefully nurtured the communist parties of thesenations during the war, had evenprovided a place of exile for them in

the Soviet Union. Although therewere variations from land to land,Hugh Seton-Watson says that ingeneral the take-over went throughthree stages:

In the first phase government was by agenuine coalition of parties of left andleft centre. The coalitions in all casesincluded communist and socialist parties....

In the second phase government wasby bogus coalition. Several parties stillnominally shared power and possessedindependent organisations: but theirleaders were in fact chosen not by thembut by the communist leaders, and thepolicies of the coalitions were determined by the communists....

In the third phase the bogus coalitionswere transformed into what the communists like to call a ((monolithic block."The communist leaders not only laiddown the lines of policy" but centrallycontrolled the organisation and discipline of the non-communist groups thatwere still left in the governments.Socialist parties were forced to Hfuse"with communist parties. No more political opposition was tolerated in parliament, press or public meeting. 12

How this power was seized is particularly instructive:

Already in the first phase . . . thecommunists seized certain key positions.The most important of these was theMinistry of Interior, which controlled thepolice.... The Ministry of Justice, controlling the formal judicial machinery,was considered less important, but washeld by communists in certain cases.Control of broadcasting was seized at an


early date. Great efforts were made tocontrol and to create youth and women'sorganisations. In industry, communistswere placed in key positions in the management of nationalised factories and intrade unions. 13

These were, as Seton-Watson says,the ((Levers of Power."

Indoctrinating and Training theCommunist Cadres

Sometimes within the secretpolice, sometimes within the parties, but always the strength andpower of communist organizationsare what are called the ((cadres."The term ((cadre" is taken from military usage, where it refers to thosewho are assigned the task of indoctrinating, training, and discipliningmilitary forces. They are the dedicated communists, those who havebeen most thoroughly molded,trained to absolute obedience to thepowers over them.

((The ideal type of the Communist," Frank Meyer said, ((is aman in whom all individual, emotional, and unconscious elementshave been reduced to a minimumand subjected to the control of aniron will, informed by a supple intellect. That intellect is totally at theservice of a single and compellingidea, made incarnate in the Communist Party: the concept of Historyas an inexorable god whose ways arerevealed (scientifically' through thedoctrine and method of Marxism-

Leninism."14 The ((cadres" consist ofall those who have been mostthoroughly molded into this pattern.It is the cadre, not the formal party,Meyer pointed out, that is competent to the task that Stalin assignedthe party, namely, ((the only organization capable of centralizing theleadership of the struggle of the proletariat, thus transforming each andevery non-Party organization of theworking class into an auxiliary bodyand transmission belt linking theParty with the c1ass."15

These, then, are the main instruments for applying power. Applyingpower on what? In answering thisquestion we come to the heart ofcommunism as power. So far ascommunism is a power theory, it is atheory of the exercise of power by atiny minority over the whole of peoples. How is it done? It is done byoccupying pivotal positions in organizations. It is important to understand that any organization willdo for the purpose, any organizationthat has people under its control inany way: police, armies, churches,corporations, businesses, clubs,political parties, governmental unitsor whatever. Those who think of((communist front" organizations asonly facades mistake the principle.They may be facades and covers sofar as the ultimate purpose is concerned. But they are as important tocommunism as they would be if theyrevealed their purpose completely,


for they are instruments of the revolution in progress.

The Organizational Structure

The spread of communism proceeds, then, by the creation, penetration, and infiltration of organizations. Otto Kuusinen, one of Stalin'smen, described a part of the processthis way in 1926, ~~We must create awhole solar system of organizationsand smaller committees around theCommunist Party so to speak, smaller organizations working actuallyunder the influence of our party.•••"16 Willi Muenzenberg, consideredsomewhat of a theoretical genius oncommunist movement by way of organization, declared: ~~We mustpenetrate every conceivable milieu,get hold of artists and professors,make use of cinemas and theatres,and spread abroad the doctrine thatRussia is prepared to sacrifice everything to keep the world at peace.We must join these clubs ourselves.. . ."17 The eventual aim can be deduced: it is either to destroy or tocontrol all organizations within asociety. It is only when there is nolonger an independent organization,or an independent person, that thetriumph of communism is complete.

An analogy may help in graspingthe mode of the spread of communism. From where I sit, I can seeacross the road to a field coveredwith Kudzu. Not so many years agomost of the area covered by Kudzu

was a cultivated field. I do not knowhow the Kudzu got started there.How it got started in this part of thecountry is not a mystery, however. Itwas deliberately set out. If memoryserves, it was recommended by agricultural experts as a means ofstopping soil erosion. (The government may even have provided theseedlings without charge, or for anominal price.) It does stop soil erosion in those areas to which itspreads, but it does much more thanthat.

Kudzu is a vine, for the information of those unacquainted with thisubiquitous plant. It is a perennial onwhich large leaves grow in season.Indeed, Kudzu is a pretty enoughplant, such a vine as an innocentperson might set out to provide shadeover an arbor. But it has a monstrous trait. It spreads. And spreads.And spreads. It can only be stoppedfrom spreading by uprooting it, although it will not directly cross awell traveled road. And it chokes outall plant life over which it spreads.The cover of leaves is so thick duringthe season that plants depending onthe sun to carry out photosynthesis,which is to say all non-parasiticplants, must succumb. Even largetrees in its path must eventually beovercome by it. No independentplant life can co-exist with it.

Being across from it on a welltraveled road is no protection, however. Kudzu produces seeds which

738 THE FREEMAN

can be blown across the road by thewind. That must have happened already to my neighbor, for somesturdy vines have taken root there.If it is not nipped in the bud, so tospeak, it will spread over that land,and from thence to wherever it can,covering and crushing out all plantlife as it goes. Kudzu is a powerplant, as it were, and moves relentlessly to become the only power.

Communism is analogous toKudzu in its spread over the world.But communism is not a plant; it isan idea. It is idea joined to power. Itis spread not by the wind but byterror. That aspect of it needs now tobe examined. ®

Next: 25. The Cold War: Terrorizing Many Lands.

-FOOTNOTES-

lEugen Weber, The Western Tradition (Bos~

ton: D. C. Heath, 1959), p. 609.2John K. Galbraith, The Affluent Society

(Boston: Houghton Miffiin, 1958), pp. 319-20.3Matthew 3:8-10 (KJV).4John Barron, KGB: The Secret Work of

Soviet Secret Agents (New York: Bantam,1974), p. 2.

5Frank S. Meyer, The Moulding of Communists in Omnibus Volume 3 (New Rochelle,N.Y.: Conservative Book Club, copyright Harcourt, Brace and Co., 1961), p. 25.

8Quoted in M. Stanton Evans, The Politics ofSurrender (New York: Devin-Adair, 1966), p.26.

7/bid.8/bid., p. 27.9John W. Lewis, ed., Major Doctrines of

Elbert HubbardIDEA.~ ON

Communist China (New York: Norton, 1964),p.279.

lOBarron, op. cit., pp. 9-10.USee, for example, Elizabeth Bentley, Out of

Bondage in Omnibus Volume 6 (New Rochelle,N.Y.: Conservative Book Club, copyrightDevin-Adair, 1951), pp. 125-26.

12Hugh Seton-Watson, From Lenin toMalenkov (New York: Frederick A. Praeger,1953), pp. 248-49.

13/bid., p. 255.14Meyer, op. cit., p. 15.15Quoted in ibid., p. 14.18Quoted in Eugene Lyons, The Red Decade

(New Rochelle, N.Y.: Arlington House, 1970),p.47.

17/bid., p. 48.

LIBERTY

THE weaknesses of the many make the leader possible-and the manwho craves disciples and wants followers is always more or less of acharlatan. The man of genuine worth and insight wants to be himself;and he wants others to be themselves, also.

THE CIVIL WAR had just begun. Thenation's new President, AbrahamLincoln, had received the news ofthe bombardment of Fort Sumterwith a great deal of trepidation.Now it was his turn to act. But whatto do? How best to meet this challenge to the armed might of theUnited States of America? Shortlyafter the news of Fort Sumterreached Lincoln, he had closetedhimself in conference with the venerable hero and Chief of Staff, General Winfield Scott. As usual, Scotthad some answers.

One of Scott's solutions particularly struck home with the newpresident. During the course of theirmeeting, General Scott had repeatedly emphasized the necessityof forming a naval blockade of allthe Southern ports in order to isolate the fledgling Confederacy andcut off their foreign trade. And,while this would be an expensive

Mr. Baker teaches in the school system in Lubbock,Texas.

William L. Baker

NativePotteryOnly

maneuver involving hundreds ofships and thousands of men, itwould be ess~ntial in weakeningand curbing as quickly as possiblethe armies of the rebellion.

The reasoning behind this wasvery simple: besides being the oldesttactic in military history-tried,tested, and proven-it stood to reason that the fewer imports a nation(or city) receives from outsidesources the worse off it becomeseconomically and, thus, militarily.Military experts had alwaysrealized that trade and commercewere the lifeblood of a nation andthat the sooner it could be stoppedthe better it was for the opposingside. Such a blockade, Scott realized,would spell doom to the enemy.

So on April 19, 1861, AbrahamLincoln, along with General Winfield Scott, devised the blockade thatwould be put into effect as soon aspossible. This plan, which later became known as the ((anaconda plan,"was to prove instrumental in crush-

739


ing the life out of the vibrant Southern economy. In no time at all Admiral Porter of the Union navy hadput the paper plan into effect. Hewould make the South writhe andgroan until they would eventuallyhave to sue for peace. In later yearsthe Supreme Court declared the((anaconda plan" as the official beginning of the War Between theStates.

As the Union ships were engagedin the vital task of squeezing theenemy dry, what were the Presidentand the Congress doing back home?Why nothing other than devisingelaborate and prohibitive tariffschedules in order to keep the Hinvasion" of ((foreign" products out of theUnion! Imports would surely destroythe Northern cause, they reasoned.What the North needed most of allwas ((protection." So while Unionships blockaded the South by sea,the honorable Congress was doingthe same thing to the North athome. What Southern sea captainscould never once accomplish in fouryears of war, the Congress did forthem in a matter of weeks by political action.

The Blockade of the North

Barriers to trade rose higher thanever before in the attempt to ((protect" the North. Confederate shipswere therefore freed to prowI thelanes further out on the high seassince the boys in Washington were

doing such an admirable job withoutthem. They could now have moreleisure to ferret out those few merchantmen who were officially allowed through the lines. They couldalso find more of those who simplychose to bear the risks of smugglinggoods into Yankee ports and hamlets. In this respect Confederate vessels actually found themselves asenforcers of the Congressional mandate of restricted trade! Confederateraiders made no distinction between ((legal" or ((illegal" trade.

What is often neglected in thehistory of the Civil War is not the((blockade runners" of the South whohave received plenty of plaudits fortheir daring exploits, but the ((blockade runners" of the North who hadtheir work cut out for them by attempting to slip the blockade of theNorthern coast by Northern shipsand customs agents that their ownCongress had imposed upon thecountry at the very beginning of thewar.

Apparently the logic of the situation never once dawned upon thePresident or the Congress thatacted so hastily to put his economicplans into effect. If the North wasHprotecting" Union industry fromthe evil effects of international tradeby Congressional action, wasn't itdoing the same by anchoring warships off Southern ports for betterthan three thousand miles? Thestory of Haman, who unknowingly

1978 NATIVE POTTERY ONLY 741

built his own gallows, could not havebeen more ironic!

And when the tariff blockadeseemed to be developing leaks, Congress merely tightened the garrote abit tighter around the North'swindpipe, thus choking off neededmanpower and supplies whichEurope had to offer. All the whilethis little tragi-comic charade wasgoing on, there were actually Unionleaders who felt that more warshipswere needed to blockade the Southin order to catch the blockaderunners who were slipping throughthe net.

What the Congress should havedone in order to be consistent withtheir own untenable economic doctrines would have been to recallevery Union ship, scrap the blockade, and let -the South kill itselffrom the Hinvasion" of ((foreign"goods which would surely ((glut" thedomestic market, thus Hflooding"the Southern economy with productswhich would destroy business andbring the war to a hasty conclusion!

Fortunately for the North, theUnion navy was more efficient indestroying the Southern trade thanthe Congress was in choking offUnion supplies. But try as theymight, the politicians in the capitalcould not outshine the navy on thehigh seas. It is true that the solonsinflicted incalculable damage uponthe Northern market during thecourse of the war. But the few

Northern ships that were assignedto blockade the Northern coast simply could not inflict the kind of damage to Union-bound shipping thattheir more numerous colleagues assigned to block the Southern coastcould inflict upon the South. As aresult, the North floundered alongwithout the full benefits of tradewith a Europe that was more thanwilling to provide the materials sodesperately needed to terminate thewar.

Continuing War on Trade

Most historians dwell at greatlength upon the comparative advantages of the North over the· Southduring the Civil War. That whichusually receives the greatest emphasis is the higher productivityand resources of the North. Andwhile all this is true, it fails toconsider the resources and productivity that could have been availablehad free trade been allowed. In effect it is not so much the poundingthat the South gave the North during the war, but rather the poundingwhich Congress gave the North, bydepriving itselfof the benefits of freetrade, that deserves more attention.

Today warships continue to prowlthe coastlines and to ply the lanes ofcommerce in order to ((shield" thenation from the ((invasion" of Australian beef, Japanese steel, and soforth. Even in this modern age theold trade-is-war doctrine continues

742 THE FREEMAN

to guide national policy. The UnitedStates continues to look at t(foreign"goods as a calamity to be avoided atall costs. Recent broadsides againstthe market prove that the spirit oftyranny and war still lives in thehearts and the minds of the (tplan-ners" and policymakers. These bombasts seem to come ever closer to thewaterline of the market and itsfunctions. Yet, in spite of it all, themarket continues to operate-if at amuch reduced level of efficiency.

This attempt to bring the economics of warfare to the market hasresulted in untold misery for all ofmankind who stand to benefit fromthe cosmopolitanism of the freemarket. This perpetual assault ontrade and the well-being it bringshas offered, instead of a vast cornucopia of wealth, the specter of thepale horse and the pale rider of warand man-made famine. The doctrineof (tprotectionism" has never resuIted in anything other thanplanned chaos. Nor is this a doctrinethat has sprung up full grown fromthe ashes and motivations of theWar Between the States. As far backas the days of the Greek Herodotusin the fifth century B.C. we are toldthat it was against the law for anything that was of Athenian origin tobe brought into a certain Greektemple. Only ttnative" pottery- woulddo. ttprotectionists" were alive andwell in his day too.

It is no different in our day. Westill hear arguments about the(tevils" of ttforeign" products, arguments which were exploded byeconomists generations ago. We stillhear preached as official ideologythe tragedies and horrors of allowing the market to t(flood" us with attglut" of ttcheap" goods which theinternational (foreign) market hasto offer. We see farmers blockingroads on the Mexican border, attacking trucks as policemen standby and sympathetically witness thecarnage. We see organizations ofsuch men who call themselves ((soldiers" (in the true spirit of warfare)pleading for ((sympathy and understanding" from their fellow citizens. We hear the neat little clichesthat are intended to take the place ofideas and intelligent thought. Wehear the martial strains of propaganda telling us to (trally round theflag." After all it is ttOur America."

The tones and pleas of the pettyprovincialists of trade restrictionhave not changed one bit over theeleven decades since the Civil War.Neither have the effects of theirpolicies which continue to be ablight upon men and an assault onintelligence wherever and wheneversuch doctrines are implemented. Thewar on the market-and thuscivilization-goes on.

Native pottery only, please! ®

AUSTERITY,WASTE,and

NEEDIN recent years U.S. citizens havebeen encouraged to waste less andadopt a more austere life style. Wehave been chastised for our energyintensive habits. We eat meat instead of cereals; we drive large cars,drive when we could walk, keep ourhomes warmer than needed, and engage in many other ~~wasteful"practices. More generally, U.S. citizenshave been criticized for the use ofluxury goods and for using a disproportionate amount of the world's resources.

There is a great deal of concernabout the ability of reserves of fossilfuel and other resources to supportprojected levels of population. Extrapolation of current trends in resource use in the Limits to Growth

Dr. Pasour Is Professor of Economics at NorthCarolina State University at Raleigh.

This article first appeared in the Winter-Spring·1978 Issue of The Intercollegiate Review, 14 SouthBryn Mawr Ave., Bryn Mawr, Penn. 19010, and Ishere reprinted by permission.

E. C. Pasour, Jr.

and other HDoomsday Models" leadto the specter of the world grindingto a halt within the next century or"so as currently known resources aredepleted. What should be our posture toward the use of energy in theproduction of agricultural and industrial commodities? What is theappropriate approach to take towardlegislation mandating mileagestandards for automobiles, mandating insulation standards for homeand office buildings, banning theuse of cereals for livestock feed, andso on?

Conventional wisdom holds thatwe should eliminate waste in theuse of gasoline, electricity, and otherresources. The concepts ~(need"" and~(waste," however, are far more complicated than the widespread use ofthese terms suggests. The philosophy of austerity rests on an insecurebasis and leads to measures that areharmful and contradictory. Thisessay explores the meaning of

743


~~waste" and ~~need" and comparesthe effects of market and nonmarket rationing procedures.

Waste and Need

During the energy crisis followingthe OPEC oil embargo, individualswere encouraged to reduce waste inthe use of food, energy, and otherraw materials. The same pleas wereheard again in the winter of 1976-77during the fuel crisis. If individualcitizens are to respond intelligently,they must be able to identify waste.

The concept ~~waste,"however, haslittle or no objective content andappears to be closely related to theterm ~~need." Furthermore, the concept of ~~need," is meaningless as aguide in determining one's consumption pattern. It is impossible todefine objectively the goods and services we ~~need." How much meat,housing, heating fuel or gasoline, forexample, do we ~~need?" The concept~~need" implies that, regardless ofprice, there is some minimumamount of meat, housing, heatingfuel, or gasoline (or any other goodor service) that is essential to ourlivelihood. We observe, however,that people reduce consumptionwhen relative price rises for anygood or service including gasoline,coffee, meat, and housing.

The amount ~~needed" of any gooddepends on the price of that goodrelative to the price of other goods.The ~~need" of Jones for coffee de-

pends on his subjective valuation ofcoffee and coffee substitutes. It is anillusion of bureaucrats and consumerists that the U.S. Congress,the Federal Energy Administration,or Ralph Nader can determine ourindividual ~~needs." Even we as individuals can only determine ourown needs in the sense that we decide how much we prefer at givenprices. When the relative price of agood changes, however, our Hneeds"change in the sense that we prefer topurchase more or less of the good.There is no known example of anygood where the quantity purchasedremains the same when there is alarge change in its price relative tothe prices of other goods.

The concept ~~waste" implies thatamounts of a product which exceedour ~~needs" level provide no additional satisfaction. If this were infact the case, amounts of the productabove this ~~needs" level could beremoved at no loss of satisfaction tothe consumer. When we investigatecommonly cited examples of~~waste," however, we find that thegoods presumably wasted are, in fact,contributing to consumer welfare. Ifthe goods alleged to be wasted wereproviding no satisfaction, coercionwould not be required to reduce use.

The use of the family auto provides a good example of the pointbeing made. It is frequently allegedthat the typical motorist wastesgasoline by using his auto when it

1978 AUSTERITY, WASTE, AND NEED 745

isn't ~~needed."We observe that people drive their car when they couldwalk, ride a bicycle, or form a carpool. This fact that people use theircar when alternatives are availabledoesn't mean that the use ofgasoline used in this way is~~wasted."

There is no denying the fact thatauto users could get by with muchless use of the auto. The· fact thatmotorists could reduce auto usehowever, does not imply that it is intheir interest to do so. Each motoristwill act in the way which is mostbeneficial to him given the costs andbenefits of various alternatives asthey are perceived by him. Consumers respond to relative transportation costs in deciding where to live,how to get to work, where to vacation, and the like.

We observe that motoristseconomize in numerous ways whencosts of auto travel increase. Asgasoline prices increase, for example, there is substitution in favor ofsmaller autos, more bicycling, morecar pooling, shorter vacation trips,and so forth. The fact that lessgasoline is used when price increases does not mean that thelarger amount used at the lowerprice was ~~wasted." One might, tothe contrary, argue that at a lowerprice larger numbers of consumersare able to benefit from a particulargood or service, and therefore alower price is an efficient means of

effecting a widespread distributionof some item of value.

People economize in the use ofscarce resources in responding totheir own self-interests. This doesnot mean that all people respond toa change in prices in the same way.We expect individuals to make different accommodations to anychange in relative prices reflectingtheir own unique situation and preferences.

The preceding discussion impliesthat there is no objective basis bywhich an outside observer can determine the amount of gasoline anyparticular motorist ~~needs." If~~needs" cannot be objectively determined, decisions made to limituse through administrative controlsmust be arbitrary and capricious.

Relative Prices vs. Need

It has become fashionable in recent years to suggest that people inthe U.S. and other highly developedcountries should base their consumption not on relative prices buton ~~need." The problem as indicatedabove is that need and waste concepts apart from relative prices provide no operational criterion by whichthe consumer can make choices.What do we ~~need," for example, inthe way of clothing, electricity,gasoline or food? It has been shownthat a nutritious minimum cost dietcan be formulated for people as isdone for livestock. Such a diet would


enable U.S. families simultaneouslyto have a more nutritious diet and toreduce food expenditures to lessthan one-half their current level! Isthis the food budget we CCneed?" Canall food expenditures in excess ofthis minimum cost nutritious dietproperly be considered waste? Fewof us will agree to sacrifice allpalatability considerations and relysolely on cost considerations inchoosing our diet.

The same problem arises in theuse of gasoline, electricity, and infact, all goods and services. Howdoes one decide what size car todrive, amount of electricity to use,temperature to set the home thermostat? We, as consumers, respondto changes in relative prices in deciding what to eat, where to live,how to travel to work, heat ourhomes, and so forth. Each of uswould do virtually everything we doin some other way if changes inrelative costs were sufficientlylarge.

Attempts to get people voluntarilyto change consumption habits areunlikely to have much effect so longas relative prices remain unchanged. On the other hand, whenrelative prices change, no one has toencourage consumers to make adjustments in the mix of goodsconsumed-regardless of whetherthe good is coffee, beef, gasoline orheating oil. In recent years, as relative prices changed, we have ob-

served pronounced changes in size ofauto, in meat consumption, in coffeeconsumption, in use of electricity,and the like. Market price will effectively ration goods when prices arenot held down by administrative decree. There is no known example of ashortage persisting over time whereprice was relied upon as the rationing mechanism.

Problems of Non-MarketAllocation Methods

Few people who suggest that consumers should make choices relatedto food, gasoline and other productson the basis of some criterion otherthan price recognize the problems tobe overcome when the marketmechanism isabandoned or marketsignals are ignored. Price in a market economy provides signals to bothconsumers and producers. The market is a highly useful mechanism fordetermining_ and transmitting information between all persons in themarket. If the market is not permitted to coordinate the decisions ofconsumers and producers, centraldirection must be used. However,there is no way for the central planner to obtain all the informationwhich enters into any real worldmarket transaction. Knowledgeabout no good or resource exists inconcentrated form or in a singlemind. The economic problem, asHayek has long stressed, is to securethe best use of our resources utiliz-


ing the knowledge of all members ofsociety for ends whose relative importance only these individuals know.

In the absence of market signals,the regulator faces severe information problems. When the market isabandoned, the planner has no wayto determine the information necessary to coordinate supply and demand. Consider the problem of determining the ~(appropriate" tem-perature setting, for example, whereenergy use is to be restricted not byprice but by restricting fuel use. Theregulator must not only predict theamounts which will be used at various settings, but also the amountwhich will be produced at the pricelevel which is arbitrarily held belowthe market-clearing level.

Mandatory allocation or rationingschemes cannot be based on individual preferences and must be arbitrary and capricious. ~~Need" has noobjective content as a guide to allocation, and in the absence of pricesignals there is no way for the central planner to make an allocationwhich reflects the subjective considerations of all persons in the market.

Problems are also created for theindividual consumer who unilaterally adopts austerity measures anddoes not respond to market signals.Attempts by a single individual toreduce consumption of food, energy,and other raw materials beyond thelevel dictated by relative prices will

serve little or no useful purpose. Ifan individual, acting alone, reducesthe level of consumption, the effecton total consumption will be negligible. For example, consider the effectof a decision by one ~~socially aware"person to reduce gasoline use. Theeffect on total gasoline usage will benegligible but the inconvenience tothat individual can be quite large. Ifthe individual is in business such adecision will increase costs andunder competitive conditions willseriously decrease profits or bankrupt the entrepreneur attempting to(~do good."

Appeals for Group Action

What are the possibilities forgroup action? If large numbers ofconsumers reduce consumption below the level dictated by relativeprices, producers receive incorrectsignals. Consider, for example, theeffect of consumer boycotts of beef,coffee and other goods. A reductionin demand will decrease price, giventhe level of supply. The decrease inprice resulting from the boycott islikely to reduce future supply andcause future prices to be higher thanthey would otherwise be. Unless theproduct is effectively monopolized,there is no way for group action byconsumers to reduce the long runprice of the product.

What do these comments implyabout moral suasion as a method ofrationing and reducing resource


use? Pleas to reduce use may beeffective for a limited period of timewhen the situation is deemed to beurgent by a large part of the population. The problems enumeratedabove which arise when market signals are ignored are not eliminatedby moral suasion. Moral suasion isalso subject to another set of problems.

First, there is the free rider problem common to all voluntary groupactivity. These activities confer benefits on people who cannot be madeto pay for the benefits they receive.When the demand for gasoline isreduced by everyone except Jones,the price is decreased. Jones as afree rider will benefit through thelower price and use more gasoline.Moral suasion may be effective for alimited period of time but it cannotsolve the free-rider problem associated with pleas to reducegasoline use, lower thermostats, andotherwise reduce resource use belowthe level dictated by market prices.

Second, moral suasion to reduceresource use to one's ttneeds" or toreduce ttwaste" is subject to all theproblems associated with identifying ttwaste" and ttneed" discussedabove. There is no objective basisupon which the ((socially concerned"citizen can determine the properlevel of energy use. Consider, forexample, the natural gas shortageduring the winter of 1976-77 and thepleas to reduce ttwaste" in home

heating. Upon what basis can thettsocially concerned" homeowner decide whether to heat his home to68°F, 65°F, 60°F, 55°F (or evenlower)?

Third, even if moral suasion iseffective and all citizens fully comply with, say, a request that thermostats be set at 62°F, the impactwill differ greatly from person-toperson. Such a policy as in the caseof mandatory restrictions assumesthat everyone has similar circumstances. In reality, people differgreatly in their preferences for heatand in their preferred tradeoffs between heat and other sources of expenditure including size of house.The differential impact of any restriction in use of any good or resource is greatly magnified if anattempt is made to indicate the appropriate amount to use, e.g., 10gallons of gas per car per week or1000 KWH of electricity per month.The circumstances of time and placevary greatly from person-to-person.

Conservation and Rationing

A great deal of effort has recentlybeen devoted to reduce ttwaste" ofnatural resources. The effects ofsuch efforts, however, may be inconsistent with other closely relatedgoals. First, consider- action to reducewaste of renewable resources. Environmentalists and consumeristshave been active in promoting recycling of paper in recent years as a


way of conserving trees and protecting forests. Moves to reduce ((waste"by reducing the use of paper andother wood products will be counterproductive for people who desirelarge amounts of forests for theiresthetic value since such action willreduce the number of trees beinggrown. Tree producers respond toeconomic incentives just as otherproducers do. Thus, the more woodproducts used, the more trees will beproduced. The more trees produced,the more land required for tree production and the larger the forestacreage. People who like to see treesgrowing are working against theirown self-interest when they discourage the use of forest products.

Another simplistic solution, banson the use of cereals in feeding livestock or forced reductions in meatconsumption, will likewise not accomplish the intended goal. JeanMayer, the famed nutritionist, hassuggested, for example, thatAmerica could release enough grainto feed 60 million people by reducingmeat consumption by 10 percent.Measures to reduce grain fed to livestock or to reduce meat consumption, however, are unlikely to beeffective in providing food to theworld's hungry people. The hamburger not eaten in the UnitedStates will not miraculously appearin the hands of a hungry person inanother land.

How about the use of non-

renewable resources including oil,coal, and the like? It is in the owner's interest at any point in time toexploit these resources in such away as to maximize the wealth, orvalue of these resources. As nonrenewable resources are used, increasing scarcity will be reflected intwo ways. First, the price -will be bidup as the resources become progressively scarcer. When this happensconsumers are induced to economizeon the use of the resources. Themarket provides an effective systemof rationing scarce resources both ata given time and over time.

Shortages Created

When prices are arbitrarily helddown by government as in the caseof natural gas, a shortage is createdor exacerbated. The natural gascrunch in January 1977 can betraced directly to current and pastgovernment price controls. Theseprice controls have kept prices artificially low and have given incorrectsignals to gas producers and consumers. Low consumer prices haveencouraged the ((wasteful" use ofgasby discouraging the use of homeinsulation, alternative fuel sources,lower thermostat settings, and soon. Low producer prices, at thesame time, have reduced the incentives of suppliers of natural gas andserved to decrease production.

In addition to involving less government intervention and red tape,


price rationing provides a far morepredictable method of restrictingenergy resource use when contrasted with administrative decreessuch as mandatory standards forhome insulation and auto mileage.When price increases, people willeconomize in different ways depending upon their own subjectiveevaluations. If the price of homeheating fuel increases, for example,some people will reduce the temperature in all rooms, some will applymore insulation, some will close offrooms, and so forth.

When mandatory conservationstandards are imposed, on the otherhand, there is little latitude left forindividual ingenuity. Everyone isforced to meet the same standardeven though people having differenttastes and preferences wouldeconomize in different ways if leftfree to do so; or alternatively, individual ingenuity is now channeledto the circumvention of the mandatory standards rather than to thesolution of the problem for whichthose standards were allegedly imposed.

There is no way mandatory standards can cater to the diversity ofindividual tastes or take into account the differences existing in literally millions of different circumstances. The fundamental inequityof treating people in unequal circumstances the same way is ignored. Why, for example, should the

homeowner with children now awayfrom home be forced to insulate hisentire house though heating andusing only half the house? In thisand numerous other examples it iseasy to see how the individualhomeowner can make an accommodation much easier to higher pricesthan to mandatory standards whichcannot reflect different tastes andcircumstances.

As non-renewable resources areexhausted, increasing scarcity is reflected in a second way. As price isbid up, the development of substitute resources is encouraged. Thecotton price support program instituted in the 1930's, for example,encouraged the development ofnylon and other substitutes none ofwhich were predictable when cottonprices were increased. Similarly, increases in prices of fossil fuel willserve to increase the development ofnew energy sources. Higher fossilfuel prices serve both to make alternative fuel sources currentlyavailable more profitable and to encourage the development of energysources not currently available.

Conflicts Minimized

Finally, the market mInImizesconflicts when compared with nonmarket rationing methods. Themarket is based on voluntary exchange so that all parties gain whena market transaction takes place.There is little basis for concern or


antagonism when everyone can purchase all of a product he desires ata specified price.

The situation is much differentwhen rationing is performed bynon-market methods. The creationof antagonism and conflict is inherent in non-market rationing procedures since more of a product is desired than is available at the pricearbitrarily held below the marketclearing level. In such a situation anindividual can legitimately feel thathe is in competition with other consumers for the product whose priceis controlled. The equity problemsendemic in non-market rationingprocedures were discussed above.

Allegations of antisocial conductfrequently arise where nonmarketallocation procedures are used. Eachperson has a vested interest in reductions in consumption by otherpeople when there is a shortage.Individuals consuming more thanthey cCneed" as perceived by the outside observer are alleged to bewasteful. Since Hwaste" is in the eyeof the beholder, efforts to reducewaste must be authoritarian in nature. Such efforts must be based onthe values as perceived by the stateand not on the values of individualdecision makers.

Blaming Producers

Nonmarket allocation proceduresalso give rise to will-of-the-wisp at-

tempts to determine whether producers are holding back productionand whether costs of production areexcessive. There will always be aperceived conflict between producers and consumers when productionis subject to price controls. Considerthe action by the Secretary of theInterior in February 1977 to determine whether producers of naturalgas were cCholding back production."The allegation was made that producers might be acting against thecCpublic interest" by holding back onproduction under the expectationthat future prices might be higher.Thus, a producer who reduces theamount of natural gas available forimmediate consumption is C(holdingback" and is thereby ((anti-social,"but a consumer who reduces immediate consumption practicescCconservation" which is cCsocially de-sirable." If a producer were restricting production anticipating higherfuture prices, would such conduct beantisocial? If producers do not followmarket signals, they have no way tomake production decisions includinghow much to produce or when toproduce.

There are only two ways to allocate goods and resources-the market and central direction. The market permits people to choose on thebasis of relative prices. Since eachparty gains under voluntary exchange, conflicts are minimized.When economic goods are rationed

752 THE FREEMAN

by nonmarket methods, conflicts areinevitable. Since more is desiredthan is available at the controlledprice, measures must be taken toreduce consumption. Austerity measures with pleas to eliminateUwaste" and reduce consumption tothe ((needs" level are endemic innonmarket allocation procedures.Mandatory ((conservation" measuresmean that consumers are madepoorer by being forced to do without.

Conclusions

How then ought choices be madein a world of ((finite resources?" Conflicts will be minimized when therules of the game are such that themarket-is mainly relied upon to ration goods and the individual citizenbases his decisions on his preferences and on relative prices. Admonitions to satisfy essential needs,forego waste, and live in austerityare unlikely to have the effect offeeding the hungry or sheltering thehomeless throughout the world.

Forced austerity works against people's willingness to work. If peopleare prohibited from buying thegoods they desire, they will workless and take more of their realincome in the form of leisure.

What does this mean about thelevel of living for us as individuals?The attitude that consumers shouldnot be prohibited from acquiring the((luxury" goods they desire does notmean that we as individuals shouldfollow a pattern of conspicuous consumption. The question of whatgoods and services each of us consumes' is a matter which must beanswered by each of us as individuals. One person cannot identify((waste" in consumption by anotherindividual except by imposing hisown standard of values. There islittle question that many of us couldbenefit from a more austere lifestyle. Yet, moves to impose lifestyles upon us are at variance withthe tenets of a free society. @)

IDEAS O;\;

LlBEHTY

The Ongoing Cost of Liberty

THE SEARCH for the maximization of human well-being is acontinuing one. Like the search for food, it never ends. We eattoday but we will hunger again tomorrow. The cost of liberty isan ongoing cost. It is never paid in full. We achieve somemeasure of liberty today but we must strive again tomorrow.Were a totally libertarian society to emerge today, we wouldhave to strive for it again the next day.

ROBERT LEFEVRE, Lefevre's Journal, Summer, 1978

Dale. Haywood

A HUMAN ACTIONTAXONOMY

A TAXONOMY is a technique of classification. The zoologist, for example, uses the categories phylum, class, order, family, genus, andspecies to classify animals. This system of classification makes thezoologist's study more manageable, thus enabling him to ~~peg"

correctly any given member in the entire animal kingdom.The student of liberty may also find it useful to have a taxonomy, a

taxonomy of human action. In his book, The Law, Frederic Bastiatprovides just such a system for classifying human action. Withknowledge of this taxonomy, the student of liberty can readily ~~peg"

any human action and thus distinguish between actions that promoteliberty from actions that erode liberty.

I have tried to extract the essence of The Law and put that essencein the form of a diagram-my human action taxonomy.

Self-sufficinIndividuals.

InteractingFreedom

ForceIllegal

Legal

Reading the diagram from left to right, the starting point is theindividual. All human action ultimately reduces to the actions ofspecific individuals. The individual is the most important element insociety.

753


The individual may choose to be self-sufficient or to interact withothers. At least theoretically, an individual can go it alone in life.However, at this stage in history, it is practically impossible to beself-sufficient. Realistically, we find ourselves on the ((IndividualsInteracting" branch of the diagram.

There are alternative ways of interacting. We may interact withothers freely, voluntarily, peacefully. Individuals interacting withothers voluntarily are motivated by the prospect of profit, by theprospect of gain for all parties to the transaction. Thus, it seemslogical to try to maximize the number of voluntary human actions.

Alternatively, we may interact with others forcefully, under coercion or the threat of coercion. When an individual interacts withothers under compulsion or the threat of compulsion, not all partiesgain. The predator may gain; the individual preyed upon certainlyloses. Thus, it seems logical to try to minimize the number of humanactions rooted in force.

Note that ((Force" has two branches in the diagram. The upperbranch is ((Illegal." From time immemorial, some types of humanaction have been generally condemned. Actions such as theft, rape,and murder are examples of illegal, forceful interactions of individuals. Since most people are alert to such actions and since there iswidespread agreement that these actions are reprehensible, theseconstitute a relatively small percentage of all human action. It isdoubtful that the greatest perils to civilizations come from thiscategory of human action.

We come now to perhaps the most instructive part of the diagram,the ((Legal" branch of ((Force." Government subsidies are examples oflegal, forceful interactions of individuals. It is obvious that subsidiesare legal, being duly sanctioned by law. Although the force insubsidies may not be so obvious, it is there nonetheless.

Subsidies are financed with taxes such as federal personal incometaxes. I pay income taxes partly in fear of forceful reprisals if I do not.Tens of thousands of other citizens of the United States reason and actthe same way I do, I surmise. So it is from the threat of force that atleast some of us pay income taxes, from which subsidies are paid.Thus, it seems to me, subsidies are an example of legal, forcefulinteractions of individuals.

There is a feature of legal, as opposed to illegal, forceful interactionsof individuals that makes this category of human action a special

1978 A HUMAN ACTION TAXONOMY 755

threat to our welfare. Since the federal government of the UnitedStates was founded, in part, to ~~establishjustice," I suspect we may belulled into thinking that all of the federal government's activities areconsistent with this objective, i.e., that all such activities are just.Thus, legal, forceful human actions may insinuate themselves into asociety of inattentive, uncritical individuals. But the fact that actionsrooted in force are implemented by a government designed to Uestablish justice" leaves such actions still rooted in force.

Recall that in transactions rooted in force, the predators may gainbut those preyed upon certainly lose. Those preyed upon are necessarily the producers in society. Surely as predators prey upon producers,the producers will become less inclined to produce. True, if theproducers have accumulated output from the past and if they arecurrently very productive, they may endure considerable predationwith no apparent harm to society for a while. But if the amount ofpredatory human action keeps growing and growing, the producerswill, sooner or later, become less inclined and then disinclined toproduce no matter how well off they are at the outset. With predationwaxing and production waning in a society, that society is surelydoomed.

It is not inevitable that this destructive process continue. Byincreasing the proportion of their voluntary, mutually profitabletransactions, any group of individuals can invigorate, or reinvigorate,their society. Equipped with this human action taxonomy, the proponent of liberty can readily ~~peg" any human action and thus decidewhich actions he will take or support, and which actions he will rejector oppose. I trust that others may find this human action taxonomyhelpful in the cause of human liberty. @

Mr. Haywood is associate professor of business and finance at Northwood Institute, Midland,Michigan.

This article Is from a speech at Northwood's 1978 summer seminar on "Freedom in Third Century America."

A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN

Ethicsand

Economics

ECONOMICS did not begin as the((dismal science." It began, in AdamSmith's The Wealth ofNations, as agrand essay on the consequences ofhuman choice, sometimes statistically predictable, sometimes not, ina field that presumes a framework oflaw, culturally determined habits,and common notions of justice andmorality.

Smith, whose first interests wereethics and jurisprudence, knew thatan economist must use deductivelogic as much as arithmetic andalgebraic thinking if he is to makesense of his subject. It was for a verysensible reason that Ludwig vonMises, reverting to the Smith practice, put his own study of economicsinto the wider, and eminently Smithian, perspective of (thuman action,"a subject of such vast scope that itbrings everything from ethics to

756

physiology, psychology and politicsinto the picture. The good economistmust be a learned man, versed ingeneral history as well as statistics,and with a wary eye for what judges,legislators and bureaucratic administrators do to hobble or directthe choices of millions of marginalbargainers they have never seen.

Smith, the learned EighteenthCentury man par excellence, backedinto his study ofeconomics by way ofethics and jurisprudence, whichwere the general substance of manyof his lectures and of his book on thetheory of the moral sentiments. Itwas the ((policeman's" duty, he observed, to provide cleanliness, safetyand a cheap access to economicgood~ to the members of a society.(By ttpoliceman" Smith meant thepolitician, or the statesman.) It wasonly as an afterthought, which came

ETHICS AND ECONOMICS 757

to him when he observed the workings of the mercantilist system ofstate intervention, that Smith decided the proper way for a policemanto provide for Hplenty" or cCopulence"was to get out of the way of theproducer.

Natural Liberty

Force was necessary to the happiness of human beings when it cameto providing for the safety of therealm, and for preventing plagues.Force was necessary to restrainhuman viciousness-hence the desirability of the common law and acourt system. But force, in the marketplace, was an inhibiting thing.cCNaturalliberty" was the key to theUwealth of nations." The EighteenthCentury mercantilists, who persistedin using the state to coerce traders,were anti-plenty-and thereforemorally delinquent in their approachto the third duty of the policemanto see that people were as affluentand well-nourished as their industryand aptitudes could make them.

The ethical cast that Smith gaveto his economics colors most of thebicentennial essays, assembled byFred R. Glahe for his book, AdamSmith and the Wealth of Nations(Colotado Associated UniversityPress, Boulder, Colorado 80309,172pp. 1978, $12.50). For one example,James M. Buchanan of VirginiaPolytechnic Institute is preoccupiedwith CCthe justice of natural liberty."

If a man's aptitude is for driving atruck or a taxicab, Buchanan asks,is it just to exclude him from competing for the trade of carryinggoods or human beings from here tothere? The answer must be thatexcluding men from markets is immoral. Naturalliberty implies equalliberty, and if the Hpoliceman"-Le.,the State-is arbitrary in prescribing licensing processes it must indeed be called unjust.

In his essay on cCSmith VersusHobbes," Joseph J. Spengler ofDukeUniversity observes that, in theory,justice may flourish under the idealcollectivist state or under a freeeconomy cCbuttressed in a minor degree by collectivist supplementationwhen pronounced externalities areinvolved." But in reality, so Spengler avers, when the state mixes intoeconomic matters those who controlthe government apparatus get thecream while the underlying population must be content with the thinnest of skim milk. This is palpablyunjust. The market system is muchmore just in that it tends to promotea high degree of correspondence between individual performance andreward.

Two Views of Man

The difference between Smith'sview of human nature and Hobbes'view is rooted in a theory of man.Hobbes thought the uncoercedhuman being would soon revert to


the law of the jungle. He thereforesupported the leviathan state as arestraining influence. But Smith,according to Thomas Sowell of theUniversity of California in LosAngeles, another contributor to theGlahe book, thought that man,though a striver for self-interest,could be counted on to be held incheck by public opinion, the law,and other representatives of morality. The Smith view leads to thelimited state as the just state, withthe ~(policeman"exercising his Hobbesian nature only in fighting crimeand in defending the realm at itsborders.

Another Glahe contributor, Professor William J. Baumol of Princeton and New York University, dealswith ~~Smith Versus Marx on Business Morality and the Social Interest." Curiously, Smith had a muchlower opinion of the morality ofbusinessmen than Marx, whotended to see the capitalist as anindividual beyond good and evil whoserved something called the ~~his

toric process." Smith trusted themarket mechanism to keep thebusinessman from achieving themonopoly for which his greed mighthunger. The Hinvisible hand," inproviding for competition, dictated amoral outcome despite the naturalpropensity of some businessmen· toconspire to limit the market andraise prices. Marx, who thoughtmonopoly was inevitable, was not

concerned with individual morals.His ~~invisible hand" workedthrough classes, and the end-theseizure of the monopolies by theproletariat-was decreed in thestars no matter how individual capitalists behaved.

The Morality of the Market

Leonard Billet of the University ofCalifornia. in Los Angeles endorsesJames Buchanan's ethical choice ofsubject by calling his contribution~~Justice, Liberty and Economy."What particularly impressed Billetabout Smith's The Wealth ofNationsis its concern with the immorality ofBritain's treatment of its NorthAmerican colony, where the ~~rights

of Englishmen" were ignored by themercantilists of London working incahoots with a stupid government.Smith's economic principles, saysBillet, ~~are fundamentally moralprinciples. They are favorableneither to robbers nor to barons."

Ethics plays a less prolninent partin the essays contributed to Glaheby Milton Friedman, Harry G.Johnson and Ronald Max Hartwell.Friedman writes eloquently aboutthe relevance of Adam Smith to themodern day. Johnson is less impressed with Smith's value to moderns now that the ~(corporationin itsinternal activities is organized in anon-market, bureaucracy-like fashion, with decision-making by committee and consensus procedures."

1978 ETHICS AND ECONOMICS 759

As for Ronald Max Hartwell, he isprimarily interested in Smith's relation to the industrial revolution,which was hardly begun in 1776.Whether Smith foresaw theeconomic effects of the steam engineseems to Hartwell to be beside thepoint. Smith certainly knew that theEngland and Scotland of his timewere in a take-off phase in growth.

Man of Letters and Economist

Adam Smith was not only amoralist, he was also a man of letters, an educator, and a clubbableman in a clubbable society. In afascinating book, Adam Smith: ManofLetters and Economist (ExpositionPress, Hicksville, New York 11801,297 pp., $10.00), Clyde E. Dankertdeals, among other things, withSmith as a literary stylist. He remarks in particular on Smith'sfondness for triplicates, such as the~~butcher, baker, and brewer" andthe tendency of man to ~~truck, barter, and exchange." The triplicatesnot only achieved balance, they provided for nuances. Dankert alsonotes Smith's ability to combine indignation and elegance of diction, aswhen he spoke of ~~that insidious andcrafty animal, vulgarly called astatesman or politician." Always theethical man, Smith believed in ~Just

indignation," which he sometimestempered with humor and sometimes did not.

GOVERNMENT BY JUDICIARY:THE TRANSFORMATION OFTHE FOURTEENTH AMENDMENTby Raoul Berger(Harvard University Press,79 Garden Street, Cambridge,Mass. 02138)483 pages. $15.00

Reviewed by L. Edward Robbins

RAOUL BERGER, renowned constitutional historian, charges that theUnited States Supreme Court-apresumed fount of constitutionalwisdom-is itself acting unconstitutionally by sitting as a ((continuingconstitutional convention," revisingthe Constitution at will. Such actiontransforms our government fromone of several coordinated branches,each equally capable of checkingabuses by the others, to a government by the judiciary.

The consequences are ominous.Judges are no less fallible thanother men, no less ambitious forpower. Their unchecked authority isas antithetical to liberty as that ofanyone.

Originally, judicial review was~~divorced" from policy-making. Itwas merely a process through whichthe Court might void legislative orexecutive action deemed unconstitutional, and the Constitution's meaning was determined not by judicialwhim or fancy but by looking to theintent of its framers.

760 THE FREEMAN

Judicial review has now become apower through which the Court participates actively in policy-making.The question posed by the Court onreview is no longer whether a particular policy is constitutionallypermissible, but whether such policycorresponds to judicial notions ofsocietal Uoughts." Such review infringes the democratic prerogativesof this nation.

Revisionists cry that the Constitution must be continually modified to meet the exigencies of governing a changing nation such asours. Berger replies that liberty canbe enjoyed only through a fixed Constitution which places specific limitations or nchains" on ambitious,self-interested individuals. Further,the Constitution provides expresslyfor its amendment as exigenciesdemand. Revisionist interpretationsrender these provisions a nullity.Thus recourse to amendment is bothsufficient and mandatory.

Berger builds his case against revisionism through a detailedanalysis of the Fourteenth Amendment. Drawing extensively on legis-

lative history, he argues that theamendment was originally intendedto compel the states to secure,through the privileges and immunities clause, only those rightstraditionally understood as c~funda

mental" or ~~absolute," excludingsuch matters as legislative reapportionment and school desegregation.He then traces the imposition by theCourt of these and other unintendedmeasures through a misplaced emphasis on the equal protectionclause.

Needless to say, Berger's work hasnot endeared him to many of hisonetime liberal fans who reliedheavily on his Executive Privilege: AConstitutional Myth (1974) and Impeachment: The Constitutional Problems (1973). They would have preferred that a more lenient standardbe applied to the judiciary. ButBerger's scholarly integrity precluded such duality. He has judgedthe executive and judiciary by thesame standard-the framer'sintent-and found them bothwanting. ®

Keep your 1978 Freeman in an attractive blueleatherlex FREEMAN BINDER.

Price: $3.00

Order from:The Foundation for Economic EducationIrvington-on-Hudson, New York 10533

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