VOLUME 61, NO 3 APRIL 2011

Features 8 America’s Turning Point by Jeffrey Rogers Hummel 11 The Economic Costs of the Civil War by Burton Folsom, Jr. 14 Gaining a Nation, Losing the Republic: Reconstruction, 1863–1877 by Bradley J. Birzer 19 Civil War and the American Political Economy by Joseph R. Stromberg 26 The Question of Slavery by Jeffrey Rogers Hummel 34 Gold and Money by Warren C. Gibson Page 8

Columns 4 Ideas and Consequences ~ The Gasoline Demagogues Will Be Back by Lawrence W.Reed 24 Our Economic Past ~ Maps and Power by Stephen Davies 32 Peripatetics ~ The Importance of Subjectivism in Economics by Sheldon Richman 38 Give Me a Break! ~ Prohibitionists: Leave Us Alone! by John Stossel 47 The Pursuit of Happiness ~ War Is a Government Program Page 47 by David R. Henderson

Departments 2 Perspective ~ The Civil War and the Statist Mentality by Sheldon Richman 6 Central Banking Beats Free Banking? It Just Ain’t So! by Fred Foldvary

Book Reviews 42 The Road to Big Brother: One Man’s Struggle Against the Surveillance Society by Ross Clark Reviewed by George Leef 43 Unchecked and Unbalanced: How the Discrepancy Between Knowledge and Power Caused the Financial Crisis and Threatens Democracy by Arnold Kling Reviewed by David M. Brown 44 Commonwealth by Michael Hardt and Antonio Negri Reviewed by David Prychitko Page 43 45 The Privatization of Roads & Highways: Human and Economic Factors by Walter Block Reviewed by Arthur Foulkes Perspective The Civil War and the Published by The Foundation for Economic Education Statist Mentality Irvington-on-Hudson, NY 10533 Phone: (914) 591-7230; E-mail: [email protected] n April 12, 1861, the American Civil War www.fee.org began with the Confederate bombardment of President Lawrence W.Reed the U.S. military’s Fort Sumter in Charleston Editor Sheldon Richman O Harbor, South Carolina. Nearly four bloody years later Managing Editor Michael Nolan Book Review Editor George C. Leef to the day, the war ended with Lee’s surrender to Grant at Appomattox Court House in Virginia. This issue of Columnists Charles Baird David R. Henderson The Freeman is largely devoted to analyzing the reasons Donald J. Boudreaux Robert Higgs for and consequences of the conflict that took 620,000 Stephen Davies John Stossel lives and inflicted more than one million casualties in Burton W.Folsom, Jr. Thomas Szasz Walter E.Williams all. The war damaged the country forever, as I suggested Contributing Editors Peter J. Boettke Dwight R. Lee in Tethered Citizens (Future of Freedom Foundation, James Bovard Wendy McElroy 2001). Here’s an excerpt: Thomas J. DiLorenzo Tibor Machan “While early America always had its advocates of Bettina Bien Greaves Andrew P.Morriss activist government, that view becomes more promi- Steven Horwitz James L. Payne John Hospers William H. Peterson nent after the Civil War.... Raymond J. Keating Jane S. Shaw “The Civil War itself and its militaristic effect on Daniel B. Klein Richard H.Timberlake American society had important consequences for the Lawrence H.White nationalist collectivization of America that occurred in Foundation for Economic Education the following decades: It encouraged collectivist intel- Board of Trustees, 2010–2011 lectuals to vigorously promote their reform visions, and Wayne Olson, Chairman it won thinkers to a collectivist cause. It even convinced Harry Langenberg Peter J. Boettke William Dunn Frayda Levy some individualists that the world had changed, making Jeff Giesea Kris Mauren their worldview outdated. Ethelmae Humphreys Roger Ream “The war’s military collectivization of society pro- Edward M. Kopko Donald Smith foundly impressed some Northern intellectuals, giving The Foundation for Economic Education (FEE) is a them visions of a new world. The war effort devalued nonpolitical, nonprofit educational champion of the individualism that had characterized the earlier Jef- individual liberty, private property, the free market, and constitutionally limited government. fersonian America. Service to the Union became the The Freeman is published monthly, except for combined reigning ideal. Order, explicit planning, and regimenta- January-February and July-August issues. Views expressed by tion rose in value. Independent thought seemed more a the authors do not necessarily reflect those of FEE’s officers liability than an asset. and trustees. To receive a sample copy, or to have The Freeman come regularly to your door, call 800-960-4333, or e-mail “The war, wrote the historian Allan Nevins, ‘trans- [email protected]. formed an inchoate nation, individualistic in temper The Freeman is available electronically through products and serv- and wedded to improvisation, into a shaped and disci- ices provided by ProQuest LLC, 789 East Eisenhower Parkway,PO plined nation, increasingly aware of the importance of Box 1346, Ann Arbor, Michigan 48106-1346. More information can be found at www.proquest.com by calling 1-800-521-0600. plan and control.’ Copyright © 2011 Foundation for Economic Education, “A symbol of that change in mindset is Ralph Waldo except for graphics material licensed under Creative Commons Agreement. Permission granted to reprint any article from Emerson, the transcendentalist author of Self-Reliance, this issue, with appropriate credit, except “Prohibitionists: Leave who before the war represented a distinctively Ameri- Us Alone!” can cantankerous individualism opposed to institutions

THE FREEMAN: www.thefreemanonline.org 2 PERSPECTIVE: The Civil War and the Statist Mentality and their impositions on the person. When the war during the war. While those men wanted conservative came along, Emerson expressed approval that it objectives served, others, such as John Wesley Powell, imposed obligations on everyone. He hoped no one had ‘humanitarian ends’ in mind. would be exempt from ‘the public duty.’ In a 180- “The problem for these thinkers was that peacetime degree turn, he assigned government and civilization did not inspire service and sacrifice. People became priority over ‘the private man.’ In ‘American Civiliza- centered on their own lives, their families, and immedi- tion,’ written in 1862, he was willing to grant govern- ate communities. But war was a call to duty and the ment ‘the absolute power of a dictator’ in a crisis. ‘strenuous life.’ If only a substitute for war could be ‘Emerson’s characteristic emphasis on individualism found, a call to duty that did not involve bloodshed. and anarchism disappeared.’ [George M. Frederickson, ‘There is one thing I do not doubt,’ said Holmes, ‘and The Inner Civil War: Northern Intellectuals and the Crisis of that is that the faith is true and adorable which leads a the Union.] soldier to throw away his life in obedience to a blindly “In Emerson’s words, ‘War organizes [and] forces accepted duty, in a cause which he little understands, in individuals and states to combine and act with larger a plan of campaign of which he has no notion, under views.’ Self-reliance was now replaced by service and tactics of which he does not see the use.’” obedience, particularly in the military. His new views * * * influenced his outlook on culture, as evidenced by his Jeffrey Rogers Hummel begins this special issue support for a State-created National Academy of Liter- with an overview, describing why the war is aptly ature and Art.A new era required new thinking. thought of as a turning point for America. “After the war, intellectuals were more interested in Following is Burton W. Folsom, Jr.’s assessment of a strong central government and nationalism. Jefferson- the economic costs of the war. ian decentralization and individual liberty were seen as Next, Bradley Birzer documents another sort of a part of the old ways, made obsolete in the new post- cost: the sacrifice of republican principles through the war America.The Declaration of Independence became Reconstruction. old-fashioned. . . . Joseph Stromberg then examines the political econ- “Unlike poetry before the war, poetry now rhap- omy that arose during and emerged from the Civil War, sodized on the glory of the nation. Herman Melville with particular attention to the ensuing Gilded Age. wrote about empire, not freedom.The crushing of the Finally, Hummel returns to look at the issue of Southern secession demonstrated the need for strong slavery in order to sort out the reasons for secession government and citizen compliance with the State.... and war. “The collectivist intellectuals believed that the Civil Warren Gibson concludes his two-part series on War held important lessons for the new America. It gold and money. wasn’t war itself that they valued, but the things that Our columnists have also been hard at work. war brought. John W. Draper, for example, wrote that Lawrence Reed warns that rising gasoline prices can be war taught subordination and stimulated an apprecia- counted on to bring out the political opportunists. tion of order. Men, said Draper, ‘love to obey’ those Donald Boudreaux debunks vulgar Keynesianism. they believe are their intellectual superiors. ‘In military Stephen Davies explains how maps serve the interests life they learn to practice that obedience openly,’ he of power. John Stossel reports on another assault by the said, adding that individualism was to blame for the prohibitionists. David Henderson reminds us that war is war. a government program.And Fred Foldvary, confronting “What intellectuals such as Francis A. Walker, a claim that central banking is superior to free banking, Charles Francis Adams Jr., and future U.S. Supreme responds,“It Just Ain’t So!” Court Justice Oliver Wendell Holmes Jr. wished for Books on domestic surveillance, the financial crisis, was, in [George] Frederickson’s words, a ‘continuance Marxism, and private roads occupy our reviewers. ...of the crisis mentality of war.’That mentality would —Sheldon Richman maintain the sense of duty to society that was palpable [email protected]

3 APRIL 2011 Ideas and Consequences

The Gasoline Demagogues Will Be Back

BY LAWRENCE W. REED

ere we go again. station, it’s the private property of that station until In late February gasoline prices across Amer- somebody else buys it. It’s not public property. It cer- H ica were surpassing $3 a gallon. Forecasters tainly doesn’t belong to people who never took a risk are advising us to expect $4 by summer, maybe higher. and invested a nickel in it—and that includes all the So be prepared for something else with it all: the bellyaching demagogues who will try to further their broken-record rhetoric of anti-market types about careers by bashing wealth-creators. “gouging.” It’ll be coming from a lot of the same peo- If it’s wrong to sell gas at $3 or $4 a gallon, what if ple who block the drilling for oil just about anywhere the owner of a gas station decided not to sell it at any and who think it’s always better to be gouged by the price? Wouldn’t that be even more wrong? Only if one taxman to subsidize noneconomic “green energy” than distorts the concept of private property to mean that to pay a price for gasoline that might reflect real mar- it’s really not yours if somebody else wants it. ket conditions. There are plenty of people in the world who will Economist Thomas Sowell, speaking of big-govern- scoff at any defense of oil companies or gas-station ment “liberals,” put it well when he owners on the basis of the “anti- said that asking them where wages If it’s not yours, don’t quated” notion of property rights. But and prices come from is “like asking of course those same scoffers will six-year-olds where babies come claim it. If it doesn’t defend their own property without from.” You’ll certainly never hear belong to the hesitation; it’s only other people’s them admit that even at $4 a gallon, property about which they can afford gasoline is cheaper today (in infla- politicians, don’t to be cavalier. tion-adjusted terms) than it was when So if it’s not yours, don’t claim it. If President Reagan decontrolled oil 30 demand that they it doesn’t belong to the politicians, years ago. jigger its price. don’t demand that they jigger its If you’re expecting me to offer the price. This is a moral issue; people of economic argument for government to get out and stay moral fiber should rise to the occasion and resist the out of energy markets, you’ll have to wait. There’s a temptation to steal. moral argument that takes precedence. Suppose someone offers to buy my house for twice Stockpiling and “Gouging” what I paid for it a year ago and I refuse. It’s my house, ow a little economics, rooted in experiences of a and I really don’t want to move, but I announce that if Ndecade ago.When news spread on September 11, someone wants to give me ten times what I paid, I’ll 2001, of the terrorist attacks in New York and Washing- take it. ton, many people panicked. Not knowing whether this Am I “gouging” somebody? Most people would say was the start of something much bigger, they did what no, but they would be hard put to explain what the dif- seemed to make sense given the extraordinary situa- ference is between my action and that of those unpop- tion—they began to “stockpile” gasoline because a ular villains who produce and sell gasoline. world crisis could easily disrupt fuel supplies. Long lines It’s true that my house is private property, but so is gasoline. When it’s in the underground tank at the gas Lawrence W.Reed ([email protected]) is the president of FEE.

THE FREEMAN: www.thefreemanonline.org 4 The Gasoline Demagogues Will Be Back formed at gas stations all over the nation by mid-after- ened with fines of up to $200 for each customer they noon. Demand, in other words, soared. Just like Econ “overcharged.” 101 was supposed to teach us, prices rose. In Florida, authorities declared that stations which If the crisis had indeed slashed world fuel supplies, raised prices by more than a dime a gallon were in vio- then the initial reaction of the public would have been lation of the Sunshine State’s emergency rules and both smart and prescient. Buying more would have could face penalties of $25,000 per day.Two weeks after pushed up prices. As prices rose they would have the terrorist attacks, Missouri’s attorney general sent encouraged people to restrict their use of gas to their letters to 48 gasoline retailers telling them that if they most important purposes, leaving more for others. had boosted prices for any grade of gas above $2.49 And the higher prices would have sent a powerful after September 11, they would have to pay fines of signal for somebody to find new supplies quickly.This “triple any gas-gouging profits, or $750, whichever was is the way a free price system works—in gasoline, cof- greater, plus investigative costs of $250.” fee, or anything else. My home was in Midland, Michi- It became apparent within a day or gan, at the time. A woman there two that the events in New York and As prices rise, they named Sonja Sturgeon managed Bob- Washington had not produced dis- bie’s Point Citgo, a gas station targeted ruptions in the flow of oil or in the encourage people to by the state’s attorney general for production of gasoline.Then the mar- restrict their use of gouging. Sturgeon readily admitted to ket effectively worked its magic. Peo- the local paper that the store boosted ple shopped elsewhere or found ways gas, leaving more for prices to $3 at about 8:30 p.m. on to do with less while prices were September 11 because she wasn’t high. Folks eventually calmed down, others and sending a expecting a new supply until later in and the lines at the gas stations evap- powerful signal for the week.“The whole point of raising orated. Suppliers rounded up more the prices was to send customers supplies. Prices fell.The upward spike somebody to find down the road to buy gas,” she said. set into motion the market forces that new supplies. “It had nothing to do with gouging solved the “problem.” the customers.” Perhaps the attorney general Saber-Rattling and Bad Laws would have advised Bobbie’s Point Citgo to behave as onetheless, politicians ignorant of marketplace though nothing had changed in the wake of September Neconomics rattled their sabers and piled bad law 11. Keep prices the same or raise them no more than on top of previous bad law.State officials cried foul and 10 percent. Would that have done anyone a favor? threatened “price gougers” with prosecution. Surely, the lines would have been many blocks longer, Ohio’s attorney general went after 27 retailers that and station after station would have run out, leaving charged $4 or more, decrying the price hikes as people at the back of many lines without any hope of “unconscionable acts.” He forced the culprits to give getting a drop. refunds to customers and make donations to the Let’s see, which is better? Gas at $3 after a 15- American Red Cross or face fines of up to $25,000 minute wait, or no gas at $2 after sitting in line for an per violation. hour? This is not rocket science. Any stations in Wisconsin that simply changed Brace yourself for another round of gasoline price prices more than once in a 24-hour period were threat- hysteria. It’s going to be déjà vu all over again.

5 APRIL 2011 Central Banking Beats Free Banking? It Just Ain’t So!

BY FRED FOLDVARY

n “More Bits on Whether We Need a Fed,” a practice, when the economy is depressed, there is strong November 21 Marginal Revolution blog post political pressure to “do something,”specifically to “stim- I(www.tinyurl.com/3y2gsbx), George Mason Uni- ulate” by expanding the money supply. Since Congress versity economics professor Tyler Cowen questions created the Fed and can alter it, it is impossible for the “why free banking would offer an advantage over post- Fed to be purely independent of politics. WWII central banking (combined with FDIC and The Federal Reserve was set up to provide price paper money).” He adds, “That’s long been the weak stability, yet the United States suffered high inflation spot of the anti-Fed case.” during the 1970s and continuous inflation since World Free banking is better than central banking because War II.The Fed was also supposed to provide economic only in a free market can the optimal prices and quan- stability, but since World War II there have been severe tities of goods be determined. Those recessions in 1973, 1980, 1990, and goods include the money supply, and The optimal quantity 2007–2009.The Fed was supposed to prices include the rate of interest. ensure stability in the financial system, There is no scientific way to know of money in the but it failed to prevent the Crash of in advance the right price of goods. economy, like any 2008 and the Great Recession that With ever-changing populations, followed. But the challenge is to technology, and preferences, markets other good, can only explain why free banking would be are turbulent, and fluctuating human better. desires and costs cannot be accurately be discovered by Suppose gold once again became a predicted. markets, not global currency. It would be the real The quantity of money in the money, and the U.S. dollar would be economy is like that of other goods. predicted by the Fed. defined as a particular weight of gold. The optimal amount can only be dis- A $20 gold coin had about an ounce covered by the dynamics of supply and demand. The of gold before 1933. impact of money on prices depends not just on the Under free banking most transactions would not amount of money but also on its velocity—that is, how occur with gold, but rather with more convenient fast the money turns over.The Fed cannot control this money substitutes. Banks would issue paper bank notes since it cannot control the amount people want to inscribed with their bank names. Anyone holding bank hold, or the demand. Also, even if the Fed could deter- notes could exchange them for gold. For example, if mine the best amount of money for today, the impact $1,000 was equivalent to an ounce of gold, then anyone of its moves take months to play out, so the central could go to a bank and convert $1,000 in paper bills to bankers would need to be able to accurately predict the one ounce of gold coins. Likewise one could withdraw state of the economy months into the future. $1,000 of deposits in gold coins. The Fed also fails because of political pressure. Fred Foldvary ([email protected]) is a lecturer in economics at Santa Clara Although the Fed is supposed to be independent, in University.

THE FREEMAN: www.thefreemanonline.org 6 Central Banking Beats Free Banking? IT JUST AIN’T SO!

Competition among banks, as well as convertibility of interest would raise the carrying cost of borrowed into gold, would result in price stability,since the banks funds, reducing if not preventing the financial fever. would only be able to issue as many bank notes as the public was willing to hold. If there were more bank Further Reforms notes than that, they would come back to the bank to ree banking is not a panacea: There need to be be exchanged for gold. But the money supply would Fother reforms to achieve sustainable economic also be flexible, since if there were a greater demand to growth. Punitive taxes, subsidies, and arbitrary restric- hold money,the amount of bank notes or bank deposits tions all distort the economy, stifle enterprise, and cre- would increase. ate turbulence. But even without such other reforms, the case for replacing central banking with free banking The Structure of Capital Goods is strong, resting on three facts: ree banking mitigates the boom-bust cycle.There is Fa structure to capital goods similar 1. The optimal money supply to a stack of pancakes. At the bottom and interest rates are unknowable in of the stack are rapidly circulating Free banking is not a advance, and can only be discovered capital goods such as inventory close panacea. Government by market dynamics. to the consumer-goods level. As we 2. Political pressure makes the go up the stack, the capital goods turn still distorts the Fed expand the money supply and over more slowly.At the top are long- reduce interest rates when the econ- duration investments such as real- economy in many omy is depressed, and this fuels an estate development. Goods become ways. But even unsustainable boom that results in the more sensitive to interest rates as you next bust. move up the stack. Lower interest without further 3. Government insurance, guar- rates make the stack steeper, as there reforms, the case for antees, the expectation of bailouts, is more investment in long-term and other subsidies induce excessive investments. replacing central risk-taking, making financial crashes In a free market the “natural rate” banking is strong. worse. of interest depends on the preference for goods sooner rather than later, Cowen states that if the Fed were or “time preference.” Interest is the premium paid to to shut down, the new base money would be Treasury shift purchases from the future, for which one would bills. (Base money currently consists of money in cir- have to save enough to pay cash, to the present day by culation, bank vault cash, and commercial bank borrowing. reserves on account at the Fed.) But folks don’t buy The Fed lowers the rate of interest by creating fiat groceries with Treasury bills. The best transition base money out of nothing. As a result, businesspeople bor- money would be the current amount of Federal row more for capital goods high on the stack, such as Reserve notes, whose supply would be frozen, as sug- real estate. Prices rise fastest and soonest where the gested by Professor George Selgin. Then new-money money is being injected into the economy with loans. expansion would be the money substitutes issued by Thus real-estate prices escalate, creating a bubble like the banks, convertible into base money. Eventually, those that occurred before 1973, 1980, 1990, and 2007; with the abolition of legal-tender laws, world financial indeed a similar bubble occurred during the 1920s markets would converge on a common global cur- before the Great Depression. rency, gold. Every boom preceding a bust has been fueled by The case for free banking is similar to the case for artificially cheap credit. With free banking the interest healthy living. It is better to prevent economic illness rate would not be manipulated down.The natural rate than to have to treat it.

7 APRIL 2011 America’s Turning Point

BY JEFFREY ROGERS HUMMEL

he Civil War represents the simultaneous cul- Insofar as the war was fought to preserve the Union, mination and repudiation of the American it was an explicit rejection of the American Revolu- TRevolution. Four successive ideological surges tion. Both the radical abolitionists and the South’s fire- had previously defined American politics: the radical eaters boldly championed different applications of the republican movement that had spearheaded the revolu- revolution’s purest principles. Whereas the abolitionists tion itself; the subsequent Jeffersonian movement that were carrying on the assault against human bondage, had arisen in reaction to the Federalist State; the Jack- the fire-eating secessionists embodied the tradition of sonian movement that followed the War of 1812; and self-determination and decentralized government. As the abolitionist movement. Although each was unique, a legal recourse, the legitimacy of secession was admit- each in its own way was hostile to government power. tedly debatable. Consistent with the Antifederalist Each had contributed to the long-term interpretation of the Constitution that erosion of all forms of coercive authority. had come to dominate antebellum poli- “Nowhere was the American rejec- tics, secession undoubtedly contravened tion of authority more complete than in the framers’ original intent. But as a rev- the political sphere,” writes historian olutionary right, the legitimacy of seces- David Donald.“The decline in the pow- sion is universal and unconditional. That ers of the Federal government from the at least is how the Declaration of Inde- constructive centralism of George Wash- pendence reads. “Put simply,” agrees ington’s administration to the feeble vac- William Appleman Williams, “the cause illation of James Buchanan’s is so familiar of the Civil War was the refusal of Lin- as to require no repetition here....The coln and other northerners to honor the national government, moreover, was not being weak- revolutionary right of self-determination—the touch- ened in order to bolster state governments, for they too stone of the American Revolution.” were decreasing in power....By the 1850s the author- American nationalists, then and now, automatically ity of all government in America was at a low point.” assume that the Union’s breakup would have been cat- The United States, already one of the most prosper- astrophic. The historian, in particular, “is a camp fol- ous and influential countries on the face of the earth, lower of the successful army,” Donald wrote, and often had practically the smallest, weakest State apparatus. treats the nation’s current boundaries as etched in The great irony of the Civil War is that all that changed stone. But doing so reveals a lack of historical imagina- at the very moment that abolition triumphed. As the tion. Consider Canada. The United States twice last, great coercive blight on the American landscape, black chattel slavery, was finally extirpated—a triumph Jeffrey Rogers Hummel ([email protected]) is an associate professor of economics at San Jose State University. He is the author of that cannot be overrated—the American polity did an Emancipating Slaves, Enslaving Free Men:A History of the about-face. American Civil War.

THE FREEMAN: www.thefreemanonline.org 8 America’s Turning Point mounted military expeditions to conquer its neighbor, there is what economists and historians have identified first during the American Revolution and again during as a ratchet effect. Postwar retrenchment never returns the War of 1812. At other times, including after the government to its prewar levels.The State has assumed Civil War, annexation was under consideration, some- new functions, taken on new responsibilities, and exer- times to the point of private support for insurgencies cised new prerogatives that continue long after the similar to those that had helped swallow up Florida and fighting is over. Both of these phenomena are starkly Texas. If any of these ventures had succeeded, histori- evident during the Civil War. ans’ accounts would read as if the unification of Canada Before Fort Sumter national spending was only and the United States had been fated, and any other about $2.50 per person per year, or $50 per person in outcome inconceivable. In our world, of course, today’s prices. The central government relied on only Canada and the United States have endured as separate two sources of revenue: a very low tariff and the sale of sovereignties with hardly any untoward consequences. public lands. The war brought not only protectionist “Suppose Lincoln did save the American Union, did import duties but also a vast array of internal excises, his success in keeping one strong nation where there the country’s first national income tax, and an extensive might have been two weaker ones really entitle him to internal revenue bureaucracy with 185 districts reach- a claim to greatness?” asks David M. ing into every hamlet and town. Fed- Potter. “Did it really contribute any eral outlays soared from 1.5 percent constructive values for the modern The claim that of the economy’s output to almost 20 world?” peaceful secession percent, approximately what the cen- The common refrain, voiced by tral government spends today. The Abraham Lincoln himself, that peace- would have meant national debt climbed from a modest ful secession would have constituted $65 million, less than annual expendi- a failure for the great American the failure of the tures, to $2.8 billion. This provided experiment in liberty, was just plain American the justification for replacing the nonsense. “If Northerners . . . had antebellum monetary system of free peaceably allowed the seceders to experiment is just banking and financial deregulation depart,” the conservative London plain nonsense. (which some economic historians Times correctly replied, “the result believe was the best the country has might fairly have been quoted as illus- ever had) with inflationary fiat trating the advantages of Democracy; but when money and nationally regulated banking. Republicans put empire above liberty, and resorted to Protectionism would continue to dominate U.S. political oppression and war rather than suffer any trade policy mercilessly until the Great Depression and abatement of national power, it was clear that nature at was just one manifestation of the Lincoln administra- Washington was precisely the same as nature at St. tion’s effort to enlist special interests through govern- Petersburg. ...Democracy broke down, not when the ment subsidies and privileges. The Yankee Leviathan Union ceased to be agreeable to all its constituent also was responsible for the first federal aid to transcon- States, but when it was upheld, like any other Empire, tinental railroads, land grants for higher education, a by force of arms.” Department of Agriculture for farmers, and troops to “War is the health of the State,” proclaimed Ran- break strikes for employers. The prewar regime of dolph Bourne, the young Progressive, disillusioned by Jacksonian laissez faire was effectively supplanted by the Wilson administration’s grotesque excesses during Republican neomercantilism, an alliance between busi- World War I. Bourne’s maxim is true in two respects. ness and government that became so scandalous during During war itself the government swells in size and the Grant era that it has gone down in history as, to use power, as it taxes, conscripts, regulates, generates infla- Ver non Louis Parrington’s label for the postwar feeding tion, and suppresses civil liberties. Second, after the war frenzy, the “Great Barbecue.”

9 APRIL 2011 Jeffrey Rogers Hummel

Lincoln’s war delivered a blow to civil liberties as ment largess and confined federal power within strict well. The Union’s resort to nationally administered constitutional limits. Although Franklin D. Roosevelt’s conscription touched off so much resistance that the New Deal is responsible for Social Security, which President suspended habeas corpus throughout the along with health care, now ranks as the national gov- North.Traditional estimates are that the administration ernment’s primary expense, this legend ignores several imprisoned without trial or charges 14,000 civilians inconvenient facts.To begin with, the New Deal simply during the conflict, but some historians believe the fig- emulated the Wilson administration’s previous war col- ure to be much too low.To be sure, the greater number lectivism. Moreover the growth of government under were citizens of either the border states or the Confed- the New Deal was trivial compared to its growth dur- eracy itself, and many of those arrested secured quick ing the United States’ next major conflict:World War II. release within a month or two, usually after swearing a More astute analysts push the watershed in U.S. his- loyalty oath. Yet the federal government at the same tory back to the Progressive Era. Progressivism emerged time monitored and censored both the mails and at the beginning of the twentieth century as a diverse telegraphs and shut down over 300 newspapers for inclination, varying in different parts of the country varying periods. and including members of all political parties. But it Many of these measures were of course abandoned at became the country’s first dominant mindset to advo- the fighting’s end. Federal spending fell from its wartime cate government intervention in the free market and peak to only 3 to 4 percent of GDP. Although not in personal liberty at every level and in every sphere. a trivial decline, it still left spend- My contention, however, is that ing at twice prewar levels, and the The Yankee America’s decisive transition must be largest postwar expenditures were war- dated even earlier. related. Interest on the war debt ini- Leviathan co-opted The Yankee Leviathan co-opted tially accounted for 40 percent of and transformed and transformed abolitionism. It shat- federal outlays, and by 1884 veterans’ tered the prewar congruence among benefits were consuming 30 percent. abolitionism. anti-slavery, anti-government, and These benefits were so lavish that they anti-war radicalism. It permanently constitute the national government’s first old-age and reversed the implicit constitutional settlement that had disability insurance and stand as a precursor to Social made the central and state governments revenue-inde- Security.The impact of the Civil War was even felt in pendent. It acquired for central authority such new the seemingly unrelated area of obscenity. Congress functions as subsidizing privileged businesses, managing passed the first act regulating mail content in response to the currency, providing welfare to veterans, and pro- complaints that troops were ordering pornographic tecting the nation’s “morals”—at the very moment that material, and this became the basis for the Comstock local and state governments were also expanding.And it witch hunts of the 1870s. set dangerous precedents with respect to taxes, fiat money, conscription, and the suppression of dissent. The Real Turning Point These and the countless other changes mark the his ratchet effect is a phenomenon historians fre- Civil War as America’s real turning point. In the years Tquently observe.Yet the Civil War did something ahead, coercive authority would wax and wane with more. Despite wars and their ratchets, governments year-to-year circumstances, but the long-term trend must sometimes recede in reach, else all would have been would be unmistakable. Henceforth there would be groaning under totalitarian regimes long ago. Both few major victories of Liberty over Power. In contrast conservatives and so-called liberals date the major to the whittling away of government that had preceded political turning point in American history at the Great Fort Sumter, the United States had commenced its Depression of 1929. Previously Americans are supposed halting but inexorable march toward the welfare- to have self-reliantly resisted the temptations of govern- warfare State of today.

THE FREEMAN: www.thefreemanonline.org 10 The Economic Costs of the Civil War

BY BURTON FOLSOM, JR.

ven after 150 years, the Civil War evokes memo- entire national budget in 1860. In fact, that Civil War ries of great men and great battles. Certainly debt is almost twice what the federal government spent Ethat war was a milestone in U.S. history, and on before 1860. the plus side it reunited the nation and freed the slaves. What’s worse, Jefferson’s vision had become a night- Few historians, however, describe the costs of the mare.The United States had a progressive income tax, war. Not just the 620,000 individuals who died, or the an estate tax, and excise taxes as well. The revenue devastation to southern states, but the economic costs department had greatly expanded, and tax-gatherers of waging total war.What was the economic impact of were a big part of the federal bureaucracy. the Civil War on American life? Furthermore, our currency was tainted. The Union The first and most important point is that the Civil government had issued more than $430 million in War was expensive. In 1860 the paper money (greenbacks) and U.S. national debt was $65 mil- demanded it be legal tender for lion. To put that in perspective, all debts. No gold backed the the national debt in 1789, the notes. year George Washington took The military side of the Civil office, was $77 million. In other War ended when Generals words, from 1789 to 1860, the Ulysses S. Grant and Robert E. United States spanned the con- Lee shook hands at Appomattox tinent, fought two major wars, Court House. But the economic and began its industrial side of the war endured for gen- growth—all the while reducing erations. The change is seen in its national debt. the annual budgets before and We had limited government, after the war. The 1860 federal During the Civil War, demand notes [top] backed by gold few federal expenses, and low were replaced by greenbacks with no backing. budget was $63 million, but after taxes. In 1860, on the eve of war, the war, annual budgets regularly almost all federal revenue derived from the tariff. We exceeded $300 million.Why the sharp increase? had no income tax, no estate tax, and no excise taxes. First, the aftermath of war was expensive. Recon- Even the hated whiskey tax was gone. We had seem- struction governments brought bureaucrats to the ingly fulfilled Thomas Jefferson’s vision:“What farmer, South to spend money on reunion. More than that, what mechanic, what laborer ever sees a tax-gatherer of federal pensions to Union veterans became by far the the United States?” largest item in the federal budget (except for the inter- Four years of civil war changed all that forever. In Burton Folsom, Jr., ([email protected]) is a professor of history at 1865 the national debt stood at $2.7 billion. Just the Hillsdale College and author of The Myth of the Robber Barons and annual interest on that debt was more than twice our New Deal or Raw Deal?

11 APRIL 2011 Burton Folsom, Jr. est payment on the Civil War debt itself). Pensions are nect California with the other Union states. President part of the costs of war, but the payments are imposed Lincoln signed a bill establishing federal subsidies for on future generations. In the case of the Civil War, vet- building two transcontinental railroads. erans received pensions only if they sustained injuries Lincoln was a gifted writer and an able defender of severe enough to keep them from holding a job. Also, natural rights, but on railroad subsidies he had a reverse widows received pensions if they remained unmarried, Midas touch. During the 1830s, for example, when as did their children until they became adults. Confed- Lincoln was in the Illinois legislature, he helped lead erates, of course, received no federal pensions. the charge for a $12 million subsidy to bring railroads to the major cities of Illinois. Unfortunately for Lin- Pensions and Tensions coln, the money was wasted and the railroads largely he Civil War pensions shaped political life in went unbuilt.According to William Herndon, Lincoln’s TAmerica for the rest of the century. First, northern law partner, “[T]he internal improvement system, the states benefitted from pension dollars at the expense of adoption of which Lincoln had played such a promi- southern states. That kept sectional tensions high. Sec- nent part, had collapsed, with the result that Illinois was ond, Republicans “waved the bloody shirt” and blamed left with an enormous debt and an empty treasury.” Democrats for the war. Republican presidents had incentives to keep the pension system strong, and the Bribes Across America Grand Army of the Republic (GAR) lobbied to get as hen Lincoln signed the transcontinental rail- much money for veterans as possible. Wroad bill in 1862, he was creating an even The federal government established pension boards larger boondoggle. The Union Pacific and Central to determine whether injuries to vet- Pacific Railroads were to be paid by erans warranted a pension. But the the mile to lay track from Omaha to issue was complex. Sometimes, veter- Lincoln had a reverse Sacramento. Thus, the UP and CP ans created or faked injuries; others had incentives to create mileage, but argued that injuries received after the Midas touch when it not quality mileage. Their railroads war—for example, falling off of a lad- came to railroads. were sometimes not straight, and der while fixing a roof—were really other times went over hilly terrain war injuries. If the pension board that was impossible for a train to sur- turned down an application, the veteran sometimes mount. When finished, parts of what they had built pleaded to his congressman—who was often able to get were unusable, but both lines had paid off politicians a special pension for his constituent through Congress. (with some of their subsidy money) to continue the The corrupt pension system corroded politics for the subsidies and not inquire closely on how they were whole 1865-1900 period. being spent. President Grover Cleveland tried to stop congress- Lincoln is not responsible for the corruption that men from voting pensions to constituents with bogus occurred after he died, but the Republican leaders dur- injuries by vetoing bill after bill. His successor, Ben- ing the war committed themselves to many federal jamin Harrison, “solved” the problem by signing the interventions other than the constructive one of ending Blair bill, which liberalized pensions to the point that slavery.The National Banking Act of 1863, and amend- even old age made a veteran eligible for a pension. ments to it, brought greater federal control to banking During the 1890s, after most veterans had died, pension and imposed a 10 percent tax on state bank notes. payments remained a huge and corrupting item in the The Morrill Act of 1862 gave 17.4 million acres of federal budget. federal land to states to build land-grant colleges to The economic impact of the Civil War extended teach citizens agriculture and science. Gifts of land and beyond pensions. One argument made during the war statements of educational focus seem like minor inter- was that transportation needed to be improved to con- ventions, but the Constitution gave no role to the fed-

THE FREEMAN: www.thefreemanonline.org 12 The Economic Costs of the Civil War eral government in subsidizing education or creating promised to redeem the Civil War greenbacks for gold. universities.The Morrill Act became an entering wedge Grant committed the United States to a sound cur- for later interventions (the Hatch Act of 1887 and the rency and fiscal restraint. Smith Lever Act of 1914) that established direct federal Also under Grant, the income and estate taxes were subsidies to those same land-grant colleges. abolished in 1872. He committed the U.S. government Once the federal government intervenes in an area, to budget surpluses with revenue almost exclusively it’s hard to remove the controls and easy to expand drawn from tariff duties and excise taxes on alcohol and them. The Gilded Age generation did, however, halt tobacco. Even before Grant was able to abolish the some of those Civil War interventions. Those moves income tax, he had it changed from a progressive to a back to freer markets in the late 1800s help account for flat tax. the tremendous economic growth during that time. The income tax during the Civil War—the first in U.S. history—was not onerous by today’s standards. Some Rollbacks Early in the Civil War, Congress passed a flat 3 percent he starting point here is the decision after the Civil tax on all income over $800 (which was much more TWar to reduce the $2.7 billion than most families earned). Then national debt. From 1866 to 1893, the Congress made the tax progressive U.S. government had budget surpluses The generation that and raised the top marginal rate to 10 each year and slashed the national percent. debt to $961 million. Annual revenue fought the Civil When Grant had the income tax during these years was about $350 War became the abolished, he returned the nation to million and expenses was about $270 the tax system envisioned by the million—most of which consisted of politicians of the Founders. In Federalist 21, for exam- Civil War pensions and interest on the Gilded Age, and they ple, Alexander Hamilton defended a national debt. system of consumption taxes (tariffs One reason the federal budgets had the fortitude to and excises) against income taxes— tended to be lower in the 1880s than which can be more divisive and more in the 1860s and 1870s was that inter- wipe out much of easily manipulated by politicians. est payments on the debt declined the war debt. Under consumption taxes, Hamilton sharply as the debt disappeared. For argued, “The amount to be con- example, the annual interest on the tributed by each citizen will in a national debt dropped from $146 million in 1866 to degree be at his own option, and can be regulated by an only $23 million in 1893. The generation that fought attention to his resources.” the Civil War became the politicians of the Gilded Hamilton added, “If duties are too high, they lessen Age, and they had the fortitude to wipe out almost the consumption. . . . This forms a complete barrier two-thirds of the Civil War debt. against any material oppression of the citizens by taxes Speaking of Civil War politicians, those in the Grant of this class, and is itself a natural limitation of the administration—long maligned by historians—estab- power of imposing them.” lished many of the conditions for the freedom and After the Civil War, Americans chose to consume prosperity of the Gilded Age. For example, Grant alcohol and tobacco in sufficient quantities to help pay helped make sure the U.S. government had budget sur- down the debt each year for most of the rest of the pluses by winning $15.5 million from Britain for dam- century. American industry recovered under such lim- ages done to Union ships by the Alabama and other ited government, and the Civil War generation paved ships the British built for the Confederates. In 1875 the way for economic greatness. They overcame much Grant also signed the Specie Resumption Act, which of the financial damage from the Civil War.

13 APRIL 2011 Gaining a Nation, Losing the Republic: Reconstruction, 1863–1877

BY BRADLEY J. BIRZER

dead president, carpetbaggers, scalawags, burn- private conversation with Grant and Sherman. Lincoln ing crosses, white hoods, an occupied South, assured them he wanted nothing more than ABoss Tweed, Thomas Nast cartoons, the New York Democratic machine, and an imprisoned Jefferson to get the deluded men of the rebel armies disarmed Davis—all provide vivid images of the dozen years fol- and back to their homes. . . . Let them once surren- lowing the surrender of Robert E. Lee’s forces at Appo- der and reach their homes, [and] they won’t take up mattox in April 1865. As every historian knows, often arms again. ...Let them all go, officers and all, I to his chagrin, these 12 years were tumultuous, confus- want submission and no more bloodshed. ...I want ing, and chaotic, especially in hind- no one punished; treat them liberally sight. The period of course is also a Whereas individuals all around. We want those people to letdown after the tragedies and return to their allegiance to the Union nobilities of the Civil War years. had a clear purpose and submit to the laws. Whereas individuals had a clear pur- during the war, pose during the war—no matter While Lincoln had waged a terribly what side they chose—political com- political compromises hard and total war, he also desired the promises and plunder defined and plunder defined softest peace possible. Indeed, if one Reconstruction. takes Lincoln’s words on The River A period of governmental cor- the Reconstruction. Queen at face value, the United States ruption, monetary instability, gross of 1865 would look very much like the expansion of political power, the solidification of public United States of 1860, with one exception: Returning schooling, Anglo-Saxon racialist beliefs, manifest des- states would need to accept the emancipation of all slaves tiny,Indian Wars, and extreme violence, Reconstruction through the Thirteenth Amendment to the U.S. Consti- witnessed a giant leap toward a cohesive nation- tution. His architects of total war, Grant and Sherman, state–far from the founding vision of a decentralized agreed completely with the President. Neither of Lin- federal republic. coln’s generals knew how much longer the war would A mere two months before John Wilkes Booth assas- last, they explained to him, but they believed the war was sinated him in 1865, President Abraham Lincoln met rapidly approaching an end with possibly only one or with his two top generals, Ulysses S. Grant and William two major battles left.They had reached the endgame. Tecumseh Sherman, on the steamship The River Queen, just outside of Hampton Roads,Virginia.Though Lin- Bradley Birzer ([email protected]) is the Russell Amos Kirk Chair coln would call for “malice toward none” and “charity in American Studies and a professor of history at Hillsdale College. He is for all” in his second inaugural, delivered in early March the author of several books, including his most recent about the American founding, American Cicero:The Life of Charles Carroll. He dedicates of the same year, he offered his fullest plan and desires this article—for his friendship and inspiration for over 20 years—to Larry for what a reconstructed union might look like in a Reed.

THE FREEMAN: www.thefreemanonline.org 14 Gaining a Nation, Losing the Republic: Reconstruction, 1863–1877

When Booth cut down Lincoln at Ford’s Theater on President Jefferson Davis’s final executive order called Good Friday, two months later, he changed the entire for all Confederate States of America troops to divide course of American history. Had Lincoln presided over into terrorist cells and launch attacks against civilians the peace, one has no reason to doubt, he would have and urban areas, Lee countermanded the order through reconciled constitutional relations with, among, and deed and word, telling the men to “be good citizens as between the former Confederate states, officers, and cit- they had been soldiers.” izens as quickly as politically possible.The war, after all, With Lincoln’s death, though, the war became per- had been viewed by almost all sides as a noble tragedy sonal in a way that it had not been during the mass for the common good of the republic and for the vision bloodshed of the previous four years. To many in the (no matter how varied) of the American founding country, especially in the North, Lincoln’s death trans- fathers. Men, for the most part, had chosen to fight, and formed him into a full-fledged American martyr, and they had chosen to fight again and his reputation exploded.The Radi- again. Though a draft existed in the cals within the Republican party— North, for example, after the sum- Senator Benjamin Wade of Ohio, mer of 1863, 94 percent of all Union Senator Charles Sumner of Massa- soldiers had volunteered. As General chusetts, Representative Thaddeus Joshua Chamberlain, the classicist Stevens of Pennsylvania, and Rep- from Maine’s Bowdoin College, had resentative George Julian of Indi- astutely observed of the surrender ana, to name a few—manipulated ceremonies in April 1865: “Honor this loss to their advantage more answering honor...[as men] of near than any other group. These men blood born, made nearer by blood had despised and resented Lincoln shed. ...On our part not a sound as a spineless moderate, lacking a or a trumpet more, nor roll of proper nationalist and vindictive drum; nor a cheer, nor word nor streak. whisper of vain-glory, nor motion of The Radicals had attempted man standing again at the order, nothing less than a congressional but an awed stillness rather, and coup against Lincoln in December breathholding.” Thaddeus Stevens, Benjamin Wade, George Julian, 1862, openly desired a military dic- Just outside of Appomattox Court and Charles Sumner were among the Radical tatorship throughout much of the Republicans who wanted Lincoln to take a more House, Robert E. Lee’s former Con- vindictive approach to Reconstruction. war, and proposed their own ver- commons.wikimedia.org federate forces, what remained of the sion of Reconstruction as early as Army of Northern Virginia, walked through two lines 1863.Their vision of postwar America involved remak- of Union soldiers. The Union soldiers saluted the ing the entirety of the South in their own image, with defeated for hours on end that day.“Reluctantly, with extensive punishment for all involved. Just as they had agony of expression,” Chamberlain recorded, the Con- wanted Lincoln to wage an ever-increasingly hard federate soldiers “tenderly fold their flags, battle-worn war, they wanted a peace imposed by the sword. Lin- and torn, blood-stained, heart holding colors, and lay coln’s death provided them with a symbol around them down; some frenziedly rushing from the ranks, which to rally northerners against their southern kneeling over them, clinging to them, pressing them to brethren. “Within eight hours of his murder Republi- their lips with burning tears.” can Congressmen in secret caucus agreed,” Lincoln Such a scene, of course, is a far cry from the milita- biographer David Donald explained,“that ‘his death is a rization and politicization, the martial law and the godsend to our cause.’” As the leader of the Radicals, intrusion of Leviathan that one normally associates Wade, stated,“[T]here will be no more trouble running with Reconstruction as it actually happened. Though the government.”

15 APRIL 2011 Bradley J. Birzer

Wade and his fellow Radicals would have no small materiel they deemed necessary for the war effort. part in nationalizing the United States over the next Unlike the North, the South conscripted throughout dozen years. “The New England reformers thought much of the war, set prices, and enforced loyalty oaths. they had struck down evil incarnate when they crushed The CSA, contrary to popular memory, also rigorously the Sable Genius of the South; and their horror at the enforced its own laws against the several states making corruption and chaos of the Gilded Age was intensified up the Confederacy. proportionately as they discovered the extent of their With the collapse of the Confederate government, own previous naiveté,” the cultural critic and historian no confederate laws continued, of course.With the end Russell Kirk in wrote The Conservative Mind.“They had of the war the Union repealed many, if not most, of its dreaded an era of Jefferson Davis; but now they were in war measures.The legacy and symbolism of such mar- an era” of the radicals and “of worse.”The true reform- tial laws, however, remained into the Progressive period ers “awoke to find their fellow-Republicans, the oli- and beyond: If Lincoln could centralize the Union and garchs of their party, intent upon concrete plunder.” defeat the Confederacy and slavery, could we not also Not surprisingly, government use the federal government to wage grew dramatically during the four war against poor standards, poverty, years of the Civil War. The Union If Lincoln could immigrants, or whatever any Progres- printed greenbacks, founded the U.S. centralize the Union sive might resent? Perhaps no figure Secret Service to protect the fiat better represents this than John Wesley money (the second federal police and defeat the Powell, a Union officer who lost his force, the first having been set up confederacy and arm in the 1862 Battle of Shiloh and after the passage of the Fugitive Slave is often regarded as the father of Law of 1850), taxed incomes, pro- slavery, could we not American Progressives. Tellingly, moted university education, built war also use the federal through the Department of the Inte- factories and railroads, raised tariffs, rior, the U.S. Geological Survey, and declared—in some places—martial government to wage the Bureau of Ethnography, Powell law and suspended freedoms of crafted and promoted plans to remake speech and habeas corpus, used troops war against whatever the West (sometimes physically) to break labor strikes, and encouraged any Progressive through the powers of the federal mobs to do what it believed it could government. not do openly. might resent? Believing the federal government In the South, President Jefferson under Lincoln had never gone far Davis nullified the Confederate constitution almost enough, the Radicals of Reconstruction expanded the from day one. Davis often ignored Congress and his scope and reach of the federal government as quickly as own vice president, and he used the full power of his possible. Not only did the Fourteenth Amendment to office to harass any political opposition. Most notably, the U.S. Constitution apply the Bill of Rights to the through fraud Davis shut down the one opposition to states, but it also repositioned virtually all federal law as develop, the classical-liberal Conservative Party of superior to all state and local laws, thus attenuating even North Carolina. The Confederate States of America further the already difficult balance of federalism. Most (CSA) taxed incomes, excess profits, and licenses, and Reconstruction laws began in the Radical-controlled raised tariffs on imports as well as exports. Because cur- congressional Joint Committee on Reconstruction, rency flowed only intermittently throughout the dominated by Wade. Most important, through the impe- South, the CSA printed an outrageous amount of paper tus of the Joint Committee, Congress passed a series of currency and established—to the horror of average haphazard laws establishing martial law over various dis- southerners—the Tax-In-Kind men, empowered by the tricts of the South. The rule of law, such as it was, was government to take whatever livestock, produce, and enforced through military rather than civilian courts.

THE FREEMAN: www.thefreemanonline.org 16 Gaining a Nation, Losing the Republic: Reconstruction, 1863–1877

Through a series of laws Congress provided extensive nineteenth-century Scottish observer of America, funding for public schooling and welfare (direct aid) for James Bryce, recorded his own thoughts on the period freed slaves, and it sometimes enforced the property in The American Commonwealth: “Such a Saturnalia of rights of blacks. robbery and jobbery has seldom been seen in any civ- None of this should suggest that somehow the Rad- ilized country, and certainly never before under the icals were, as a whole, pro-black. As the Pulitzer prize- forms of a free self-government.” He compared the winning historian T. H. Williams once noted, the American officials of Reconstruction to Roman Radicals “loved the Negro less for himself than as an provincial governors in the last days of the Republic: instrument with which they might fasten Republican political and economic control upon the South.” In Greed was unchecked and roguery unabashed. The reality the Radicals were little better in their promotion methods of plunder were numerous. Every branch of rights, dignity, and liberties of blacks than had been of administration became wasteful. Public contracts the plantation owners of the previous generations. were jobbed, and the profits shared. Extravagant Each group—white men of the North and South— salaries were paid to legislators; extravagant charges desired to manipulate the black popu- allowed for all sorts of work done at lation for its own aggrandizement the public cost. But perhaps the com- and profit. White men of the monest form of robbery, and that As Robert Higgs has definitively conducted on the largest scale, was for shown in his path-breaking work, North and South the legislature to direct the issue of Competition and Coercion, American bonds in aid of a railroad or other freedmen did exceedingly well in both desired to public work, these bonds being then terms of culture, economics, and liter- manipulate the black delivered to contractors who sold acy in the 50 years after emancipa- them, shared the proceeds with the tion, but did so through their own population for their governing ring, and omitted to exe- efforts and despite significant govern- own aggrandizement cute the work. Much money was ment and societal obstacles: “Free however taken in an even more direct from competitive counterpressures and profit. fashion from the state treasury or and strongly equipped to enforce from that of the local authority; and compliance, public officials could dis- as not only the guardians of the pub- criminate pretty much as their pleasure or caprice lic funds, but even, in many cases, the courts of law, might dictate. Under these circumstances it was a defi- were under the control of the thieves, discovery was nite blessing for the blacks that the governments of the difficult and redress unattainable. In this way the post-bellum South were still quite limited in the range industrious and property-holding classes saw the of functions to which they attended. Such salvation as burdens of the state increase, with no power of the black man found, he found in the private sector.” arresting the process. Not surprisingly, given the abusive attitudes white Radicals held toward American blacks, corruption While almost all white leftist historians have down- proved endemic to the entire Reconstruction effort. played or ignored this corruption since the 1960s, they So much money flowed from Congress into the recon- have done so at great peril to the dictates of honesty structed South that manipulators and opportunists and truth. profited wherever and whenever possible, which was As they had failed to do with Lincoln in the more often than not.The Reconstruction governments attempted congressional coup of December 1862, the simply had no manpower or will to prevent the cor- Radicals tried to gain control of President Andrew ruption. They often participated directly in the cor- Johnson’s cabinet with the Tenure of Office Act.When ruption, using it for political gain. The famous Johnson violated this law in February 1868, the House

17 APRIL 2011 Bradley J. Birzer of Representatives impeached him on a strict party-line sanguinary campaign, unless being goaded into a vote, 126-47. The failure of the Senate to support the brief madness by the direct and endless oppression House’s impeachment undercut the strength and confi- of our Federal authorities be blameworthy....[T]he dence of the Radicals. Indeed, though Radical regimes neglect and bad faith of the general Government, remained in power until 1876, the Radicals never again continued for a quarter of a century, are apparent in wielded the same kind of power as they had in the sec- the records of Congress.There was swindling, not in ond half of the 1860s. petty matters and by individuals, requiring detection In part the Radicals also failed because Ulysses S. and proof, but on a grand scale by the United States Grant never accepted the fanatical premises on which itself. Radicalism had developed. A moderate Republican at best, Grant resented the postwar bloodthirstiness of the It would be difficult to find a more telling example Radicals, few of whom had ever seen battle. Despite of government corruption and abuse of power during this, Grant was a determined nationalist and, when he this period than the directing of the military against a was not dealing with the corruption in his own admin- peaceful, allied people, farmers and ranchers who had istration, he was promoting “Americanness” wherever been occupying the same land—the Palouse and Camas possible. This became most clear in his policy toward Prairies of the Pacific Northwest—for nearly 500 years. the American Indians. Nation-building always and every- U.S. government relations with the Grant resented the where demands conformity and Indians had never been consistent. destruction of local and individual They had gravitated between vicious postwar blood- differences. To overcome such divi- brutality (as had been the case under thirstiness of the sions, the builders must create a reli- Andrew Jackson) and respect and pro- gious type of myth and fundamental tection of Indian property (such as Radicals, few of symbols to rally the population and under Franklin Pierce).After the Civil whom had ever with which to defend the new nation War, under the Johnson and Grant with unrelenting force. The Recon- administrations, the U.S. government seen battle. struction government did all of this waged a fierce war against the Indians, without apology, and immigrants confiscating their best property, relegating what (especially Roman Catholics), blacks, and Indians suf- remained of the tribes to the worst land. The greatest fered intensely. “Nationalism in the sense of national atrocity committed by the federal government against greed has supplanted Liberalism,” E. L. Godkin, one of the Indians came just at the very end of Reconstruc- the great classical liberals of the day and the founder of tion. After a tragic misunderstanding, the military The Nation, noted in hindsight in 1900. “We hear no decided to round up, forcibly remove, and detain a siz- more of natural rights, but of inferior races, whose part able minority of the Nez Perce Indians, a tribe faith- it is to submit to the government of those whom God fully allied to America since 1805.When the Nez Perce has made their superiors.” Americans, Godkin argued, understandably resisted, the government spared neither had forsaken the Declaration of Independence as well time nor expense to defeat them. As The Nation as the Constitution. Further, he wrote,“The great party reported in 1877: which boasted that it had secured for the negro the rights of humanity and of citizenship now listens in How far the Indian insurrection on the Pacific Slope silence to proclamations of White Supremacy.” is for the present suppressed is not decided, but it Men who had fought valiantly on the battlefields of were well, while its lesson is fresh, to realize that the the Civil War must have asked themselves what, if any- Nez-Perces are not to blame for the expensive and thing, it had all meant.

THE FREEMAN: www.thefreemanonline.org 18 Civil War and the American Political Economy

BY JOSEPH R. STROMBERG

he task before us is to assess in largely material Political scientist Thomas Ferguson believes that the terms the political-economic system arising goals of money-driven coalitions explain the greater Tduring and after the American Civil War. Ideo- part of American political history. During the mid- logical issues existed, certainly, but much evidence sug- nineteenth century, railroads represented the biggest gests that pure idealism had a rather limited run. new business opportunity, provided large-scale govern- Antislavery was one of many themes generally serving ment subsidies (state and federal) were available. North- as the stalking horse for more practical causes. Slavery ern railroad promoters and land speculators, many itself was a colossal background fact constituting, as based in New England, worked both to get subsidies historian James L. Huston and remove obstacles. On the states, the biggest single capi- removal side, some of them, tal investment in the United like John Murray Forbes, States—an enormous mate- donated money to John rial interest uniting millions Brown’s good works in of people (not just in the Kansas apparently to put pres- South) through ties of inter- sure on southern opponents est, commerce, and senti- of internal improvements. ment. This interest stood The Republican Party athwart the political-eco- platform of May 1860 stated nomic ambitions of powerful the minimal program of a his- interests in the Northeast. torical bloc of northeastern We may think here of financial and manufacturing large “forces” at work, each interests and Midwestern and with limits and counter-ten- Railroads presented one of the main opportunities for northern western farmers. It began on mercantilists to use the Civil War to start or secure their fortunes. dencies. Where slavery is a high note of egalitarian and concerned, Americans shirked the job of finding a rea- republican ideology, aired some Free Soil, antislavery sonable solution. Offered one—disunion—some grievances, and thudded to rest with some practical rejected it, after which the blunt instrument of war per- matters: protective tariffs, homesteads (good for votes mitted another solution of sorts. As historian Howard but rather ambiguous), federally funded improvements Zinn writes: It was not the moral enormity of slavery of rivers and harbors (Great Lakes subsidies), and a but “the antitariff, antibank, anticapitalist aspect of slav- Pacific railroad. In addition, the party’s friendliness to ery which aroused the united opposition of the only central (national) banking was no secret. The Hamil- groups in the country with power to make war: the national political leaders and the controllers of the Joseph Stromberg ([email protected]) is an independent historian national economy.” and writer living in northern Georgia.

19 APRIL 2011 Joseph R. Stromberg tonian mercantilism of the platform was its central apparatus to lose territory, and ideological nationalism theme, if not quite its only one. Alas for its adherents, played their parts. they soon found a large bloc of their recent opponents War came, and Republican economic operators (and potential taxpayers) leaving the Union, beginning made the most of it. With so many of their former with South Carolina in December 1860. opponents assembled in another Congress in Mont- The opposition to northern mercantilism had gomery (later Richmond), Republican interest groups removed itself from the system. “Why fight to bring it conducted what historian Ludwell Johnson calls “a war back?” historians Thomas C. Cochran and William of economic and political aggrandizement.” Miller ask. Over the Secession Winter of 1860–1861 To fund and man the actual military struggle, Con- many northerners asked just that question. Matters gress provided numerous excise taxes, inflationary were, after all, rather complex. Key New York trading Greenback currency, bond issues (public debt), an interests were heavily involved with southern cotton— unprecedented income tax, tariffs, and mass conscrip- the petroleum of the mid-nineteenth century—and tion. Interestingly, most northern enterprisers doing New England manufacturers processed it. If the incom- well off the war (like Mellon, Morgan, Armour, and ing administration refused to accept secession and used Gould) paid substitutes and never went near a battle. force to retain states allegedly “in The costs of the war could indeed be rebellion,” war would come. Many shifted. For interests getting vested agreed that, generally speaking, war It seems clear that the under cover of the war, there were was never good for business as a economic interests also tariffs (dual-use, it seems), bank- whole. For some months hesitation ing acts, the Homestead Act (1862), reigned. represented by the the Contract Labor Law (1864), Republican Party Pacific (and other) subsidized railroad Ready for War projects complete with land-jobbing, t seems clear that key leaders of the were ready enough and of course the inevitable rivers Inorthern “developmental coalition” for war, provided and harbors acts. The resulting con- represented by the Republican Party centration of capital, active strike- were ready enough for war, provided other people bore breaking by federal troops in St. other people bore most of the costs.As Louis and Louisville, and (fairly typi- tax historian Charles Adams writes, most of the costs. cal) 50 percent profit rates on U.S. “The Wall Street boys and the men of war contracts round out this pretty commerce and business were determined to preserve picture. Transparent loopholes in the Homestead Act the Union for their economic gains”—a calculation ensured that land speculators and mining, timber, and made easier for them after the contrasting U.S. and oil companies got far more land than genuine settlers Confederate tariff schedules were released in early did. In addition, historian Jeffrey Rogers Hummel 1861. notes that the Morrill Act of 1862 granted considerable With the highest tariff rates at 47 percent (North) western land to eastern states partly in support of fed- and 12 percent (South), a massive shift of English and eral military education (more fodder for organized European trade to Norfolk, Charleston, Mobile, and land-jobbers). Intentionally or otherwise, the Fourteenth New Orleans seemed likely.U.S. revenues would plum- Amendment (1868) hastened, as historian Arthur A. met, and northern business imagined short-run (or Ekirch, Jr., writes,“the triumph of national big business longer) catastrophe. A good many more northern busi- under the gospel of the ‘due process clause.’’’ nessmen began to calculate the possible benefits of a It follows that a minimal definition of laissez faire as war. On cue, hesitating newspapers changed their line. understood by Republicans during and after the war Of course access to the Mississippi River (quite would run as follows: open-ended, active federal assist- unthreatened in reality), the reluctance of any State ance for connected businesses through tax money,

THE FREEMAN: www.thefreemanonline.org 20 Civil War and the American Political Economy favorable statutes and legal rulings, and other institu- if he will, and so remove the negro question—still we tional favors, with no corresponding obligation of these must grow cotton.” (As philanthropy this was perhaps a businesses toward society or even the State itself. So bit narrow.) And cotton was a hot item—confiscated, assisted, businessmen would make big bucks and accu- stolen, or gotten through trade with the enemy, for mulate capital, thereby greasing the wheels of progress which Lincoln personally issued the licenses. Out of and development. This was all the common good we $30 million worth of cotton seized under an 1863 law need ever expect—a cozy arrangement indeed, despite only 10 percent actually reached the U.S. Treasury. conflicts and divisions already visible within the Another $70 million in cotton was simply “stolen by Republican machinery. Republican appointees,” as Wilson notes. Historian Clyde Wilson notes that for Republicans In any case, the war was not inexpensive. Claudia D. “the revolution . . . was the point” and finds it odd that Goldin and Frank D. Lewis estimate direct war costs scholars fully informed on wartime and postwar cor- in terms of expenditures, lost wages, and more at ruption “imply that it mysteriously appeared after Lin- $3,365,846,000 for the North and $3,285,900,000 for coln’s death, and somehow miss the obvious conclusion the South. In Georgia alone General Sherman guessed that it was implicit in the goals of the Lincoln war that of $100 million in property destroyed by his forces, party.” Lincoln’s first secretary of war, Simon Cameron, 80 percent was “simple waste and destruction” and not Pennsylvania iron manufacturer and a matter of military necessity. For the Republican political boss, oversaw South as a whole, estimated wealth many a dodgy deal. Lincoln himself One historian found fell between 1861 and 1865 by about knew his associates quite well and profiteering and fraud 40 percent—not counting the value joked that at least Cameron “wouldn’t of slave “property.” Hummel gives a steal a red-hot stove.” Small wonder, “so pervasive that figure of 50,000 for civilian deaths in then, that Ludwell Johnson finds prof- the South, presumably of all races, iteering and fraud “so pervasive that they seemed to be genders, and conditions. Of southern they seemed to be of the very essence of the very essence white males aged 18 to 45, 18-25 of the Northern war effort.” percent had been killed. Johnson sees northern wartime of the Northern practice with regard to southern war effort.” Reorganized Production property as a policy of “redeeming the ounting Reconstruction as a South by stealing it.” Under vague Cpolitical continuation of the doctrines of “war powers” and the like, the administra- war, we may now survey the political-economic struc- tion quickly moved to confiscate “rebel” property for- ture yielded by the struggle. Here the old debate about feited for withdrawal of “allegiance” owed. In occupied whether the war retarded or accelerated American Confederate territory the U.S. government created spe- industrialization is of little interest. Mere questions of cial tax districts whose funny auctions of “abandoned” productivity (or output per square worker) matter less property attracted insider bidders with advance infor- than how production was reorganized and who bene- mation.The New England Emigrant Aid Company—a fited from any changes. In Hummel’s view the wartime land company previously active in Kansas, doing busi- illusion of prosperity and full employment cannot sur- ness under a philanthropic veneer—set its sights on vive the fact that wages fell, in real terms, by one-third. conquered parts of Florida. Here it would make money In the end, he concludes, the war retarded real growth; while sharing the bounty of New England civilization. indeed, there was a waste of roughly five years’ accumu- Edward Atkinson, an antislavery textile manufacturer lation of wealth.War contracts had not made up for lost from Massachusetts, took an interest in the Florida southern markets. project, writing to a colleague,“If he [the former slave] In this new economy railroads were both cause and refused to work, let him starve and exterminate himself effect. Organized as much for land speculation as for

21 APRIL 2011 Joseph R. Stromberg transportation, subsidized railroads gave early signs of tant to the Assistant Secretary of War in charge of mili- having far exceeded demand; in other words, railroads tary transport.” If there indeed were Robber Barons, represented massive overinvestment. Yet subsidized they got their start in the war. transportation was the key lever of the post-1865 There were various tensions in the Republican American economy.William Appleman Williams writes developmental bloc. Some New Englanders, for exam- that the demand for railroad regulation was not social- ple, favored lower tariffs and even dared hope that party ist, but merely applied “[Adam] Smith’s argument regulars might steal a little less at a time. According to against mercantilist joint-stock companies to the rail- historian Williams, the Radical wing stood for infla- road corporations of their own time.” Railroads partic- tionary currency, high tariffs, and holding the southern ularly required large-scale bureaucratic organization. states as “a new frontier” for Yankee enterprise. The modern corporate form served them well, and In political scientist Richard Franklin Bensel’s view, their short-run success strengthened the corporate a Republican-led northern developmental coalition of form.As Peter N. Carroll and David W.Noble observe, capitalists, financiers, and farmers successfully imposed a the railroad corporation “patterned itself on the Union single market and commercial code on the entire army, the first major public bureaucracy.” American federation through neomercantilist activism. Along with increased corporate organization came The war saw the emergence of a powerful new class of concentration of capital reinforced by the details of financiers in New York City.After 1865 much of their wartime contracts and favored by the tax structure. No money went into railroads as they worked to remove less a libertarian than Roy A. Childs, Greenback currency from circulation Jr., wrote in 1971 that “much of the from 1870 on. Here they broke with concentration of economic power If there indeed were the Radical Republicans. Bankers which was apparent during the 1870s Robber Barons, they preferred to control any expansion of was the result of massive state aid credit and wanted their loans repaid immediately before, during, and after got their start during in dollars of equal or greater value the Civil War....”Further, in the the war. than those they had lent. Deflation decades after the war, this led, as Willis suited them.The Republican capital- J. Ballinger noted in 1946, to an ist-and-farmer alliance may have imbalance in favor of savings invested in fixed capital lasted as long as it did only because a generous and (“oversaving”). (This spawned from the 1880s forward expanding pension program for Union veterans partly much discussion of “oversaving” and “overproduction,” offset what Midwestern and western farmers lost with overseas economic empire as a proposed solution.) through high tariffs. (A qualified veteran typically got about a third of the average workingman’s wages for a A New Industrial Order year. Here was America’s first major welfare program.) artime corruption was only a small part of the Historian Gabriel Kolko notes rapid expansion and Wstory. It is more important that, as Richard F. accumulation of capital from 1871 to 1899. Because of Kaufman observes, the Civil War brought about a “new recurring upper-class panics over labor organization, industrial order . . . composed largely of war profiteers “violence was used in America more than in any other and others who grew rich on government contracts . . . country that bothered preserving the façade of democ- and . . . were able to influence the economic recon- racy”—and the violence was always disproportionate. struction.” Further, important and persisting capitalist The Civil War had stimulated manufacturing, railroad fortunes arose from wartime contracts: “J. P. Morgan, investment and building, and mining. Big enterprises Philip Armour, Clement Studebaker, John Wanamaker, rested on family alliances and nepotism. As a result, Cornelius Vanderbilt, and the du Ponts had all been Kolko writes, the idea of social consensus “wholly government contractors. Andrew Carnegie got rich obscures the real basis of authority in the United States speculating in bridge and rail construction while assis- society since the Civil War—law and the threat of

THE FREEMAN: www.thefreemanonline.org 22 Civil War and the American Political Economy repression.” Alas for the members of the ruling class, to fund Union army pensions—29 percent of the fed- they so successfully broke “the possibility of opposition eral budget by the mid-’70s. Here again was a net out- [that] they also destroyed as well, social cohesion and flow northward, while the same southerners paid state community.” taxes for Confederate pensions. Not surprisingly, rail- In a polemic written in 1937,Texas historian Walter road bonds issued by Republican governments in the Prescott Webb made a case for the West and South South during Reconstruction had been “the occasion against the North. Railroads, built only in the North of most political fraud below the Mason-Dixon line.” between 1860 and 1875, killed off southern river traf- It can be argued that in the end agriculture always fic. The North enjoyed major bounties: high tariffs, pays for industrialization. Bensel is quite clear: “The Union army pensions (seven-eighths of which went to [American] developmental engine left the southern the North—a way of spending the “surplus” raised by periphery to shoulder almost the entire cost of indus- high tariffs), northern ownership of most industrial trialization. . . . The periphery was drained while the patents, and finally, the modern corporation as such— core prospered.”This means that independence was a with 200 majors in 1937, all based in serious economic option whose the North. This financial-capitalist advantages for the South Bensel “feudalism” was sustained by the Ground down by briefly discusses. But as historian Supreme Court’s dogma of corporate tariffs and northern Eugene D. Genovese writes, “Since personhood (1885, 1886, 1889).Antic- abolition occurred under Northern ipating Bensel’s analysis by 50 years, business control of guns and under the program of a Webb noted how Union army pen- most patents, the victorious, predatory outside bour- sions ($8 billion, all told) compensated geoisie, instead of under internal the West for what it lost on the tariff. South remained bourgeois auspices, the colonial Historian C. Vann Woodward trapped as an bondage of the economy was pre- notes that, ground down by tariffs served, but the South’s political and northern business control of exporter of raw independence was lost.” most patents, the South remained Under Republican auspices the trapped as an exporter of raw materi- materials. federal government asserted com- als. Along with the famous freight- plete primacy over economic regula- rate differential (which lasted into the 1940s), these tion, while advancing a big-business bloc allied to its levers worked as effectively as the British Board of party.This was in the essential Federalist tradition.“Lib- Trade in reducing the southern economy to colonial eral reform” of the 1870s was partly rooted in bour- status. As Hummel writes, national banking rules “sti- geois panic over imaginary Paris Communes about to fled recovery of the South’s credit markets.” Nor was arise on our shores. One result was attempts in the North there cash in small denominations. Here Hummel fills to disenfranchise “unreliable” voting blocs of workers in some gaps in Woodward’s argument. (On the orien- and immigrants. Here were the beginnings of “de-par- tation of banking law toward the convenience and ticipation”—the conscious project of removing the profit of northeastern financiers, Bensel’s Yankee people from popular government in favor of permanent Leviathan account reinforces Hummel’s Emancipating bureaucratic management intended to be both effective Slaves, Enslaving Free Men.) Further, Hummel notes, and inexpensive. Here was America’s answer to Ben- southerners were taxed to pay interest on the national thamism. Our troubles did not begin (or end) with the debt, nearly all of which went to northern parties and Progressive Era.

23 APRIL 2011 Our Economic Past

Maps and Power

BY STEPHEN DAVIES

he modern world (meaning since the later empires of antiquity during the sixth and seventh cen- eighteenth century) is different in several pro- turies. Such maps began to reappear during the late Tfound ways from earlier times. One of the most Renaissance, initially in Italy, latterly in the Nether- important of these is the nature and power of govern- lands, Germany, France, and the United Kingdom. ment. Modern States can do things beyond the reach of Before the creation of a cadastral survey this knowl- earlier ones, however large or aggressive.This expanded edge existed in the form of dispersed and tacit knowl- capacity is a feature of modern government whether it edge, scattered among many people and only accessible is actually used or not: It is always there as a possibility. to those in a locality and then only partially. In this sit- The kind of extensive government we have now, the uation many kinds of action by rulers, particularly tax- range of activities it undertakes, and the degree of con- ation but also control and regulation of the physical trol and regulation exercised by political elites over environment and people’s use of the land, were difficult everyday human affairs were simply not or even impossible. possible in earlier times. Whether or Cadastral surveys do not capture all not this capacity is used depends on this dispersed knowledge or even the beliefs, ideas, and interests, but the greater part of it. They do, however, capacity itself has a different source. It capture a significant part in a way that derives from “technique,” a category makes it simplified, standardized, and that includes technology but has a systematically organized or structured. wider meaning. Above all it includes This enormously increases the ability ways of organizing and understanding of rulers to act on society and control information. or direct human interactions, and so in In this context a key technique and turn to have great influence on the one of the most important foundations outcome of those interactions, whether of the modern State is the map. The intentionally or unintentionally. This apparently neutral art of cartography is point is explored by James C. Scott in actually one of the main sources of his work Seeing Like a State. modern political power. The most important aspect of The history of the United States shows this last this is the cadastral map or survey. Unlike a topograph- point clearly. One of the first things undertaken by the ical map, it does not simply record the natural features government of the newly established republic in 1785 of the terrain. It also captures, in a radically simplified was a cadastral survey of the Northwest territories, and systematized form, a huge amount of knowledge of which was subsequently expanded to all of the territory such matters as ownership, rights and entitlements, val- of the United States apart from the original colonies. ues, social relations, and obligations. This was the Public Lands Survey System, which has become a model for similar systems in many parts of Cadastral Surveys the world. The initial idea was to use this capacity to aps and surveys of this kind were found to some Mdegree in the ancient world but they disappeared Stephen Davies ([email protected]) is academic director at the Institute of with much else of the governing power of the great Economic Affairs in London.

THE FREEMAN: www.thefreemanonline.org 24 Maps and Power create a society of independent freeholders. However, it United States. Census-taking has a long history (as most has been used both consciously and unintentionally to of us will gather from reading the Gospels), but again it very different ends. became much more systematic, extensive, and impor- The very act of capturing information in this way tant from the early modern period on. Today a lot of and the power it gave to rulers to direct and control what government does depends on the accuracy and the use of the land by private individuals and corpora- completeness of the census, which is why taking part in tions meant that decisions made by the political class it is enforced by such stringent penalties. now had a huge influence on the course of settlement and development. All kinds of possibilities were Limits of Knowledge excluded while others could be encouraged or owever, this also shows the ultimate limits of such directed.Thus the decision to divide the land surveyed Htechniques and the modern State that is based on into regular rectangular blocks produced a particular them. Governments around the world today face kind of urban settlement and development that would increasing problems of noncompliance with and resist- not have occurred had the dispersed local knowledge ance to the census. Even if these difficulties can be worked through informal institutions overcome, there is an even more basic and private agreement.A whole range problem that affects maps and surveys of government functions, in particular The very act even more. Although a cadastral sur- the control and regulation of much of capturing vey is a powerful way of capturing economic activity, is only possible and distilling tacit knowledge, it is because of the information captured information through inevitably imperfect. Much of the in the maps and surveys. local, dispersed knowledge is never Scott indicates that maps of this cadastral surveys gave captured.What is captured is radically kind, by capturing a simplified version rulers new power to simplified and much of the subtlety of the tacit knowledge of the local and nuance are lost. This does not population, enable remote outsiders to direct and control matter so much if the government have at least some knowledge of what the use of land. activity is relatively simple. However, the situation is on the ground (liter- complex activities will simply not ally). This opens up a range of other- work. wise unavailable options for them. For example, it In other words, although modern techniques give makes possible large-scale urban planning and redevel- rulers and elites enormous powers that their predeces- opment of the kind that became common in the sors did not have, they are still limited in what they can United States after World War II. Instead of the sponta- do effectively by the nature of knowledge and the lim- neous urban development described by Jane Jacobs, we its of the tools and techniques at their disposal. Today have had the large-scale planned reconstruction advo- large organizations—private ones, too, but above all cated by her arch-nemesis Robert Moses. As Scott government—are operating at or beyond the limits of points out, this technique has also made possible cata- their capacity in terms of what their foundational tech- strophic social “experiments” such as Soviet collec- niques will allow them to do effectively.This is one of tivization of agriculture and the Tanzanian “Ujaama” the main reasons many programs and agencies are seen system of land reform. to be simply not working, and it is also why so many Maps and surveys of this kind are not the only tech- politicians and officials experience not power but frus- niques that have aided the transformation of govern- tration.Time to simplify and take a more modest view ment, of course.Another, equally important, is the kind of what things like maps make possible in the modern of accurate decennial census established in 1790 in the world.

25 APRIL 2011 The Question of Slavery

BY JEFFREY ROGERS HUMMEL

lavery can neither fully explain nor ultimately admits of any doubt. Historians would be hard pressed justify the American Civil War.This realization is to find any causal claim in all human history for which Sunfortunately obscured because most scholars the empirical support is more overwhelming. and buffs alike have usually sought a single cause for But when historians go on to claim that secession those four years of soul-wrenching conflict. The early made war inevitable, they embrace a common but log- nationalist interpretation, put forward by historian ically indefensible leap. Only a few prominent neo- James Ford Rhodes, blamed one factor and one factor abolitionist historians, such as Eric Foner and Kenneth only: slavery. Slavery induced the southern states to Stampp, have recognized that Civil War causation secede, and Rhodes unreflectively assumed that the breaks down into at least two questions. Why did the national government had no option but to suppress southern states want to leave the Union? And why did them. Later revisionist the northern states historians, such as Avery refuse to let them go? O. Craven and James G. Just because slavery is Randall, contended that the answer to the slavery was dying of its first, it does not neces- own accord and attrib- sarily follow that it uted the war instead to answers the second. a “blundering genera- These two questions tion” of politicians, are often conflated manipulated by irre- because so many sponsible extremists and Americans approach fanatics on both sides. the Civil War with an The Progressive per- implicit and unchal- Slavery was behind the South’s secession. It wasn’t behind the North’s violent spective of Charles response, however. lenged prejudice in Beard also denied slav- favor of national unity. ery’s role and replaced it with economic considerations. Yet secession and war are distinct issues. For seces- Then, beginning in the 1950s, a neo-abolitionist sion to lead to war, northerners had to be determined school, which today dominates Civil War scholarship, to hold the Union together with violence. And schol- reaffirmed the centrality of slavery. arly research has demonstrated that slavery had very lit- Yet while these competing interpretations have tle, if anything, to do with that determination, either on waxed and waned, the underlying quest for the one overriding cause continues unabated.What southerners Jeffrey Rogers Hummel ([email protected]) is an associate professor of economics at San Jose State University. He is the author of called their “peculiar institution” was indeed the funda- Emancipating Slaves, Enslaving Free Men:A History of the mental cause of secession. That proposition no longer American Civil War.

THE FREEMAN: www.thefreemanonline.org 26 The Question of Slavery the part of President Abraham Lincoln or of the north- of disunion. It allowed northerners to take steps against ern public generally. slavery in a distant sphere while honoring their consti- The sole northern group that had always made tutional obligation to leave the local institutions of the opposition to slavery their primary goal was the aboli- southern states alone. Here moreover was an antislavery tionists. They burst on the national landscape in the position that could be made consistent with racism. 1830s, demanding the immediate emancipation of all Keeping slaves out of the territories was an excellent slaves, without any compensation to slaveholders, and way to keep blacks out altogether. Abolitionists had full political rights for all blacks. Less well known is that failed to win over the North because they had put their they were also often advocates of disunion. The most opposition to slavery ahead of the Union. Republicans prominent and vitriolic of these abolitionists, William succeeded because they put the Union ahead of their Lloyd Garrison, went so far as to denounce the Consti- opposition to slavery. tution for its proslavery clauses as “a covenant with death and an agreement with hell.” During one Fourth Republicans and the Slave Power of July celebration he publicly burned a copy,proclaim- hat Republicans promised not to interfere with ing: “So perish all compromises with tyranny!” He Tthe peculiar institution in the existing states—to believed that, if anything, the North should secede.That the point of supporting in 1861 a proposed unamendable way it would get out from under the Constitution’s thirteenth amendment that would have explicitly guar- fugitive-slave clause and become a anteed slavery—goes without saying. haven for runaway slaves. The slogan, It is not as well- Even the platform of the abolitionist “No Union with Slave-Holders” Liberty Party, which conducted pres- appeared on the masthead of Garri- known that idential campaigns in 1840 and 1844, son’s weekly paper, The Liberator, for had respected this constitutional con- years. abolitionists were straint. But there were other constitu- Thus passionately opposing slavery often advocates tionally permissible steps that the and simultaneously favoring secession central government could have taken are quite consistent. And Garrison’s of disunion. and yet the Republican platform strategic vision was hardly unique to eschewed, such as abolishing slavery him. Nearly all of slavery’s most radical opponents ini- in the District of Columbia and prohibiting the inter- tially shared it, including Frederick Douglass, the free state and coastal slave trade. Lincoln even promised in black leader who in 1838 had escaped from slavery in his first inaugural to enforce the fugitive slave law, so Maryland, and Wendell Philips, a wealthy lawyer and hated among many northerners. Boston Brahmin. Needless to say, this disrespect for the The plain fact that Lincoln was not an abolitionist is Union did not go over well in the free states. Aboli- often cited by those who wish to deny that the seced- tionist lecturers, presses, and property were frequent ing states were concerned about slavery’s future. The targets of hostile mobs throughout the 1830s. Nor did observation has become commonplace today that spe- all abolitionists support disunion. Many eventually cial interests inordinately influence government policy. would turn away from Garrison to take up political This has actually always been the case; it is just less activity in a quest for respectability and success. As the noticeable or objectionable when government is small antislavery crusade split into doctrinal factions, the and unobtrusive. One of the most powerful special resort to the ballot box would bring both a broadened interests during the pre-Civil War period was what appeal and a dilution of purity. abolitionists and Republicans referred to as the “Slave The Republican Party eventually triumphed by Power.” Despite constituting only one-quarter of reducing political antislavery to its lowest common southern families in 1860, slaveholders had dominated denominator. The party’s main position, preventing American politics both in the southern states and at the slavery’s extension into new territories, carried no taint national level.

27 APRIL 2011 Jeffrey Rogers Hummel

Then in 1860 a northerner who had not carried a “the building up in every Southern State of a Black single slave state, and in ten of them did not get a single Republican party, the ally and stipendiary of Northern recorded vote, was elected president. Nationwide, Lin- fanaticism, to become in a few short years the open coln received only 40 percent of the popular vote.Yet advocate of abolition.”Already a Missouri congressman, he won with the electoral votes of every free state Frank Blair, Jr., whose family had long been powerful except New Jersey, where he got four out of the state’s within Democratic circles, had gone over to the seven. The contest in the South—mainly between the Republicans and delivered 10 percent of that border Southern Democratic and Constitutional Union candi- slave state’s presidential vote to Lincoln. dates—had proved utterly irrelevant. Even if the votes The Enquirer also understood that the eventual “ruin of all Lincoln’s opponents had been combined, he still of every Southern State by the destruction of negro would have won. Nothing could make the looming labor” would be accomplished through the increase in political impotence of the slave states more stark. fugitive slaves after tampering with the peculiar institu- Almost overnight a special interest that had dictated tion in the upper South. “By gradual and insidious policy in Congress, to the executive, on the Supreme approach, under the fostering hand of federal power, Court, and usually in both major parties was politically Abolitionism will grow up in every border Southern dispossessed. State, converting them into free Southern fire-eaters recognized States, then into ‘cities of refuge’ for that a major faction within the Almost overnight a runaway negroes from the gulf States. Republican Party did favor further special interest that ...There are no consequences that steps to divorce the general govern- can follow, even forcible disunion, ment from slavery. Lincoln appointed had dictated policy more disastrous to the future prosper- to his cabinet at least two of these ity of the people of Virginia.” radical Republicans: William Henry throughout the Seward of New York as secretary of federal government Nothing to Lose state and Salmon Portland Chase of ecession was risky. But with Ohio as secretary of the treasury. was politically SRepublicans in control of the Even if the radicals did not immedi- dispossessed. national government, many southern ately have their way, the Republican whites felt they had nothing to lose. Party now controlled federal patron- Slavery seemed eventually doomed age, the postal service, military posts, and judicial otherwise. Slaveholders could better depend on an appointments. Lincoln could put Republicans, aboli- independent central authority to provide protections tionists, and even free blacks into public office all over against runaways by policing the new borders. As one the South.That a national administration—for the first Georgian explained in a letter to his representative in time—morally condemned the peculiar institution Congress, Alexander H. Stephens, independence would might in and of itself trigger slave resistance. And the permit southerners to erect “an impassable wall Republican commitment to a territorial policy that the between the North & the South so that negroes could Supreme Court had already declared unconstitutional not pass over to the North or an abolitionist come to in the infamous Dred Scott decision showed that slave- the South to annoy us any more.” holders could not rely on paper guarantees. Other southerners disagreed, however, including The editors of the Richmond Enquirer described how Stephens himself. Although he would become the Lincoln’s victory must in the long term destroy slavery. Confederacy’s vice president, he opposed his state’s “Upon the accession of Lincoln to power, we would secession, judging “slavery more secure in the Union apprehend no direct act of violence against negro prop- than out of it.”By leaving the Union, southerners were erty,” the editors conceded. But “the use of federal abandoning the Constitution’s protections for slavery office, contracts, power and patronage” would result in and possibly unleashing the very plague of runaways

THE FREEMAN: www.thefreemanonline.org 28 The Question of Slavery they feared. Indeed, Lincoln would warn in his first Lincoln’s determination received the hearty applause inaugural that the seceding states could no longer rely of powerful northern interests. Westerners feared the on this national subsidy. The withdrawal of the deep closing of the lower Mississippi River, even though the South’s representatives from Congress would make Confederate government promised free navigation. free-state control over the national government more Eastern manufacturers worried that they would lose pronounced than ever. The Republicans would have a southern markets to European competitors because of free hand in the territories, whereas the economic via- the Confederacy’s free-trade policy.Yankee merchants bility of a small, independent slave republic was in and shipbuilders faced an end to a monopoly on the doubt, especially if it could not expand. Even without South’s coastal trade that the government granted to resorting to war, Republicans could have implemented U.S. vessels. Holders of government securities were a set of policies that would have brought the peculiar edgy about the Union’s loss of tariff revenue. But in the institution to an end within an independent Confeder- final analysis, American nationalism proved to be the acy, certainly by the turn of the century, if Lincoln had most compelling opponent of southern independence. been purely interested in ending slav- Republicans had promised northern ery rather than preserving the Union. Even without war, voters that they could have both anti- As Lincoln took the oath of office, slavery and Union. Now that the the Union still contained eight slave Republicans could Union was imperiled, the Republican states, more than had left. Secession Party had to take decisive action or had so far failed in the upper South, have implemented face political oblivion. where the black population was less policies that would The deep South’s refusal to abide dense. Even in a few states of the lower by the outcome of a fair and legal South, disunion had triumphed by have ended slavery in election struck northern voters as a only narrow margins. Some northern- the Confederacy, if selfish betrayal of the nation’s unique ers were prepared to allow the new mission. “Plainly the central idea of Gulf Coast Confederacy to depart in Lincoln had been secession is the essence of anarchy,” peace. Militant abolitionists such as interested in ending argued Lincoln. Indeed, his inaugural Garrison were mainly concerned that equated secession with despotism. “A South Carolina’s secession was just a slavery rather than majority held in restraint by constitu- bluff. Even Horace Greeley’s staunchly tional checks and limitations, and Republican New York Tribune had preserving the Union. always changing easily with deliberate briefly come out for letting the cotton changes of popular opinions and sen- states go, hoping “never to live in a republic whereof timents, is the only true sovereign of a free people. one section is pinned to the residue by bayonets.” Whoever rejects it does, of necessity, fly to anarchy or despotism,” because “unanimity is impossible; the rule Lincoln’s Determination of a minority, as a permanent arrangement, is wholly incoln, on the other hand, was determined to pre- inadmissible.” Worse still, the successful breakaway of Lserve the Union by force if necessary. Slavery’s the lower South raised the possibility of other regions abolition did not figure at all in either his avowed justi- separating. fications or his private motivations.“I hold that . . . the Yet Lincoln also wished to preserve the loyalty of Union of these States is perpetual,” the President the upper South. Southern unionists made clear their asserted in his first inaugural address, cautiously reveal- conviction that no state should be forced to remain. He ing this unyielding posture. “The Union is unbroken, therefore initially settled on a defensive strategy to and to the extent of my ability I shall take care, as the uphold national authority. Until the Confederate bom- Constitution itself expressly enjoins upon me, that the bardment of Fort Sumter on April 12, 1861, the Presi- laws of the Union be faithfully executed in all States.” dent could not have counted on enthusiastic northern

29 APRIL 2011 Jeffrey Rogers Hummel support for an appeal to arms. The attack, however, the part of white southerners. After the war he would electrified the free states, as Lincoln issued his procla- write that the North had fought for the principle that mation calling up the state militias.The President’s call “men may rightfully be compelled to submit to, and garnered an opposite reaction in the slave states. It support a government they do not want; and that wiped out any lingering unionism in those that had resistance, on their part, makes them criminals and trai- already seceded. Still more decisive was its impact on tors.”“Political slavery” had taken the place of “chattel the wavering states of the upper South.Virginia, North slavery.” Carolina, Tennessee, and Arkansas all promptly trans- Lincoln meanwhile was drifting toward the Radical ferred their allegiance to the Confederate States of position. He publicly warned that he would take what- America. At a single stroke of the pen, Lincoln had ever action he thought necessary to win the war. “My more than doubled the Confederacy’s white population paramount object in this struggle,” the President and material resources. declared in his oft-quoted reply to Horace Greeley,“is Once war got underway Lincoln continued to insist to save the Union, and is not either to save or to destroy he wanted only to preserve the Union, and the newly slavery. If I could save the Union without freeing any elected Congress confirmed this war aim shortly after it slave I would do it, and if I could save it by freeing all convened. The Crittenden-Johnson resolutions of July the slaves I would do it; and if I could save it by freeing 1861 denied that the government was some and leaving others alone I waging war “in any spirit of oppres- would also do that. What I do about sion, nor for any purpose of conquest Only a handful of slavery, and the colored race, I do or subjugation, nor purpose of over- because I believe it helps to save the throwing or interfering with the slavery opponents Union; and what I forbear, I forbear rights or established institutions of remained true to because I do not believe it would help those States,” but only “to defend and save the Union.”Lincoln added, how- maintain the supremacy of the Con- their original antiwar ever, that “I have here stated my pur- stitution and to preserve the Union.” principles. pose according to my view of official In other words, the resolutions prom- duty; and I intend no modification of ised to leave slavery untouched in the my oft-expressed personal wish that all seceding states. men every where could be free.” When the preliminary Emancipation Proclamation Political Slavery over Chattel Slavery appeared on September 22, 1862, it was framed as a war t is true that northern blacks, abolitionists, and Rad- measure. It still gave the seceding states until the end of Iical Republicans, from the first salvo, did seek a cru- the year to cease their rebellion and retain their slaves. sade against slavery.The prospect of wartime abolition The proclamation did not emancipate any of the slaves seduced even Garrison and most of his militant fol- in the four border states that had not seceded. Nor did lowers into abandoning disunion. Only a handful of it emancipate any slaves in many of the sections of the slavery opponents remained true to their original Confederacy that the Union armies had already recon- principles. Among them was Boston freethinker quered, including all of Tennessee and large portions of Lysander Spooner, an abolitionist so enthusiastic about Virginia and Louisiana.This anomaly inspired a cynical John Brown’s raid on Harper’s Ferry that he had retort from Secretary of State Seward. “We show our earnestly proposed kidnapping the governor of Vir- sympathy with slavery,” he stated the day after the final ginia to hold as hostage in exchange for Brown’s life. proclamation was issued,“by emancipating slaves where But although never a pacifist, Spooner saw absolutely we cannot reach them, and holding them in bondage no moral analogy between slaves violently rising up to where we can set them free.” secure their liberty and the central government vio- Of course, northerners came around by the war’s lently crushing aspirations for self-determination on end to demanding that slavery’s elimination be com-

THE FREEMAN: www.thefreemanonline.org 30 The Question of Slavery plete and permanent. A little more than two months When in the mid-1990s Quebec held a referendum before General Robert E. Lee’s surrender at Appomat- on whether to secede from Canada, the Canadian cen- tox, two-thirds of Congress passed a new, proposed tral government disavowed the use of force to prevent thirteenth amendment abolishing slavery within the the province’s departure. This incident contains some United States forever. Emancipation was therefore a striking parallels to southern secession because the pop- consequence of the Civil War. But it was a consequence ulation of Canada at the time was about 30 million, unintended at the outset, and played no discernible role slightly less than the U.S. population in 1860. Quebec in the northern refusal to let the lower South go in had seven million inhabitants, making it smaller than peace. the Confederacy became (about nine million) after Lincoln’s call for troops but larger than the Gulf Coast Yankee Civil Religion Confederacy (about five million) at the time of Lin- lthough mainstream historians will find no major coln’s inauguration. Asurprises in the above account, they nonetheless The southern states had no right to self-determina- seem oblivious to how instrumental in bringing on the tion because of slavery,runs the retort. But black slavery carnage was northern worship of the was practiced in every one of Britain’s Union as absolute deity.Why was pre- Most arguments North American colonies, from New serving the nation’s existing bound- Hampshire to Georgia, at the opening aries such a big deal? Although marshaled to deny of the War for Independence. More- historians have thoroughly researched the legitimacy of over,Virginia’s royal governor issued a southern motives for secession, they proclamation on November 7, 1775, have not done as good a job with southern independ- similar to Lincoln’s Emancipation northern motives. Nationalist bias ele- Proclamation, freeing any slave who vates perpetual union to an automatic ence in 1861 apply would bear arms against the rebel- and unquestioned standard. Exactly with almost equal lious colonists. At least 18,000 freed how and why northerners came to blacks accompanied British forces as embrace this standard has never been force against they evacuated Savannah, Charleston, satisfactorily answered. Yet somehow American independ- New York City, and other places at the mystical identification of Union the end of the earlier war. South Car- with Liberty had evolved into such a ence in 1776. olina, the only colony with a slave cornerstone of the Yankee civil reli- majority when independence was gion that it was impervious to all reason. declared, lost as much as one-third of its black popula- Peaceful secession has become a fixture of the tion to flight or migration. In short, most arguments modern world. Even before America’s war over seces- marshaled to deny the legitimacy of southern inde- sion, Belgium in 1830 had consummated a separa- pendence in 1861 apply with almost equal force against tion from the Netherlands that was almost entirely American independence in 1776. without bloodshed. Norway seceded from Denmark As an excuse for civil war, maintaining the State’s in 1905 and Singapore from Malaysia in 1965. Since territorial integrity is bankrupt and reprehensible. Yet then, we have witnessed, among others, the peaceful that is the only excuse that Lincoln and the Republican separation of the Czech Republic and Slovakia and Party put forward. Slavery, to repeat, neither explains the peaceful breakup of the totalitarian Soviet Union nor justifies northern suppression of secession. In the into more than a dozen independent nations, includ- final analysis we must accept the verdict of Moncure ing Russia. So we ought to be able to view Lincoln’s Daniel Conway, another abolitionist, self-exiled from justifications for the Civil War with a healthy dose of his home in Virginia. The Union war effort, he sadly skepticism. concluded, reduces to “mere manslaughter.”

31 APRIL 2011 Peripatetics

The Importance of Subjectivism in Economics

BY SHELDON RICHMAN

fter many years, Frédéric Bastiat remains a hero remarks that we are insensible to the social suffering of to libertarians. No mystery there. He made the our fellow men. Although the suffering is less in the Acase for freedom and punctured the arguments present imperfect state of our society than in the state of for state socialism with clarity and imagination. He isolation, it does not follow that we do not seek whole- spoke to lay readers with great effect. heartedly for further progress to make it less and less.” Bastiat loved the market economy, and badly He wished to emphasize the importance of free wanted it to blossom in full—in France and every- exchange for human flourishing. In chapter four he where else. When he described the blessings of free- wrote: dom, his benevolence shined forth. Free markets can raise living standards and enable everyone to have bet- Exchange is political economy. It is society itself, ter lives; therefore stifling freedom is unjust and tragic. for it is impossible to conceive of society without The reverse of Bastiat’s benevolence is his indignation exchange, or exchange without society....For man, at the deprivation that results from interference with isolation means death. . . . the market process. By means of exchange, men attain He begins his book Economic Har- Bastiat was not naive. the same satisfaction with less effort, monies by pointing out the economic because the mutual services they ren- benefits of living in society: He knew he was not der one another yield them a larger proportion of gratuitous utility. It is impossible not to be struck in a fully free market. Therefore, the fewer obstacles an by the disproportion, truly incom- exchange encounters, the less effort mensurable, that exists between the satisfactions [a] it requires, the more readily men exchange. man derives from society and the satisfactions that he could provide for himself if he were reduced to How does trade deliver its benefits? his own resources. I make bold to say that in one day he consumes more things than he could produce Exchange produces two phenomena: the joining himself in ten centuries. of men’s forces and the diversification of their occu- What makes the phenomenon stranger still is that pations, or the division of labor. the same thing holds true for all other men. Every It is very clear that in many cases the combined one of the members of society has consumed a mil- force of several men is superior to the sum of their lion times more than he could have produced; yet individual separate forces. . . . no one has robbed anyone else. Now, the joining of men’s forces implies exchange.To gain their co-operation,they must have Bastiat was not naive. He knew he was not in a fully good reason to anticipate sharing in the satisfaction free market. He was well aware of the existence of priv- to be obtained. Each one by his efforts benefits the ilege: “Privilege implies someone to profit from it and others and in turn benefits by their efforts according someone to pay for it,” he wrote. Those who pay are to the terms of the bargain, which is exchange. worse off than they would be in the free market.“I trust that the reader will not conclude from the preceding Sheldon Richman ([email protected]) is the editor of The Freeman.

THE FREEMAN: www.thefreemanonline.org 32 The Importance of Subjectivism in Economics

But isn’t something missing from this account? This is perplexing. Clearly, the necessary double Indeed, there is: the subjectivist Austrian insight that inequality of value is not empirical or contingent. Con- individuals gain from trade per se.For an exchange to tra Bastiat, the double inequality explains quite a lot, take place, the two parties must assess the items traded and his questions all have easy answers. differently, with each party valuing what he is to receive Yet more perplexing still is Bastiat’s statement in more than what he is to give up. If that condition did not the same chapter: “The profit of the one is the profit hold, no exchange would occur. There must be what of the other.” This seems to imply what he just Murray Rothbard called a double inequality of value. It’s in denied. the logic of human action—the discipline Ludwig von Bastiat’s failure to grasp this point had consequences Mises christened praxeology.Bastiat, like his classical fore- for his debates with other economists. For example, he bears Smith and Ricardo, erroneously believed (at least and his fellow “left-free-market” advocate Pierre- explicitly) that people trade equal values and that some- Joseph Proudhon engaged in a lengthy debate over thing is wrong when unequal values are exchanged. whether interest on loans would exist in the free mar- Perhaps I am too hard on Bastiat. After all, he was ket or whether it was a privilege bestowed when gov- writing before 1850. Carl Menger did not publish Prin- ernment suppresses competition. Unfortunately, the ciples of Economics until 1871.Yet the Austrians were not debate suffers because neither Bastiat nor Proudhon the first to look at exchange strictly through subjec- fully and explicitly grasped the Condillac/Austrian tivist spectacles—that is, from the eco- point about the double inequality of nomic actors’ points of view. The Bastiat erroneously value. As Roderick Long explains in French philosopher Étienne Bonnot his priceless commentary on the de Condillac (1715–1780) did so a believed that people exchange: hundred years before Bastiat wrote: “The very fact that an exchange takes trade equal values and [E]ach one trips up his defense of place is proof that there must necessar- that something is his own position through an incon- ily be profit in it for both the contract- sistent grasp of the Austrian princi- ing parties; otherwise it would not be wrong when unequal ple of the “double inequality of made. Hence, every exchange repre- values are exchanged. value”; Proudhon embraces it, but sents two gains for humanity.” fails to apply it consistently, while Well, perhaps Bastiat was unaware Bastiat implicitly relies on it, but of Condillac’s argument. That is not the case. He explicitly rejects it. . . . reprints the quote above in his book and responds: Proudhon’s case against interest seems to depend crucially on his claim that all exchange must be of The explanation we owe to Condillac seems to equivalent values; so pointing out the incoherence me entirely insufficient and empirical, or rather it of this notion would be a telling reply. But Bastiat fails to explain anything at all. . . . cannot officially give this reply (though he comes tanta- The exchange represents two gains, you say. The lisingly close over and over throughout the debate) question is:Why and how? It results from the very fact because elsewhere—in his Economic Harmonies— that it takes place. But why does it take place? What Bastiat explicitly rejects the doctrine of double motives have induced the two men to make it take inequality of value. place? Does the exchange have in it a mysterious virtue, inherently beneficial and incapable of explanation? How frustrating! Bastiat has so much to teach. But We see how exchange . . . adds to our satisfac- here is one blind spot that kept him from being even tions. . . . [T]here is no trace of . . . the double and better. empirical profit alleged by Condillac.

33 APRIL 2011 Gold and Money

BY WARREN C. GIBSON

ast month we examined some propositions about recovery in which both inflation and interest rates gold as money, drawing from theory and history. dropped steadily. The Gold Commission was largely LThis month we ask whether and how gold might forgotten, though the U.S. Mint did get into the busi- once again serve a monetary function. ness of producing gold coins in a big way. Money of any sort, commodity-based or not, derives We have a crisis of a different sort at present, featuring its value in large part from what economists call a “net- unprecedented levels of public and private debt rather work effect.” Like a fax machine, whose value depends than inflation. In addition, global trade has advanced sig- largely on how many other people have fax machines, nificantly and worldwide financial markets are tightly we value money because other people value it.We feel linked. Many new financial innovations have emerged confident our money will buy us what we need tomor- since 1980, not just the sophisticated derivatives that row. A strong network effect means that something were at the center of the 2008 crisis, but also innovations drastic has to happen before people will give up their such as exchange-traded funds (ETFs) that are avail- familiar form of money. able to everyone.The euro is in Something drastic was hap- trouble, and there is a real possi- pening when U.S. Rep. Ron bility that a Chinese property Paul’s Gold Commission was set bubble is about to burst. Gold is up in 1979. By the time the above $1,400 an ounce, up from commission’s report was issued $250 a decade ago, while silver in 1980, inflation had reached has advanced from about $5 to alarming levels: The consumer over $30 an ounce. price index was at 14 percent and rising.The prime rate Ron Paul is no longer a lone voice calling for a was over 20 percent, and in 1980 silver exploded to $50 return to gold. Robert Zoellick, president of the World an ounce and gold surpassed $800 (about $2,300 in Bank, astonished everybody recently when he won- today’s dollars). Bestselling books urged people to buy dered out loud whether gold should again play a mon- gold, silver, diamonds, firearms, and rural hideouts. etary role. Although he drew praise from some We now know that inflation was peaking and that quarters, most comments were dismissive. Berkeley the silver price spike was a fluke caused by a failed economist Brad DeLong, for example, nominated attempt to corner the silver market. But none of this Zoellick for the “Stupidest Man Alive.” One is was apparent at the time, so it was reasonable to wonder reminded of Gandhi’s four steps to victory: First they whether our monetary system would survive.What did ignore you, then they ridicule you, then they fight you, happen, of course, was that the new Fed chairman, Paul then you win. Volcker, stepped on the monetary brakes hard enough Warren Gibson ([email protected]) teaches engineering at Santa Clara to break the back of inflation.Two back-to-back reces- University and economics at San Jose State University.This is the second of sions resulted but were followed by a long period of a two-part series.

THE FREEMAN: www.thefreemanonline.org 34 Gold and Money, Part 2

In 2010 the Central Bank of China imported over Eagle for $50 and the Maple Leaf for C$100.While 200 tons of gold, more than offsetting recent IMF sales. the gold price will surely never again see such This is in addition to the 350 tons that are mined in low levels, it is interesting that the authorities saw fit that country annually. Wealthier Chinese citizens are to establish this modest link between gold and adding it to their portfolios.While substantial, Chinese money. gold holdings are still dwarfed by their holdings of U.S. Soaring prices for precious metals and unprece- Treasury securities. The gold purchases may be dented demand for bullion gold and silver coins are an intended mainly as a signal of its displeasure with dollar obvious sign that investors are worried. Anyone who hegemony. Other central banks are acquiring gold in buys bullion or coins has to be concerned enough to smaller amounts. forgo interest income and pay, directly or indirectly, storage and insurance costs. If and when confidence in Monetary Links to Gold the world’s monetary and banking institutions returns, ithin just a few years ETFs have attained a we can expect a rush out of precious metals and into Wprominent place in the investment world. None productive assets. has been more amazing than the Now to the central question: Will SPDR Gold Trust (GLD), which pur- gold again be money? chases and stores gold bullion for the benefit of its shareholders. This fund The Central Bank of Don’t Call It a Comeback. Yet. was launched in 2002 by the World China is importing old is too volatile, say some. If, Gold Council, an industry group, as a Gfor example, the Fed were to means of stimulating demand. The gold, gold index adopt a stable gold price as its mone- results have exceeded their wildest funds have been tary target, it would be hitching the dreams. GLD now holds about 1,300 U.S. economy to a wild horse. If the tons of gold bullion, a hoard larger growing rapidly, and Fed had tried to track gold’s recent than that of any central bank save rise, it would have had to engage in four. (A metric ton of gold would fill gold coins are selling massive quantitative “dis-easing.” a large suitcase and have a market well.Will gold again Monetary deflation added to falling value of about $45 million.) Compet- aggregate demand would have been a ing funds of the same sort now offer be money? disaster. silver, platinum, and palladium in The problem with this argument is addition to gold. that it takes the gold price as given. Gold coins are also selling at a brisk pace.The U.S. Had the Fed hitched its wagon to gold some years ago, Mint offers Gold Eagles along with an array of silver it would have added significant inertia to the “wild and platinum coins. But it’s difficult to get one-ounce horse” and it is likely that the run-up would have been Eagles at present, and the smaller sizes have been dis- milder or nonexistent. continued entirely because the Mint has run short of Still, gold targeting by the Fed is probably not a bullion inventory. Presumably this is bureaucratic good idea.The Fed has lost a great deal of credibility of ineptness, because the bullion markets are highly liq- late, thanks in part to Chairman Ben Bernanke’s recent uid. Canadian Maple Leafs, South African Kruger- declaration on 60 Minutes that the Fed would not rands, and others that compete with the U.S. coins are “print money” to carry out the next round of quantita- readily available.These are all “bullion coins,” so-called tive easing.The chairman’s life will only get more com- because their value is only marginally above their gold plicated now that Ron Paul has become chairman of content. the House Subcommittee on Domestic Monetary Pol- The one-ounce Gold Eagle and the Maple Leaf icy.Should the Fed adopt gold targeting, markets would have an interesting feature:They are legal tender, the need to be shown over a long period that it was serious

35 APRIL 2011 Warren C. Gibson about hewing to gold in the face of political pressures course require government forbearance backed by to the contrary. political pressure. That pressure would not likely arise One hundred years ago it was common to link con- until and unless the current financial crisis grew to tracts such as railroad bonds to gold. I have in my pos- alarming proportions. session such a bond, issued in 1893 (it’s a beautifully In 2003 e-gold.com was established as an online engraved document, incidentally), which promises to gold-payment service, growing to five million accounts pay at maturity “one thousand dollars in gold coin of in 2008, according to its owners. That year the com- the present standard of weight and fineness.” Borrowers pany pleaded guilty to conspiracy to engage in money probably didn’t expect to be paid with a stack of 50 laundering and conspiracy to operate an unlicensed gold coins, which would have been inconvenient. money-transmitting business. The company’s problems Rather, the phrase was meant to protect the borrower seem to have had more to do with security than with from future government debasement of money. But gold per se. Still, the e-gold case serves as a reminder sanctity of contract went out the window in 1933, that innovators in gold payments may face legal when Franklin Roosevelt abrogated all such private problems. contracts at a stroke. Predictably, 50 one-ounce Recently J.P.Morgan Chase announced that in gold coins now fetch nearly $70,000. addition to Treasury securities, it would begin accepting gold as collateral for cer- Gold Clauses tain loans. “Many clients are holding comeback of gold clauses in gold on their balance sheets . . . and Abusiness contracts is a realistic are looking to make these assets possibility, provided they could sur- work for them as collateral,” said a vive legal challenges based on legal company spokesman. “It gives tender laws. Imaginative clauses another use to gold as a cash instru- could be created that guaranteed a ment,” added a commodities ana- return in dollars at least partially lyst, exaggerating only slightly. linked to the gold price. Such things Indeed,Treasury securities are consid- already exist, in fact. Everbank, an ered very close to money itself in terms online bank, currently offers, among of safety and liquidity, so it is rather other innovative products, a five-year This double eagle, minted about a remarkable to see gold accepted as sub- century ago, has one ounce of gold. certificate of deposit whose return is That much gold is worth over $1,400 stitute collateral even in this minor sec- tied to the price of a basket of precious now and these coins go for $1,700 or more, depending on condition. tor of the financial markets. It suggests a metals.At worst, investors get their prin- gradual movement of gold toward cipal back.At best, their five-year return is capped at 50 monetary status. percent. Everbank is not, of course, issuing gold-backed money,but it is coupling gold to money’s role as a store New Currencies of value. hat about a new currency backed by the Fort Another possibility is that shares of GLD could WKnox holdings? There would be practical diffi- assume an informal monetary role. Those shares cur- culties, assuming most of the gold is in 400-ounce rently trade for about $135 each. Originally they repre- bars, each with a dollar value exceeding a half-million. sented one-tenth of an ounce but have lost some value It would be expensive to convert all this to coin, and as administrative charges have been deducted. New besides, the smallest practical coin, perhaps five grams, sub-shares, perhaps representing one gram each, would would still represent over $200. A $10 gold note equate to $45. Getting such sub-shares into circulation would fetch a mere speck of gold. More realistic than would be much easier via the Internet than getting gold notes would be a spinoff of a new gold paper shares into circulation. Such schemes would of exchange-traded fund. Shares of that fund might gain

THE FREEMAN: www.thefreemanonline.org 36 Gold and Money, Part 2 gradual acceptance as money, especially if a dollar cri- power—another inflationary development likely to be sis were in progress. mild and gradual. But it is conceivable that someone U.S. public or private institutions aren’t the only could invent an economical process for converting possible sources of a return to gold.Though globaliza- base metals into gold—the alchemists’ dream. This tion has been fostered by declining trade barriers and very unlikely development could be a major disruption transportation costs, we still lack the considerable to an economy using gold-backed money. The most advantages of a uniform worldwide currency or rigidly likely situation under a gold standard would be gradual, linked currencies. In the late nineteenth century, when mild deflation as happened in the late nineteenth cen- all major currencies were tied to gold, the dollar/pound tury. In short, a totally stable price level, if such could exchange rate was no more worrisome than the inch/ be defined, is not something to expect from a gold centimeter exchange rate. As things stand now, firms standard. doing business in different currencies must divert sig- nificant resources away from satisfying customers and Resource Costs and Stability into managing exchange-rate risk. Currency fluctua- e cannot overlook the resource cost of gold tions have not been minor, as Milton Friedman Wlocked away as backing for money. Monetary expected when he first proposed gold cannot be used for jewelry or floating exchange rates. During 2010, electronics. Friedman once dismissed for example, the euro ranged between A totally stable price a return to gold on the grounds that $1.19 and $1.45—a variation wide the resource cost would amount to 2 enough to turn a multinational firm’s level, if such could be percent of GDP.But his estimate was yearly profit into a loss or vice versa. predicated on 100 percent backing of The need for a new global currency defined, is not the wider M2 money supply. Under a may be an opportunity for some something to expect fractional reserve system, the cost enterprising central bank—China’s would be much lower. perhaps—or some private firm to from a gold standard. Of course, monetary gold lying establish a new international form of “idle” in a vault is only idle in a naive gold-linked money or near-money. physical sense. A gold bar sitting There are those who defend the gold standard on undisturbed in a vault is producing security for holders ideological grounds, claiming near perfection for it. and users of money day in and day out.The irony here This is unrealistic. For example, price inflation can hap- is that while the amount of monetary gold would likely pen under a gold standard. Ironically, as confidence decrease as a fractional-reserve gold system gained con- increases in a fractional-reserve gold standard, people fidence, our present system seems to require the reten- are less inclined to hold monetary gold.The multiplier tion of 8,000 tons at Fort Knox, while leaving the increases, and there is price inflation—mild, gradual, control of money under the increasingly politicized and predictable. Increasing prosperity and the conse- Federal Reserve—the worst of both worlds. quent increasing demands for nonmonetary applica- It is possible that stability will return to our current tions of gold such as jewelry or technology would work monetary and banking systems.We could have a repeat in the opposite direction:The supply of monetary gold of 1980 and a couple of decades of stability and growth. would drop, causing deflation. New gold discoveries or If not, there is good reason to believe that gold will better mining techniques dilute gold’s purchasing make a return in some form.

37 APRIL 2011 Give Me a Break!

Prohibitionists: Leave Us Alone!

BY JOHN STOSSEL

ometimes I drink Scotch and then, to wake rights of craft brewers across the country to produce myself up, I drink coffee. So what? Many people new and innovative offerings for the beer drinking Sconsume mixtures of caffeine and alcohol in public....We call on the federal government to adhere drinks like rum and Coke. to responsible regulation of alcoholic beverages that But recently some college kids started drinking pre- allows adults to enjoy the beer of their choice.” mixed combos of alcohol and caffeine with names like Unfortunately, Kallman tries to separate her product Four Loko and Moonshot ’69. Moonshot ’69 is a pil- from higher-alcohol FDA targets, but Nick Gillespie of sner beer with less than a coffee cup’s worth of caffeine. Reason magazine argues that the FDA has no business Until recently, Four Loko contained 12 percent alco- limiting the sale of any of the alcohol/caffeine combos. hol—about the same as wine— “This has been going on for as and as much caffeine as a cup of long as there have been colleges coffee. A few students, after and universities,”he said.“You can drinking Four Loko, landed in go back to the Middle Ages, and the hospital with alcohol poison- booze and students go together ing. Naturally, hysterical news like, I guess, beer and caffeine.” reports followed. A new bogeyman was born: Forced Underground caffeinated alcoholic beverages. ren’t some drinks more dan- As night follows day, the Food Agerous than others? and Drug Administration in “I don’t think so. But when we November ordered beverage raised the drinking age to 21 . . . companies to lose the caffeine or we told young people . . . you can shut down. The FDA called caf- vote, you can enter a contract, you can go to war, you can die for feine an “unsafe food additive.” The FDA banned this beer without any evidence that it Phusion Products says it will now causes any harm. your country, but if you want to Photo courtesy O’Neill and Associates produce only noncaffeinated drink and you’re going to college, Four Loko. Moonshot ‘69 is off the market for now, you better go off campus into a basement apartment which is bad news for Rhonda Kallman, who founded somewhere and chug like there’s no tomorrow because the company that makes it, New Century Brewing. you don’t know when you’re going to be able to get “There is nothing new about adults combining caf- drunk again.” feine and alcohol,” Kallman writes on her company He points out that by forbidding pre-21 adults from website. “Who hasn’t enjoyed a rum and Coke, Irish drinking openly around their elders, we deny them the coffee, Kahlua or espresso martini? . . . Moonshot ‘69 is chance to be exposed to responsible drinking. a beer for beer drinkers that has been enjoyed by craft- beer lovers since 2004.” Her online petition states:“We the undersigned sup- John Stossel hosts Stossel on Fox Business and is the author of Myths, Lies, and Downright Stupidity: Get Out the Shovel—Why port the right of responsible adults to choose the beer Everything You Know is Wrong. Copyright 2011 by JFS Productions, of their choice. We support Moonshot ‘69 and the Inc. Distributed by Creators Syndicate, Inc.

THE FREEMAN: www.thefreemanonline.org 38 Prohibitionists: Leave Us Alone!

About the ban on caffeinated alcoholic drinks, he entrepreneur to have a scientist. But at the end of the added,“You can’t minimize the over- day, it’s 5 percent alcohol by volume reach by the FDA.” and less than a half a cup of coffee of I asked the FDA why Moonshot By forbidding pre-21 natural caffeine. Where will they ’69 is included on the ban list when adults from drinking stop?” it’s not marketed to pre-21 adults and Never. Government never stops. it contains less alcohol than more sug- openly around their Gillespie added,“What we should ary drinks. They replied that Moon- be having instead of bans [of] bever- shot was referred to the agency by elders, we deny ages that people like and . . . con- state attorneys general concerned them the chance to sume responsibly is . . . a national about alcohol and caffeine. The FDA conversation about how, after a cou- asked New Century Brewing for be exposed to ple of hundred years of the American data indicating the legal standard for responsible drinking. experiment, we can get past the pro- safety had been met, but no data was hibitionist mindset and teach people provided. how to drink responsibly like they Kallman points out that the FDA “didn’t fully do in France, Italy, Spain and many other parts of the research it either. So they put the onus on the small world.”

39 APRIL 2011

the system will pick you out. Should your clothing or Book Reviews your gait be considered out of the ordinary, the system will pick that out, too....[The cameras] are less a cere- bral detective than a skinhead who lashes out at people The Road to Big Brother: One Man’s Struggle and customs that fall outside his narrow experience of Against The Surveillance Society what is ‘normal.’” by Ross Clark But why not give government surveillance a Encounter • 2009 • 200 pages • $21.95 chance? After all, it might, occasionally, work. Clark alerts us to the danger in that line of thought, namely Reviewed by George Leef the likelihood of mission creep. Once the authorities s I write this review, millions get going with their schemes, they won’t stop. Moni- Aof Americans are annoyed if toring of streets ostensibly to help prevent crime has not outraged over the recent meas- expanded into monitoring people’s homes to see how ures adopted by the so-called energy-efficient they are, a development that will prob- Transportation Security Agency. ably lead to mandates that homeowners install various Airline travelers hate the choice energy-saving devices if they ever want permission to between going through a scanner sell. There is no stopping point once Big Brother gets that effectively undresses them and his foot in your door. an aggressive grope of their bodies. Advocates of increasing government surveillance Are those offensive procedures necessary? Are they usually say, “If you’re innocent, you have nothing to legal? What is becoming of our country? At least peo- fear.” Clark shows how mistaken that notion is. With ple are starting to ask the right questions. modern DNA testing, for example, it is possible to Highly pertinent to the TSA’s heightened arrogance make highly probable (but not perfectly reliable) is Ross Clark’s book The Road to Big Brother. Clark lives matches of crime scene DNA evidence with samples in Britain, where government surveillance of the citi- taken from the general populace. Many European zenry is even more advanced than here. Referring to politicians are pushing for a massive database of manda- Jeremy Bentham’s idea for a prison where the prisoners tory fingerprints and DNA samples, the better to help would be constantly observed (or at least would think apprehend criminals. Clark points out, however, that they were), Clark writes, “Modern Britain is one big this will encourage criminals to plant false DNA evi- panopticon.” The government watches, monitors, and dence to point investigation toward innocent people— gathers data on citizens all the time, justifying this as who may have a hard time proving they really were not necessary for their safety. The big lesson readers take at the crime scene. away from the book is that, like virtually everything the Moreover, officials in Britain are looking into the State does, costs greatly exceed benefits. People’s pri- possibility of using DNA analysis to help identify peo- vacy is whittled away, their freedom erodes, their taxes ple who might have a genetic predisposition toward go up, but criminals are barely inconvenienced by all crime. The result of that, Clark fears, will be social the State’s surveillance. workers devising “care plans” for individuals suspected The book is chock full of the author’s witty, often of being potential criminals.The Nanny State will grow sarcastic observations on the panopticon that surrounds apace once it gets the mission of trying to prevent peo- him. For example, the town of Luton has installed ple from going bad. closed-circuit TV cameras that are supposedly “intelli- And what happens when, inevitably, public officials gent” since they are able to detect “suspicious” behav- make a mistake? Suppose that your name is erroneously ior. No criminals have been caught thanks to the entered into the Police National Computer? Clark cites cameras but, Clark writes, “Should your tastes in win- a report that 22 percent of the records entered con- dow-shopping not match those of the average resident, tained an error, with the result that innocent people

THE FREEMAN: www.thefreemanonline.org 42 Book Reviews have been tarred with criminality, thus making it hard tized” method of lending. But by rigging the housing for them to get jobs. It’s also difficult to get the author- market for decades to promote the holy grail of home- ities to correct their mistake. That is just one of the ownership, politicians fostered and even mandated many forms of collateral damage inflicted by the sur- many dubious mortgages that wouldn’t otherwise have veillance state. passed muster. Kling draws on his background as a for- I do not get the sense that Clark is a libertarian mer Freddie Mac economist to highlight the specific seeking to chop down the British Megastate, but a problems of the rickety financial structures that were fairly ordinary bloke who refuses to believe its propa- only made possible by governmental assumption of ganda that expansive government programs are neces- risk. “Without the [government] guarantees [of mort- sary for safety. His demonstration that the Security gage-based securities]—or apparent guarantees—indi- State is an invasive, costly, counterproductive humbug rect lending would not have been possible,” he is perfectly aligned with the libertarian critique of concludes. the State, however. Just as it is a mistake to turn to gov- In Kling’s view, bad mortgage regulations, a spate of ernment for safety, so is it a mistake to turn to it for mortgage loans requiring unrealistically low down pay- education, for economic progress, for moral uplift, and ments, and what he calls a “suits vs. geeks” divide (see so forth. www.tinyurl.com/2dp77fg) were the main causes of the housing bubble. But the last two “fundamental” George Leef ([email protected]) is book review editor of The Freeman. causes stem from the first. So the author’s explanation of the housing crisis boils down almost entirely to the Unchecked and Unbalanced: How the Discrepancy welter of incentive-skewing mortgage regulations. Between Knowledge and Power Caused the The book surveys and critiques several alternative Financial Crisis and Threatens Democracy explanations for the crisis, including the oft-heard but by Arnold Kling historically unintelligible claim that it resulted from Rowman & Littlefield/Hoover Institution • 2009 • 122 “deregulation.” Unfortunately, this tour does not inves- pages • $29.95 tigate the role of the Federal Reserve. Economist Robert Murphy is among those of Misesian-Hayekian Reviewed by David M. Brown persuasion who point to the malinvestment-encourag- his slim yet insight-packed ing effects of the credit splurge of 2001–2003, the Tvolume makes fair progress period during which the Fed lowered the federal funds toward explaining the 2008 finan- target interest rate from 6.5 to 1 percent.The omission cial crisis. The first of the book’s is odd since Kling elsewhere acknowledges the impor- three chapters outlines the “hous- tance of the Austrian analysis. ing industrial policy” that led to the A more fundamental discrepancy between knowl- crisis. The second discusses the edge and power than that exemplified by the conflict between concentrated suits/geeks divide is that exemplified by the hubristic political power and effective use of power-grabbing of government officials, both before socially dispersed knowledge, and the third suggests and after the economic blowout. Instead of arguing that reforms. in 2008 officials should have abstained altogether from Tracing the government’s ever-greater role in such interventions as using tax dollars to buy “toxic” financing and encouraging housing debt, especially assets, the author suggests that the government might since the 1960s, Kling observes that regulation-fostered have instead tried the stopgap measure of “impos[ing] securitization of mortgages necessarily obscures risk. A penalties on firms that make extravagant demands for bank exercises the best oversight over loans that it collateral to back repurchase agreements” and other awards directly; in an unhampered market, loan officers financial instruments. Limiting a fresh bout of interven- have little incentive to prefer an indirect or “securi- tion in that way would have been better than the blun-

43 APRIL 2011 Book Reviews dering and direct central planning the federal govern- Commonwealth ment undertook, but it would still have amounted to by Michael Hardt and Antonio Negri giving economic actors orders, discouraging reliance on Harvard University Press • 2009/2011 • 448 pages • $35.00 local knowledge and conditions.“Extravagant” terms of hardcover; $29.95 paperback contract may be the only ones on which a trade can be Reviewed by David Prychitko conducted that satisfies both parties. The second chapter considers the syndrome of ome two decades after the col- force-wielding politicians and bureaucrats pretending Slapse of communism, socialist to know better than individuals their own unique cir- intellectuals still scramble to reha- cumstances, values, goals, and options. The conflict bilitate Marx and collectivist social between the individual’s knowledge and freedom, on theory in general, with Duke Uni- the one hand, and coercive rules which preempt that versity professor Michael Hardt knowledge and curtail that freedom, on the other, lies and Italian sociologist Antonio at the heart of the 2008 debacle (and many other econ- Negri leading the bunch. Acade- omy-wide slumps). Markets are characterized by price mics are attracted to their radical signals and other coordinating mechanisms that enable critique of existing capitalist institutions. Non-academ- human beings to make effective use of widely dispersed ics and educated laypersons on the left are attracted to knowledge, very little of which we can ever grasp first- their radical message and hope that the people will suc- hand. Kling observes that modern economies are cessfully engage in a revolution to overturn private becoming ever more specialized and complex even as ownership and market exchange. political power becomes more centralized and resistant Although the book has attracted some zealous fol- to calls for reform. He tries to come up with empirical lowers, it is a difficult read. One wades through lengthy gauges of both trends, although that isn’t strictly neces- and tiring discussions of Foucault, debates with Sartre, sary to refute the fallacies and expose the hazards of attempts to refashion Marxist theory, and then, sand- central planning. wiched in between, hopeful tales about the restora- The problem of how to prevent or ameliorate the tion of “authentic identity” among the Maya and blunders of the commissars is tackled in the final chap- lengthy, optimistic claims about how the people of ter.The author suggests various half-measures that pro- Cochabamba are progressing from “antimodernity” ponents of fully free markets will be less than satisfied toward “altermodernity.” One suspects that the authors with: proposals, for example, to merely decentralize understand that their ideas won’t hold up well if stated government functions that would be better delegated in plain English, so they resort to an obscure but intim- altogether to the private sector. Still, most of Kling’s idating style. Amidst all of this, and among many other proposed reforms—including a scheme that would intellectual detours, stands a full-blown chapter on enlist “competitive governments” to jockey for the Spinoza’s concept of love. Suffice it to say that Hardt chance to collect your garbage, and another to dispense and Negri argue that people must be trained and edu- vouchers rather than Medicare-style reimbursements to cated in love in order to fight the evil forces of private pay medical costs—might make it easier to achieve property. thoroughgoing restoration of markets than leaving The authors assume (but don’t bother to argue) that things as they are. property and market exchange block and destroy gen- uine human relationships. Marx had this general insight David M. Brown ([email protected]) is a freelance writer and editor. correct, they believe, but they suggest that his analysis needs to be corrected and updated in its details to fit our postindustrial age. Hardt and Negri claim that Marx’s theory of alienation, for example, must be fur- ther developed from an analysis of competitive separa-

THE FREEMAN: www.thefreemanonline.org 44 Book Reviews tion of people and estrangement of the fruits of their cooperate for mutual gain. Maybe people keep going to labor to an “alienation of one’s thought” itself. Exactly cities because they are alienated from their own what that means isn’t clear, but I think they’re suggest- thoughts. ing that our thoughts aren’t truly our own, but are cre- Hardt and Negri try to impress with their knowl- ated by the capitalist system that allegedly controls us. edge of Foucault, Laclan, Derrida, and Viveiros de Cas- The authors insist that life—genuine, loving human tro, but where’s Smith? Where’s Hayek? Where’s Jacobs? relationships—is nestled in “the common.” The com- They never address the spontaneous and invisible- mon consists of those institutions beyond private and hand-like nature of markets, the communicative and public ownership of the means of production and, it wealth-enhancing nature of exchange, the role that appears, the fruits of labor, too. (One of the book’s cities play in such exchange, and the notion of civil many confusing aspects is that the meaning of “the society,an independent sector that is not fundamentally common” is vague and shifting.) In Hardt and Negri’s organized through commercial activity or the violent view private property is the essence of capitalism, pub- compulsion of the State. Are they even aware of the lic property the essence of socialism, and the common counterargument? And if so, when do they plan to is the essence of—you guessed it—communism. With address it? this concept the authors try to break from the totali- Commonwealth is a pitiable effort at resuscitating tarian consequences of “the victorious revolutions” Marx. But it was a lost cause to begin with. of Russia, China, and Cuba. They claim to be opti- David L. Prychitko ([email protected]) is professor of economics at mistic that the revolution is imminent and, at long Northern Michigan University and coauthor, with Peter Boettke and the last, emancipating. late Paul Heyne, of The Economic Way of Thinking. Nowhere do the authors consider the possibility that their revolution might lead to adverse results. Nor do they ever come to terms with the knowledge-com- The Privatization of Roads & Highways: Human municating properties of voluntary and open exchanges and Economic Factors of property rights.The coordination of plans, which is by Walter Block ultimately coordination of thoughts and expectations, is Ludwig von Mises Institute • 2009 • 475 pages • $19.00 completely ignored in the book. How this can happen Reviewed by Arthur Foulkes without private property and exchange is a mystery. The common, the authors proclaim, is the ground of oyola University economist freedom and voluntarism. Activities within the com- LWalter Block is among the mon are the source of true wealth (hence the book’s most fearless advocates of freedom title). The freedom of the common is the freedom to today. At a time when pundits find and develop love, and it provides the source of the widely believe the free market has multitude’s supposed creative power. But “capital,” that failed, Block takes his case for meaningless collectivist concept that goes back to Marx truly free markets deep into himself, disrupts the common. Capital, they assert, unfriendly territory by arguing for exploits the multitude, the truly productive. the full privatization of all roads And the multitude is huddled and gathered mainly and highways. in cities, in “the metropolis,”used as another collectivis- In 2006 officials in Indiana leased 157 miles of the tic concept. Marx focused on the factory,but Hardt and Indiana Toll Road to a private Spanish/Australian con- Negri claim that the metropolis is supposedly the cur- sortium. While this was called a “privatization,” Block rent site of “hierarchy and exploitation, violence and would clearly dismiss it as nothing of the kind. The suffering, fear and pain,” and therefore will be the site Indiana Toll Road remains owned by the state. Real of the impending revolt.The authors have absolutely no privatization would mean completely private owner- sense of cities as spontaneous orders where millions ship of all streets, roadways, paths, and freeways. Only

45 APRIL 2011 Book Reviews private roadway owners would determine regulations private, multistory parking lot, or in a shopping mall, or and prices. in the aisles of a department store, the entrepreneur in In the current political climate it may seem Block question is held accountable.”The problem is that gov- has the cart before the horse. Arguing for free-market ernment officials are not accountable. roads these days is a little like a starving person worry- Much of the book, a collection of essays, involves ing about his dessert. Shouldn’t we first try to halt the answering practical questions, such as how private road current growth in the size and scope of government owners might deal with intersections. Block answers and deal with the almost Utopian idea of private streets this and other questions fully—maybe a little too fully and highways later? But anyone who has read Block’s for the casual reader. Still, Block is serious about this provocative book, Defending the Undefendable, or has complex subject, and his book is not intended to be heard him discuss free-market ideas one on one, knows light reading. Fortunately, his writing style is clear and he does not blink in his support for freedom. Besides, if easy to follow. “we can establish that private property and the profit An important assumption underlying the book is motive can function even in ‘hard cases’ such as roads, that a competitive free-market road system would nec- the better we can make the overall case on behalf of essarily be superior to one operated by government. In free enterprise,” he writes. supporting that assumption Block presents a series of A big roadblock, so to speak, in arguing for private arguments familiar to students of the Austrian school of roads and highways is that practically everyone takes economics. For example, he notes the importance of government ownership for granted. Even many econo- market signals in directing entrepreneurial decisions. mists, using “market failure” arguments such as the one Block also addresses the neoclassical notion of “perfect about “externalities,”often cite roads as something only competition.” This highly unrealistic model suggests government can provide. Block carefully takes apart roads require government management. Yet, as Block these arguments. For example, the “externalities” argu- notes, “perfect competition” exists practically nowhere ment contends that private investors would underinvest and, if that were truly our standard, nearly all markets in roads and highways. But who is to say, given a com- would call for nationalization. plete lack of market signals, a government agency After making a strong case for road privatization, would invest the correct amount? Indeed, this part is Block addresses the thorny matter of getting from here among the book’s best contributions. to there. After wrestling with several possible In addition to giving readers a seminar in logical approaches, he admits that privatizing today’s system of economic reasoning, Block’s book also reflects his pas- public roads would be like trying to unscramble an egg. sion for freedom. He believes firmly that government Yet even an “imperfect privatization will be far prefer- management of roads and highways is not only ineffi- able to none at all. Government streets are an adminis- cient but also deadly. “Road socialism” causes the trative and safety nightmare. It is inconceivable that deaths of more than 40,000 people in the United States private initiatives could do worse.” each year. And although many people blame highway The fall of the Soviet Union and other collectivized deaths on alcohol, unsafe vehicles, or speeding, Block systems clearly showed the gigantic problems inherent lays the blame on the government officials who manage in government ownership and management of any the highway system. He explains his conclusion:“It may enterprise. This lesson has not yet been applied to our well be that speed and alcohol are deleterious to safe roads and highways. Thanks to Block’s comprehensive driving; but it is the road manager’s task to ascertain work, that may not always be the case. that the proper standards are maintained with regard to Arthur Foulkes ([email protected]) is a journalist and freelance these aspects of safety. If unsafe conditions prevail in a writer in Indiana.

THE FREEMAN: www.thefreemanonline.org 46 The Pursuit of Happiness

War Is a Government Program

BY DAVID R. HENDERSON

ibertarians and conservatives who argue for eco- One of the strongest practical arguments against nomic freedom and against government control government intervention in the domestic economy Ltend to make both principled and practical argu- comes from Ludwig von Mises: One intervention, by ments for their positions. Take health insurance, for causing unintended consequences, leads to further example.The principled argument against government intervention. At each point in the chain the govern- regulation of health insurance is twofold: (1) No gov- ment could back down and deregulate. But govern- ernment has the right to dictate to someone what kind ments tend not to do that. Take an example I wrote of insurance he should buy or whether he should about in this publication (“Unintended Consequences buy it at all; and (2) no government has the right to in Energy Policy,” March 2009, www.tinyurl.com/ dictate to an insurance company what kind of insur- adv6gm). Richard Nixon’s price controls on gasoline ance it may sell and what it many charge.The practical caused a shortage that then led to fuel-economy stan- arguments are many; for example, if government sets dards for cars. prices too low, it will cause shortages and rationing, The same kind of reasoning applies to foreign pol- which most people would find icy. In 1963 the Central Intel- undesirable. ligence Agency helped a But when some of those young Iraqi ally who, along same libertarians and many with other plotters, overthrew conservatives think about war, Gen. Abdel-Karim Kassem. their critical thinking skills His name: Saddam Hussein. seem to go out the window. Five years later, the CIA On the principle side, they backed another coup that rarely argue that the U.S. gov- made Hussein deputy to the ernment doesn’t have the new military ruler. Then, in right to force U.S. taxpayers 1979, Hussein took his turn Intervention has unintended consequences, which beget further to support oppressive dictators interventions. as dictator. in foreign countries such as In 1980 Hussein proceeded Kuwait.Why? Because they seem to think the fact that to wage a long and costly war on Iran. Interestingly,the an even more vicious dictator, Saddam Hussein, Reagan administration supported this invasion with attacked Kuwait makes coerced funds from U.S. taxpay- billions of dollars in export credits and with satellite ers morally obligatory. And on the practical side, they intelligence. Consider how this one intervention led to tend to drop their skepticism about the consequences another. of government action. Yet, even aside from any argu- Why did the U.S. government support Saddam Hus- ment based on principle, if libertarians and conserva- sein in his war on Iran? The Iranian government had tives were to be as skeptical of our own government abroad as they are of it at home, they would likely favor David Henderson ([email protected]) is a research fellow keeping the United States out of foreign wars. Indeed, with the Hoover Institution and an economics professor at the Graduate School of Business and Public Policy, Naval Postgraduate School, as I shall show,there are two reasons we should be even Monterey, California. He is editor of The Concise Encyclopedia of more skeptical of our government’s actions overseas. Economics (Liberty Fund) and blogs at econlib.org.

47 APRIL 2011 David R. Henderson become an enemy of the U.S. government a year ear- it helped put them in that position in the first place. lier, when Ayatollah Khomeini took over and some Ira- Zbigniew Brzezinski, national security adviser to Presi- nians held Americans in the U.S. embassy hostage.Why dent Jimmy Carter, bragged in an interview in Le Nou- did so many Iranians dislike the U.S. government? One vel Observateur that in 1979 he had persuaded Carter to reason was that in 1953 the CIA had helped depose the destabilize Afghanistan’s pro-Soviet government so that democratically elected premier, Mohammad Mossadegh, the Soviets would invade. In December 1979 Brzezin- and reinstalled the shah of Iran. The shah created a ski got his wish: The Soviets invaded Afghanistan. The secret terrorist police force, SAVAK, that tortured its CIA proceeded to finance Afghan Muslim jihadis own citizens and imprisoned political opponents. The through Pakistan. CIA helped train SAVAK. The shah also undertook a Just as the economy is a complex nexus of rights and highly inflationary monetary policy that caused the exchanges with each participant having, as Adam Smith value of the Iranian currency to plummet. Inflation and put it, his own “principle of motion,” so it is with torture: funny how that upsets people. whole countries. U.S. government officials—and there are many—who think they can plan another country to No Laughing Matter make it better clearly don’t recognize these principles nterestingly, when James Woolsey, former director of of motion. They have what F. A. Hayek called, in his Icentral intelligence in the Clinton criticism of government intervention administration, spoke at the Naval in the economy, a “fatal conceit.” Postgraduate School in August 2003, U.S. government And, as we’ve seen with the above- he addressed the 1953 uprising in officials who think mentioned wars, the conceit is liter- response to my question. During his ally fatal. speech Woolsey had stated that the they can plan another There are two reasons to think war with militant Islam had begun in country to make it that the consequences of government November 1979, when some Iranians intervention abroad will be worse took over the U.S. embassy. I asked better have a literally than the consequences of govern- him whether he didn’t think it might ment intervention at home. First, the have begun in 1953, when the CIA fatal conceit. major victims of this foreign inter- helped depose Mossadegh. Laughing, vention will typically be foreigners. Woolsey quoted Winston Churchill’s claim that Ameri- Foreigners don’t vote in U.S. elections.Therefore, U.S. cans, after doing many wrong things, would always end politicians will never have to worry about the negative up doing the right thing. In other words, Woolsey votes of foreigners and will therefore be more destruc- seemed to admit CIA complicity,but dismissed the idea tive than otherwise. Second, when people see the neg- that this mattered because the U.S. government, at ative consequences of intervention, they, all else equal, some point (he didn’t specify when), had gotten it tend to turn against it. That’s why people tend to right. oppose taxes more than regulation: Virtually everyone But Woolsey’s answer evaded the issue: The con- can observe the wealth lost to taxes. But because most sequences of the U.S. government’s intervention in of the obvious consequences of foreign intervention 1953 have been horrendous and cannot be laughingly occur abroad, they are less visible to Americans. How dismissed. many Americans are aware that the CIA helped over- Or take the unintended consequences of U.S. gov- throw a democratically elected prime minister? ernment intervention in Afghanistan. Although the War is a government program. Libertarians and con- U.S. government now fiercely opposes the radical Mus- servatives should bring the same skepticism to war that lims who until 2001 ran the Afghan government, they bring to other government programs.

THE FREEMAN: www.thefreemanonline.org 48