EEMAN Ideas On Liberty May 2004 Vol. 54, No. 4

2 FROM THE PRESIDE NT— Neoconservatives and the Freedom Philosophy by Richard M. Ebeling

4 PERSPECTIVE—The Season of Protectionism by Sheldon Richman

6 Free-Trade Theory No Longer Applies? It Just Ain't So! by Gene Callahan

1 1L»* JT V 1. VJI I. ^V&w

8 Free Markets, the Rule of Law, and Classical Liberalism by Richard M. Ebeling

18 The Wisher and the Legislator: A Lesson from a Fairy Tale by Joseph S. Fulda

20 Losing the Law: From Shield to Weapon by William L. Anderson and Candice E. Jackson

26 Scotland: The Bitter Taste of Independence by James L. Payne

Marcus Aurelius 29 Rome and America: The Ideology of Decline by Harold B. Jones, Jr.

36 Estonia Moves to Liberty by Norman Barry

39 Capital Letters

COLUMNS 16 IDEAS AND CONSEQUENCES—Telecom Regulations Don't Create Competitive Markets by Lawrence W. Reed 24 THE THERAPEUTIC STATE—Autogenic Diseases by Thomas Szasz

34 OUR ECONOMIC PAST—Would the Poor Go Barefoot with a Private Shoe Industry? by Stephen Davies

47 THE PURSUIT OF HAPPINESS—-Have a Canadian Orange by Russell Roberts

BOOK REVIEWS 41 Give Me a Break: How I Exposed Hucksters, Cheats, and Scam Artists and Became the Scourge of the Liberal Media ... by John Stossel, reviewed by Richard M. Ebeling; FDR's Folly: How Roosevelt and His New Deal Prolonged the Great Depression by Jim Powell, reviewed by Burton Folsom; Can Gun Control Work? by James B. Jacobs, reviewed by Jeffrey A. Miron; The Real Environmental Crisis: Why Poverty, Not Affluence, Is the Environment's Number One Enemy by Jack M. Hollander, reviewed by Jane S. Shaw. From -the FV^sicic^rvt -THE by Richard M. Ebeling FREEMAN \(\deasi(\deas On Liberty)

MAY 2004 Neoconservatives and the Freedom Philosophy

he winter 2004 issue of The Public ever-forward. Libertarians oppose all regula­ Interest contains an article by Adam tion, whether of markets or morals." He Wolfson, the publication's editor, on says that libertarians have a "love affair" "Conservatives and Neoconserva­ with new technologies as the path to human Ttives." Mr. Wolfson outlines some of the happiness. And, in addition, they discount central ideas of neoconservatism by con­ any role or place for "the general welfare" trasting them with what he refers to as tra­ and are opposed to democratic decision­ ditionalist conservatism, paleoconservatism, making in the shaping of a "public ethos." and libertarian conservatism. Thus in their pursuit of advancing the right Before World War II, he points out, con­ of individual choice, the libertarian, he servatism was really classical liberalism, claims, is happy if citizens are indifferent to with strong emphases on individual free­ the well-being of their country. dom, laissez-faire economics, and progress What, then, does the neoconservative through scientific improvement. In the post­ stand for? As summarized by Mr. Wolfson, war period, under the influence of Russell neoconservatives recognize the value of tra­ Kirk's 1953 book, The Conservative Mind, ditions and customs passed down by earlier Mr. Wolfson says, American conservatism generations, but have no desire for or belief was transformed into a political philosophy in returning to a past that is unrecoverable critical of modernity and its unreflective and unacceptable to the vast majority of belief that social and economic change contemporary Americans. Nor are neocon­ always means progress. The Kirkian conser­ servatives desirous of a turning inward from vatives emphasized the roles of tradition, the rest of the world, as he portrays the paleo­ custom, local community, and institutional conservatives; and the neoconservatives are stability in maintaining the health and bal­ against anything that would smack of a ance of society. The paleoconservatives, denial of democratic and social equality. identified by Mr. Wolfson with ideas In contrast to Mr. Wolfson's view of the espoused by Pat Buchanan and Paul Gott­ libertarian perspective, neoconservatives are fried, are anti-free trade, anti-immigration, not willing to sacrifice the idea of a public isolationist in foreign policy, and suspicious arena in which the democratic polity estab­ of political and social equality. lishes standards for the common good to As for libertarianism, Mr. Wolfson states which all members of society should conform. that "It is progressive, and aims at expand­ Specifically, he says that neoconservatism has ing economic freedom and individual choice no inherent disapproval of the welfare state, which he suggests the vast majority of Amer­ Richard Ebeling ([email protected]) is president of icans desire as a means of overcoming "inse­ FEE. curity." Only those welfare-state programs

2 corrupting of family, marriage, and the work pawn of others. And it nurtures the philo­ ethic should be opposed. In addition, neo­ sophical and religious ideas of compassion conservatives believe in U.S. political and mil­ and duty in participating in charitable good itary interventionism around the world to works to assist the unfortunate and the truly advance democracy; but the goal of such for­ needy among us. eign interventionism, he argues, is to maintain The public ethos of a free society rejects as America's interests as a "great and powerful inconsistent with liberty any notion that democracy." majorities or minorities may use the democ­ Mr. Wolfson's portrayal of libertarianism ratic process to restrict the freedom of the and neoconservativism offers an opportunity individual in his social, economic, and per­ to restate the fundamental premises of what sonal actions as long as he does not in any FEE's founder, Leonard Read, long referred way violate the rights of others to peacefully to as the "freedom philosophy." Over a 300- go about their affairs. It does not believe that year history the advocates of human free­ simply because a majority in society wants dom have argued that rights reside only in government welfare programs, because such individuals, who form the unique "building programs give them a sense of protection blocks" of the social, economic, and political from the insecurities of life, that this morally order. Society should be viewed as the mutu­ justifies the power of political coercion to ally beneficial relationships that individuals redistribute wealth and limit the choices of form for the improvement of their circum­ other members of society to determine what stances. The role of government, as under­ is best for themselves, their families, and stood, for example, by the American Found­ others they may care about. ing Fathers, was to protect the rights of the The advocate of liberty is on guard against individual from invasion by predatory plun­ all expansions of government into the pri­ der so each man may be secure in his life, vate lives and free associations of individuals property, and freedom to pursue his happi­ because he considers political power to be ness as he sees it. corrupting and harmful to the creative potential in man. Political interventions and The Public Ethos regulations intimidate man's mind and con­ science, restrict his productive actions, The "public ethos" is not created by gov­ weaken or eliminate the mutually beneficial ernment and, if it is to be healthy and consis­ and charitable associations among people, tent with the preservation of a free society, and undermine the moral sense of self- must not be controlled or manipulated by responsibility and voluntary duty to others government. What is the "public ethos"? It in society. comprises society's guiding beliefs, ideas, atti­ Likewise, the friend of freedom believes tudes, customs, institutions, and ideals about that any "greatness" that America may pos­ the normative standards and rules for per­ sess on the international stage should come sonal and interpersonal conduct. Its repre­ from being an example of individual free­ sents what most members of society consider dom practiced at home, which then serves as to be acceptable and moral conduct in the an ideal for others around the world to emu­ relationships that men have with each other. late. Furthermore, political and military The public ethos of a free society includes interventions abroad threaten the freedom strong beliefs in individual self-responsibility, and prosperity of the American citizenry, the rights and dignity of the individual, and because of the costs of these global activities. a sense of the morality of voluntary and These are the freedom principles and the peaceful relationships among men. It also public ethos that we have been losing in includes the ideal that each individual should America, and neoconservatism offers no be viewed as an end in himself and not the alternative to regain them. •

3 Published by .THE The Foundation for Economic Education Irvington-on-Hudson, NY 10533 Phone: (800) 960-4FEE; (914) 591-7230 Fax: (914) 591-8910; E-mail: [email protected] FEE Home Page: www.fee.org The Season of Protectionism President: Richard M. Ebeling N. Gregory Mankiw, the Harvard profes­ Editor: Sheldon Richman sor who now chairs the President's Council Managing Editor: Beth A. Hoffman of Economic Advisers, had a rough lesson in Washington culture a few months ago. Talk­ Editor Emeritus Paul L. Poirot ing to reporters, he set off a firestorm when Book Review Editor he said, "Outsourcing is just a new way of George C. Leef doing international trade. More things are Columnists tradable than were tradable in the past and Charles W. Baird Robert Higgs that's a good thing." He acknowledged that Donald J. Boudreaux Lawrence W. Reed Stephen Davies Russell Roberts this can cause individual hardship, but Burton W. Folsom, Jr. Thomas Szasz added, "[W]e shouldn't sort of retreat from Walter E. Williams the basic principles of free trade." Contributing Editors "Outsourcing" refers to the hiring of labor Doug Bandow Dwight R. Lee Norman Barry Wendy McElroy in other countries in order to cut costs and Peter J. Boettke Tibor R. Machan increase efficiency. This is nothing new, but James Bovard Andrew P. Morriss Thomas J. DiLorenzo Ronald Nash because of changes in the world, it is taking Joseph S. Fulda Edmund A. Opitz a new form. American manufacturers, such Bettina Bien Greaves James L. Payne John Hospers William H. Peterson as textile and shoe companies, long ago Raymond J. Keating Jane S. Shaw turned to foreign labor by setting up facto­ Daniel B. Klein Richard H. Timberlake ries in other countries. What's new is that Lawrence H. White high-paying "knowledge jobs," such as com­ Foundation for Economic Education puter programming, can now also be out­ Board of Trustees, 2003-2004 sourced easily because the Internet makes the David Humphreys Paige K. Moore Chairman Secretary movement of information cheap and fast. Frederick C. Foote Dan Grossman Advanced telecommunications also makes it Vice Chairman Treasurer efficient to farm out less-skilled jobs, such as telephone support services. As a result of Henry M. Bonner Jane M. Orient, M.D. these advances, American workers who have Lloyd Buchanan Tom G. Palmer Walter LeCroy Andrea Millen Rich never thought about foreign competition Roy Marden Sally von Behren now must do so. Kris A. Mauren Guillermo M. Yeatts Cable-TV talk shows and newspaper columns are filled with alarm that outsourc­ The Freeman; Ideas, on Liberty is published by The Foundation for Economic Education, Inc., Irvington-on-Hudson, NY 10533. FEE, ing will drain the United States of most of its established in 1946 by Leonard E. Read, is a non-political, educa­ high-paying jobs. Mankiw tried to point out tional champion of private property, the free market, and limited gov­ ernment. FEE is classified as a 26 USC 501(c)(3) tax-exempt organi­ that alarmism is unjustified. Outsourcing is zation. just a variation on an old theme: getting the Copyright © 2004 by The Foundation for Economic Education. Permission is granted to reprint any article in this issue, except "The most out of scarce resources. In the past it Wisher and the Legislator," provided credit is given and two copies did not reduce us to poverty. Why would it of the reprinted material are sent to FEE. The costs of Foundation projects and services are met through do so now? donations, which are invited in any amount. Donors of $39.00 or But in the political season, good economic more receive a year of The Freeman. For delivery outside the United States, a minimum donation of $52.00 is requested. Students may theory is not often welcome. Mankiw works receive The Freeman for a donation of $20.00 per year. Additional for a Republican President, but that didn't copies of this issue of The Freeman: Ideas on Liberty are $4.00 each. Bound volumes of The Freeman and Ideas on Liberty are available stop members of the GOP, such as House from The Foundation for calendar years 1972 to 2001. The magazine Speaker J. Dennis Hastert, from denouncing is available in microform from University Microfilms, 300 N. Zeeb Rd., Ann Arbor, MI 48106. Mankiw's position: "I understand that Mr. Mankiw is a brilliant economic theorist, but Cover photo by James L. Payne his theory fails a basic test of real economics.

4 An economy suffers when jobs disappear. Outsourcing can be a problem for American workers and for the American economy." If liberty and prosperity are to have a One Republican congressman called for his future, people must grasp the meaning of resignation. free enterprise, the rule of law, and classical The White House suggested that President liberalism. Richard Ebeling discusses the Bush stood behind his chief economist, but critical connections. the words belied that stance. The spokes­ There's a lesson in those fairy tales about woman said the President "is committed to the granting of three wishes. Joseph Fulda free and fair trade. He is committed to a draws some inferences. level playing field." An ominous development is emerging: the In fact, those words yanked the rug out conversion of business regulations into from under Mankiw. "Fair trade" and "level potential criminal offenses, complete with playing field" are code words that endorse prison time as the penalty for violation. regulations for the developing world that are William Anderson and Candice Jackson intended to make outsourcing economically examine this worrisome trend. pointless. Poor societies simply cannot The people of Scotland had craved inde­ afford those government impositions. pendence for many years. They finally won With all the flak flying, Mankiw was it, but it hasn't worked out as expected, and forced to retreat rhetorically. In a letter to disillusionment has set in. James Payne finds Hastert, he wrote, "My lack of clarity left fault in the welfare state. the wrong impression that I praised the loss Does the decline of Rome have implica­ of U.S. jobs." Hastert responded by saying tions for modern-day America? In the realm America needs a better environment for job of ideology, Harold Jones says yes. creation. His message was mixed, but at An economic success story in eastern least he included low taxes and an end to Europe is almost totally ignored. Norman frivolous lawsuits in the package. Barry has the details about Estonia. As the New York Times and Washington Here's what our columnists have come up Post editorialized, Mankiw's initial state­ with this month: Richard Ebeling contrasts ment is correct. If a task can be done more neoconservatism with the freedom philoso­ cheaply with foreign labor, the savings are phy. Lawrence Reed discusses the bad available for new investment. That is what effects of telecom regulation. Thomas Szasz has always happened—when the economy is ponders self-inflicted disease. Stephen allowed to work. The American computer Davies sees a refutation of government con­ programmer who loses his job to an Indian trol in the shoe industry. Russell Roberts programmer is a visible "victim" of free considers the attack on cheap foreign labor. trade. The invisible beneficiaries are the And Gene Callahan, reading claims that workers who will find new opportunities in free-trade theory is outmoded, retorts, "It yet-unknown industries thanks to the freed- Just Ain't So!" up capital. Book reviews this month focus on John The case for free trade may be counter-intu­ Stossel, FDR, gun control, and the environ­ itive, and it doesn't lend itself to sound bites. ment. No wonder it gets battered at election time. —SHELDON RICHMAN

5 MAY 2004

Free-Trade Theory No Longer ence does not depend on whether the people live in different countries. Applies? But those who argue for free trade on moral grounds are usually pleased to hear that it also leads to prosperity. Furthermore, there are many people who are swayed chiefly by utilitarian arguments: Will policy It Just Ain't So! A make their nation's residents better off than policy B? Therefore it's worth examin­ ing the claim that, under modern economic n an op-ed in the January 6 New York conditions, Americans are being hurt by Times, "liberal" U.S. Senator Charles free trade with low-wage countries such as Schumer and conservative economist Paul China. Craig Roberts tapped into the anxiety felt by Schumer and Roberts assert that they many Americans about their changing roles are not "old-fashioned" protectionists. They in the global economy. The authors argued favor free trade in goods. But Roberts claims that new economic conditions undermine that there is a fundamental economic differ­ the classic argument for free trade: ence between an American's purchasing clothing from a Chinese manufacturer and The case for free trade is based on the his purchasing it from another American British economist David Ricardo's princi­ who has opened a factory in China. In the ple of "comparative advantage"—the first case only the clothing moves interna­ idea that each nation should specialize in tionally, while in the second case capital also what it does best and trade with others moves.1 for other needs. . . . However, if China is more suited to cloth­ However, when Ricardo said that free ing production than America is and if there trade would produce shared gains for all is free trade in goods, then capital value will nations, he assumed that the resources move to China, however mobile American used to produce goods—what he called capital is. Clothing-related capital goods in the "factors of production"—would not China will increase in value while those in be easily moved over international bor­ America will decrease. The difference ders. Comparative advantage is under­ between Roberts's two cases is who will own mined if the factors of production can the appreciating capital goods. relocate to wherever they are most pro­ When an American capitalist moves a fac­ ductive: in today's case, to a relatively few tory to China, factory jobs do leave the countries with abundant cheap labor. In country, but the profits still return to the this situation . . . some countries win and United States. Not only does the American others lose. capitalist benefit, but so also might many other Americans. It is true, as critics of free For many advocates of liberty, the pri­ trade often point out, that some of the bene­ mary argument for free trade is a moral one, ficiaries may hold low-wage service jobs, succinctly captured by FEE founder Leonard such as gardeners, maids, waiters, and nan­ Read in the title of his book Anything That's nies. While their pay may not be impressive Peaceful. They contend that if two people by American standards, they no doubt voluntarily enter into an exchange of goods, appreciate having a job. In fact, many teach­ then no one else has a right to aggressively ers, engineers, and managers from poorer disrupt it. The moral status of such interfer­ countries eagerly seek such jobs here. Fur- 6 thermore, the American capitalist is also And since trade between nations always likely to employ higher-wage workers, such boils down to trade between individuals liv­ as accountants, architects, massage thera­ ing in those nations, any two countries also pists, chefs, and chiropractors. will have mutually beneficial trade available If American capitalists are denied oppor­ to them. tunities overseas, foreign capitalists will take Of course, Schumer and Roberts are not advantage of them. If, say, a Swiss capitalist merely imagining that some Americans are does so, those jobs will be in Switzerland having a difficult time because of the greater instead of the United States. How, exactly, ease with which certain jobs, such as high- would that benefit Americans? paying high-tech jobs, can now be moved overseas. An honest advocate of free trade Resource Immobility must admit that there will often be people who are made worse off, at least in the short Schumer and Roberts are wrong in con­ run, by the freedom to trade internationally. tending that the case for free trade depends But the same is true of trade within the bor­ on productive resources being relatively ders of a country: If you open a restaurant immobile between countries. As Ludwig von near to and better than mine, my business Mises said in Human Action: will suffer. It might be pleasant to live in a world of People cavil much about Ricardo's law unlimited resources, where everyone who . . . [because it] is an offense to all those wanted to run a restaurant could do so with­ eager to justify protection . . . from any out having to compete for customers' scarce point of view other than the selfish inter­ dollars. But since we don't, the fact that my ests of some producers. . . . situation might worsen because of your busi­ It has been asserted that Ricardo's law ness activities is an unavoidable consequence was valid only for his age and is of no of the freedom to buy from and sell to avail for our time which offers other con­ whomever one wishes. If we try to prevent ditions. [But] if one assumes that capital, all such unpleasant outcomes, we will elimi­ labor, and products are movable . . . then nate the market economy and regress to a it is superfluous to develop a theory of hand-to-mouth existence. international trade as distinguished from Those who find that scenario enticing are national trade. . . . welcome to retreat to the wilderness and live The teachings of the classical theory of that way today, without trying to impose interregional trade are above any change their vision on others. The rest of us should in institutional conditions.2 realize that freedom necessarily means that we can't pre-arrange social affairs to guar­ In other words, international trade is dif­ antee every outcome we desire. The result of ferent from trade within a nation only when voluntary interactions among free people national borders restrict the movement of will not always be to the liking of every productive resources. But Ricardo's law of interested party. The alternative to a market comparative advantage applies among all economy is not an economy in which some­ people, whether or not they live in different one can control all outcomes, but a "non- countries. Mises preferred to call it "the law economy," or, as Mises called it, "planned of association," since it is the foundation of chaos." all interpersonal exchange. —GENE CALLAHAN Because each person differs from everyone [email protected] else in his relative ability at different tasks, Author, Economics for Real People any individual will always have some com­ parative advantage over any other person. 1. Paul Craig Roberts, Mises.org Blog, http://www.mises. Therefore, any two individuals always have org/blog/archives/2004_01.asp. 2. Ludwig von Mises, Human Action, Scholar's Edition some mutually beneficial way to cooperate. (Auburn, Ala.: Ludwig von Mises Institute, 1998), pp. 160-63.

7 FREEMAN \Qdeas On Liberty)

MAY 2004 Free Markets, the Rule of Law. and Classical Liberalism

by Richard M. Ebeling

he history of liberty and prosperity is or one moral "right," or one correct concep­ inseparable from the practice of free tion of "the good" and "the beautiful." enterprise and respect for the rule of What liberalism has argued is that even the law. Both are products of the spirit of wisest and best men are mere mortals. They Tclassical liberalism. But a correct under­ lack God's omniscience, omnipresence, and standing of free enterprise, the rule of law, omnipotence. Mortal men look at and and liberalism (rightly understood) is greatly understand the world within the confines of lacking in the world today. their own imperfect knowledge, from the Historically, liberalism is the political phi­ perspective of their own narrow corner of losophy of individual liberty. It proclaims existence, and with extremely limited mental and insists that the individual is to be free to and physical powers compared to those pos­ think, speak, and write as he wishes; to sessed by the Almighty. believe and worship as he wishes; and to As a result, since no man may claim access peacefully live his life as he wishes. Another to an understanding of man and his world way of saying this is to quote from Lord equal to God's, no man can claim a right Acton's definition: "By liberty I mean the to deny any other person the freedom to fol­ assurance that every man shall be protected low his conscience in finding answers to in doing what he believes his duty against these profound and ultimate questions. They the influence of authority and custom, and are so crucial to man's very being as a spiri­ opinion."1 For this reason, he declared that tual and moral person that they must be the securing of liberty "is the highest politi­ removed from the arena of politics and polit­ cal end. "2 ical control. They must be left to the private Lord Acton did not say, you will notice, and personal confines of each man and his that liberty is the highest end, but rather conscience. the highest political end. In the wider con­ The reason for this should be evident. text of a man's life, political and economic Political control is fundamentally the power liberty are means to other ends. What ends? of physical force. It is the right to demand Those that give meaning and purpose to his obedience from the citizenry either to do or sojourn on earth. Liberalism does not deny not do something under the threat of the use that there may be or is one ultimate Truth, of coercion. Political power can be used to command people regarding how they may Richard Ebeling ([email protected]) is president of live, how they may think, and how they may FEE. His latest book is Austrian Economics and the Political Economy of Freedom (Elgar). This paper act. It is one man bending the will of another was delivered at Hillsdale College on February 8, to his wishes under the threat of physical 2004. harm.3 8 Some men have faced such threats or uses the law be held accountable under certain of force and not given up their faith or clearly defined procedures in their dealings beliefs or ideas. But liberalism argues that no with the citizenry. Or as the English legal man should be confronted with torture or philosopher Albert Venn Dicey expressed it death because of where his conscience leads in the late nineteenth century: "With us him. Furthermore, once political power is every official, from the Prime Minister down used to dictate what men may believe and to a constable or a collector of taxes, is how they may peacefully act, society is faced under the same responsibility for every act with an endless struggle as those with con­ done without legal justification as any other flicting faiths, beliefs, and ideas battle for citizen."6 control of the reins of political authority. It An essential element of the rule of law is becomes a life-and-death confrontation to that it specifies what government may not do determine whose conception of the good, the to the citizenry. For example, neither the beautiful, the right, and the just shall be government nor its various legal agents may imposed on all. In such a battle over truth hold an individual without bringing charges and virtue man's world becomes an earthly against him before a judge within a specified hell of human and material destruction. period of time. The writ of habeas corpus There thus arose the idea of tolerance, assures that no man is physically seized and that each man should respect the right of held for an indefinite duration without every other man to be guided by the dictates charges being brought against him in a court of his conscience.4 But even tolerance was of law. If it is not demonstrated to the court soon seen to be authoritarian; it implied that that a breach of the law has occurred and the one tolerating the free thoughts and that there is sufficient evidence for holding actions of another was doing so as if he were the accused, he must be let go.7 Or as Dicey giving a privilege to someone else, a privilege explained it, "Liberty is not secure unless the that if given could at any time be taken law, in addition to punishing every kind of away. Hence, it was insisted that freedom of interference with a man's lawful freedom, conscience was a fundamental right pos­ provides adequate security that everyone sessed by all men, and not something per­ who, without legal justification, is placed in mitted or allowed, say, by a majority for the confinement shall be able to get free."8 benefit of a minority.5 A distinctive quality and merit of the rule But how was the political authority—the of law is that it attempts to, if not completely government—to be prevented from overstep­ eliminate, then reduce as much as possible ping its boundaries and encroaching on such all arbitrary power in the hands of those individual rights as freedom of conscience who administer the political regime and the and other elements of personal liberty? How legal order. Friedrich Hayek, for example, were men with political power to be has emphasized that the rule of law refers to restrained from abridging other men's rights? laws of an abstract and general nature All law is man-made, regardless of the source equally applied to all men independently of of the inspiration for the law. It is men who any particular circumstance.9 articulate and agree on the law, who codify Since this may seem rather nebulous, it it, and who establish and enforce the proce­ can be better understood through the expres­ dures and mechanisms for its respect and sion end-independent rules.10 We can think enforcement. Man, therefore, can never be of this, for example, in terms of the rules of separated from law and the legal process. road. These rules specify whether cars are to be driven on the right or left side of the road; Public Accountability that all cars must stop and wait while the traffic light is red, and may go when the light A way to assure that society lives under a turns green; that posted speed limits must be rule of law and not a rule of men is to insist followed; and that if a police car or an that even those who implement and enforce ambulance is coming down the road, all 9 The Freeman: Ideas on Liberty • May 2004 other drivers are to pull over and stop until transactions, with the spirit of the hero that it has passed. brings forth the virtues of courage, obedi­ These rules of the road are general and ence, and self-sacrifice. "The trader," Som­ uniform, in that they apply equally to all dri­ bart said, "speaks only of 'rights,' the hero vers and do not privilege or burden anyone. only of his duties."13 Furthermore, as long as every driver follows Now, of course, the question that Som- these rules, he is free to travel on the roads bart's depiction of the characteristics of the whenever he desires, for whatever purpose "hero" leaves unanswered is: obedience to he may have in mind. Nor can any driver be whom, and sacrifice for what? In Sombart's pulled over by police patrolling the roads view it was the state, through its political and highways for a traffic violation unless leaders, that dictated the goals for which the there is an infraction of these general and citizenry was to make those sacrifices and uniform rules of the road. that demanded obedience to achieve the The general and abstract rules are "end- national tasks. The individuals of the society independent" because they do not imply or were to sacrifice their own goals, purposes, require any particular outcome or result plans, and dreams. These were narrow, from the actions and interactions of the citi­ mundane, and petty. The great political lead­ zenry, as long as they follow the rules. Thus, ers make the other members of society con­ whether people follow the rules of the road form to a higher plan and purpose, one to get to work, or to visit the family dentist, which they claim to discern through intuitive or simply to get out of the house for a while insights and understandings that ordinary and just drive around is immaterial. The men cannot comprehend or grasp. Hence, very nature of a free society under the rule of they are expected to obey the commands of law is that the society, itself, has no purpose, those leaders in the service of an imposed or "manifest destiny" or "historical role" hierarchy of ends to which they must sacri­ that it is called upon to play. A free society fice their individual plans and purposes. has no plans or purposes separate from the In a society of Sombart's heroes, the rules individual plans and purposes of its individ­ under which the citizenry now act are end- ual citizens. dependent. That is, the legal rules and regu­ lations under which men are made to live Selfishness versus Great Causes direct them to act and interact in ways that are meant to assure particular outcomes. That a free society has no plan or purpose The citizenry's actions are made to follow or higher calling independent of those of its paths leading to the outcomes that the polit­ citizens has bothered many who think that ical leaders consider the desirable configura­ nations should have "callings" to "great­ tion for the society. How else can it be ness." They see in the individual plans and assured that the actions of all the people purposes of the citizenry a narrowness and move in the direction that the nation's call to selfishness not worthy of great causes and greatness demands? It should be clear that great men. One leading voice in the first half this requires the abrogation of the individ­ of the twentieth century who wanted nations ual's own freedom of action, choice, and to pursue great causes under great men was decision-making. He is made into the tool of Werner Sombart, a German Marxist who another man's ends. He serves ends that oth­ later in the 1930s became an outspoken ers have assigned to him, and not his own.14 apologist for Hitler's National Socialism.11 It should also be clear this is why those During World War I, Sombart published a who desire to assign higher purposes and small volume of what he called "patriotic callings for society tend to be suspicious of reflections" titled Traders and Heroes.^1 He and often actively hostile toward free enter­ contrasted the trader or man of commerce, prise and the market economy. The essence who, Sombart insisted, sees no farther than of every type of collectivism, whether it his own profits to be made through market be called socialism, communism, fascism,

10 Free Markets, the Rule of Law, and Classical Liberalism

Nazism, or the interventionist-welfare state, als, each of whom owns varieties of property is the desire and intention of imposing on that he is at liberty to apply and utilize in society a politically engineered design to various ways, provides a network of poten­ which all men are expected and, if required, tial relationships of production, trade, and forced to conform. association among men outside and indepen­ Adam Smith, in his first book, The Theory dent of the orbit and control of government. of Moral Sentiments, referred to the social Private property gives reality to the ideal of engineer as "the man of system," who looks individual freedom.17 at society as if it were a giant chessboard The networks of voluntary, peaceful, and upon which he moves the human chess private association form the elements of pieces until the overall pattern created is one what has been called "civil society." They to his own liking. What the man of system are the "intermediary institutions" that totally disregards is that each of these stand between the power of the state and the human pieces on the chessboard of society single, isolated individual; they supply sup­ has his own will, wishes, desires, dreams, port and give assistance to the individual in goals, values, and beliefs, which motivate his the economic, social, cultural, and spiritual own movements independent of any attempt needs of life. But they also offer protection by that social engineer to direct and dictate and strength to the lone individual who oth­ his place and position in society.15 erwise would face the power of government on his own. It is not surprising, therefore, that historically the more the power and Property Provides Autonomy intrusive reach of the government extends Classical liberalism has always empha­ into the affairs of the citizenry, the more the sized the inseparable connection between state attempts in various ways to undermine individual liberty and the right to private and replace these voluntary associative insti­ property. Partly it has been based on the idea tutions of civil society with its own bureau­ of justice: that which a man produces hon­ cratic structures. The weakening or elimina­ estly and peacefully through his own efforts, tion of the intermediary institutions of civil or which he acquires through voluntary acts society leaves the individual increasingly of exchange with others, should be consid­ dependent on the political caprice and ered rightfully his. The case for private prop­ largess of those who manage the agencies of erty has also been made on the basis of util­ government. He becomes a pawn in the itarian efficiency: when men know that the hands of those men of system whom Adam rewards from their work belong to them, Smith warned us against.18 they have the motives and the incentives to Where the rule of law is practiced and apply their industry in productive and cre­ respected, the creative energies of man are ative ways.16 set free. Each man is at liberty to utilize his But in addition, the classical liberal has own knowledge for his own purposes, but defended the institution of private property the very nature of the free-market economy because it provides the individual with a is that he must apply that knowledge and his degree of autonomy from potentially abusive abilities in ways that serve the ends of others political power. Private property gives the in society as well. Since no man can attain all individual an arena, or domain, in which he his goals, beyond some of the more primitive has the ability to shape and design his own ones, through his own labor and the partic­ life, free from the control of political force. ular resources that may be in his ownership As a private owner of some of the means and control, he enters into exchange rela­ of production—even if it be only his own tionships with others in society. Men begin labor—he can search out the employment to specialize in producing things for which for himself that he considers most attractive they have a comparative advantage over and profitable, given his own personal pur­ their neighbors to extend their trading poses and plans. A community of individu­ opportunities with others in the growing

11 The Freeman: Ideas on Liberty • May 2004

The rules for the free society are fairly simple and straightforward: thou shall not kill; thou shall not steal; thou shall not bear false witness—no fraud or deception in relationships with others.

community of men. The interdependency for the general good of all mankind, then that a division of labor creates makes each every individual must be left free to use what member of society increasingly conscious he knows, and do what he wants to do, that he must serve his fellow men in order to according to his own design.21 accomplish his own ends.19 What irks the social engineer when he The individuals on that great chessboard looks around at the free society is that it of society move themselves about, forming appears to be a world without a "plan," a connections, relationships, and associations jumble of social chaos. What the classical with those around them as they discover liberal sees is a world of multitudes of plans, opportunities for mutual improvement. Pat­ each one being the plan given by an individ­ terns do take form; configurations of human ual to his own life. There is order, pattern, interconnection do take shape. But these pat­ and structure to this world, but an order, terns are not planned or designed; they pattern, and structure generated out of the emerge from the relationships that men interconnections that individuals have choose to establish among themselves, with formed among themselves through their vol­ no conscious intention of generating much untary market and social relationships. of the institutional order and structure that The rule of law provides the societal rules result from their market and social interac­ of the road within which those individuals tions. may freely move about as they see fit. The As Hayek pointed out, drawing on the rules for the free society are fairly simple and insights of some of the political economists straightforward: thou shall not kill; thou of the eighteenth century, the social order shall not steal; thou shall not bear false wit­ that develops is to a great extent "the results ness—no fraud or deception in relationships of human action, but not of human with others. Beyond these types of simple design."20 And, as Hayek emphasized, it is rules, each individual is free to follow his all to the better that this is the case. Why? own conscience and interests in all other Because the emergent social patterns, order, matters. and institutional arrangements incorporate the knowledge, ability, and creativity of the A Lawless World multitudes of human participants. No single mind or group of minds—no matter how The world in which we live today is to a wise and well-intentioned—could ever growing extent a lawless world, if by lawless know, understand, and appreciate all the we mean circumstances in which the rule of fragmented knowledge, insight, and ability law is increasingly not respected or even that exist as divided knowledge and creative understood. The law, in practice, is more potential in the minds of all the members of and more end-dependent in its purpose and humanity as a whole. If all that man knows, application. Some in society do not like the that he can do or might imagine, is to be pattern of relative income shares that results taken advantage of and brought into play from the interactions between employers 12 Free Markets, the Rule of Law, and Classical Liberalism and employees, so they use the power of the The latest trend in this direction is the state to redistribute income and wealth growing fear that the new global economy according to their conception of material threatens the livelihood and material stan­ justice and fairness. dards of living of the American people. A Others do not approve that some in soci­ chorus of special-interest groups and intel­ ety like—indeed enjoy—smoking, especially lectual elites are warning that investment while they are having a drink and after a opportunities and many relatively well- meal, so they restrict or increasingly ban pri­ paying jobs are being lost to other countries vate establishments from setting their own around the world. They conjure up night­ rules on the basis of what they consider the mare visions in which America buys every­ preferences and desires of their customers by thing from the rest of the world, where labor totally prohibiting smoking in what they is cheaper and production costs are much declare to be "public" places. Still others lower, and that America is left with nothing believe that the citizenry cannot be trusted to to manufacture at home. International trade make sufficiently wise choices concerning and investment will leave the United States their own retirement planning or their an economic wasteland of poverty and medical-insurance coverage, so they enact dependency on cheap products made in laws and regulations that impose rules that China and outsourced labor services sup­ will guarantee the creation of the social engi­ plied by India. neer's preferred patterns for such social What we are hearing is the 21st century's behavior on the part of those whose choices version of the early nineteenth-century Lud­ and decisions he considers less enlightened dites, who at that time raised the alarm that than his own. the Industrial Revolution would soon result To assure, as the phrase goes, that there in unemployment for the vast majority as the will be "no child left behind," the social engi­ emerging machine age made human labor neers are imposing more national regulations redundant. The industrial machine age did on standards for education in schools around indeed result in the replacement of a wide the country, to create more of a single pattern variety of human labor. But this freed tens of of learning and its measured success to which millions of hands to then do new and differ­ all educational institutions and children will ent work with the assistance of more and be required to conform. One of the contribu­ better tools, so that the quality, variety, and tions for which Hayek was awarded the quantities of goods and services available Nobel Prize in economics was his insightful to all were expanded beyond anything that reminder that competition can and should be could be imagined at the time. Our modern seen as a discovery process, through which standard of living began with the Industrial each of us discovers our potential and ability Revolution and the machine age that it in the rivalry of the marketplace. Indeed, introduced. Hayek said, it is in the competitive process After thousands of years of appalling that men are stimulated to see how far they poverty, more and more parts of the world can push themselves and their abilities, what are beginning to join and catch up to the new ideas and important innovations they West in terms of standards and quality of can come up with, and what their most pro­ living. We should be hailing this as one of ductive and valuable role and place may be in man's greatest hours in his long existence on the social system of the division of labor for this earth. This great transformation will, of the mutual benefit of all.22 How can this play course, bring changes, even dramatic out in the crucial arena of devising new and changes, in the structure and patterns of the better ways of educating the young, when the global system of division of labor, as billions men of system, the social engineers, in Wash­ of people on other continents find new and ington, D.C., increasingly nationalize the more productive and profitable niches in the content and form of learning in all the world's network of trade, commerce, and schools across the nation? industry.23

13 The Freeman: Ideas on Liberty • May 2004

Each of us, Leonard Read said, must become candles of liberty in the darkness of collectivist ideas. The brighter we each shine through our understanding and ability to articulate the meaning of freedom, the more we will be beacons that can attract others.

America's Role in the World must leave men and their minds free. The man of system, the social engineer, who sees Inevitably, this will change, as well, only the apparent problems from these America's role and place in the global com­ global changes, wants to plan America's munity of nations. Some industries and ser­ place in the new, emerging global economy. vice sectors will diminish or be entirely But to do so, he must confine and strait- replaced by producers and suppliers in other jacket all of us to what his mind sees as the parts of the world. But trade is a two-way possible, profitable, and desirable from his street. Imports are paid for with exports. In own narrow perspective with the knowledge fact, the only reason a nation exports any­ he possesses in the present. thing is to use those foreign sales as the Soviet-style central planning may seem to means of paying for goods and services that have been cast into the dustbin of history (to can be purchased from abroad less expen­ use a Marxian phrase), but in fact the under­ sively than if they were to be made at home. lying idea is alive and well around the world, Other industries and service sectors will including the United States. Ideological elites emerge or expand in America, instead, as the and voting majorities not only do not recog­ citizens of the United States discover in the nize the individual rights of others to live arena of international commerce and compe­ their lives in ways of their own choosing, but tition their better and more efficient niches they increasingly do not even show tolerance to serve their neighbors at home and their for any range of difference of opinion and fellow human beings around the world. action. They are determined to plan our lives When the next generation looks back at our and our futures—and indeed even our present time, say, 25 years from now, they thoughts in this increasingly anti-liberal will be able to see the market processes by age.24 which these new patterns and trading rela­ Leonard Read, the founder and first presi­ tionships emerged and took shape. And they dent of FEE, once penned a book with the will see the improvements and gains that title Anything That's Peaceful.25 In it he said resulted from these processes in a way that that if we are to regain the liberty that we we cannot yet imagine, any more than those have lost, and the fully and consistently who feared the machine age in the early applied rule of law that once was the decades of the nineteenth century could guardian of our liberty and freedom of enter­ imagine the wondrous improvements in the prise, we must reawaken in our fellow citi­ human condition that were visible when one zens an understanding of what liberty, the looked back at the beginning of the twenti­ rule of law, and individual self-responsibility eth century. mean. But this cannot come about unless We can never possess tomorrow's knowl­ each of us is willing to participate in a edge today. We can never know what inno­ process of self-education in which we vations, creative ideas, and useful improve­ become knowledgeable about liberty and its ments will be generated in the minds of free opposite. And we must be willing and coura­ men in the years to come. That is why we geous enough to consistently defend free- 14 Free Markets, the Rule of Law, and Classical Liberalism dom, self-responsibility, and all of their 12. Werner Sombart, Handler und Helden: Patriotische Besinnungen (Munich: 1915). implications. 13. Fritz K. Ringer, The Decline of the German Mandarins: Each of us, Leonard Read said, must The German Academic Community, 1890-1933 (Cambridge, Mass.: Harvard University Press, 1969), pp. 183-84; Jerry Z. become candles of liberty in the darkness of Muller, The Mind and the Market: Capitalism and Modern collectivist ideas. The brighter we each shine European Thought (New York: Alfred A. Knopf, 2002), pp. 256-57. through our understanding and ability to 14. However, on the meaning of "leadership" in a free soci­ articulate the meaning of freedom, the more ety, see Leonard E. Read, Elements of Libertarian Leadership (Irvington-on-Hudson, N.Y.: Foundarion for Economic Educa­ we will be beacons that can attract others. tion, 1962); and The Coming Aristocracy (Irvington-on- Quoting an old English saying, Read Hudson, N.Y.: Foundation for Economic Education, 1969). 15. Adam Smith, The Theory of Moral Sentiments (New reminded us that it is the light that brings Rochelle, N.Y.: Arlington House, 1969 [1759]), pp. 242-43. forth the eye and the ability to see. 16. Jean-Bapriste Say, A Treatise on Political Economy, or the Production, Distribution, and Consumption of Wealth None of us who care about liberty can (New York: Augustus M. Kelley, 1971 [1821]), pp. 127-32; avoid in good conscience our responsibility William Huskisson, Essays on Political Economy (Canberra: Australian National University, 1976 [1830]), pp. 45-64; in this matter. I will close with the words of Frederic Bastiat, Economic Harmonies (Princeton, N.J.: D. Van the Austrian economist Ludwig von Mises, Nostrand, 1964 [1850]), pp. 199-235; John R. McCulloch, The Principles of Political Economy, with Some Inquiries Respect­ who was one of the greatest and brightest ing their Application (New York: Augustus M. Kellev, 1965 lights for liberty in the twentieth century: [1864]), pp. 25-36. 17. For recent statements of this idea, see, James M. "Everyone carries a part of society on his Buchanan, Property as a Guarantor of Liberty (Brookfield, Vt..: shoulders; no one is relieved of his share of Edward Elgar, 1993); Tom Bethell, The Noblest Triumph: Property and Prosperity through the Ages (New York: St. Mar­ responsibility by others. And no one can tin's Press, 1998); and Richard Pipes, Property and Freedom find a safe way for himself if society is (New York: Alfred A. Knopf, 1999). sweeping towards destruction. . . . What is 18. Edward Shils, "The Virtue of Civil Society," Govern­ ment and Opposition, Winter 1991, pp. 3-20, and Robert Nis­ needed to stop the trend towards socialism bet, Twilight of Authority (New York: Oxford University Press, and despotism is common sense and moral 1975); also, Richard M. Ebeling, Austrian Economics and the Political Economy of Freedom (Northhampton, Mass.: Edward 26 courage." • Elgar, 2003), Chapter 6: "Classical Liberalism and Collectivism in the 20th Century," pp. 159-78, especially, pp. 168-72. 1. Lord Acton, "The History of Freedom in Antiquity" 19. Adam Smith, The Wealth of Nations (New York: The [1877], reprinted in Selected Writings of Lord Action: Essays in Modern Library, 1937 [1776]), Book I, Chapters 1-3, pp. 3-21; the History of Liberty (Indianapolis: Liberty Classics, 1985), Mises, Human Action, pp. 143-76. p. 7. 20. Friedrich A. Hayek, "The Results of Human Action, but 2. Ibid. p. 22. not of Human Design" 11967] in Studies in Philosophy, Politics 3. Ludwig von Mises, Liberalism: The Classical Tradition and Economics (Chicago: University of Chicago Press, 1967), (Irvington-on-Hudson, N.Y.: Foundation for Economic Educa­ pp. 96-105; reprinted in Richard M. Ebeling, ed., Austrian Eco­ tion, 1996 [1927]), pp. 4, 52-55; Ludwig von Mises, Human nomics: A Reader (Hillsdale, Mich.: Hillsdale College Press, Action: A Treatise on Economics (Irvington-on-Hudson, N.Y.: 1991), pp. 134-49. Foundation for Economic Education, 1996), pp. 145-57; Lud­ 21. Hayek, The Constitution of Liberty, pp. 22-38. wig von Mises, Theory and History: An Interpretation of Social 22. Friedrich A. Hayek, "Competition as a Discovery Proce­ and Economic Evolution (Auburn, Ala.: Ludwig von Mises dure" [1969] in New Studies in Philosophy, Politics, Econom­ Institute, 1985 [1957]), pp. 49-50. ics and the History of Ideas (Chicago: University of Chicago 4. J. B. Bury, A History of Freedom of Thought (New York: Press, 1978), pp. 179-90; and Thomas Sowell, Knowledge and Oxford University Press, 1913). Oliver Brett, A Defense of Lib­ Decisions (New York: Basic Books, 1980). erty (New York: G. P. Putnam's Sons, 1921), pp. 151-70; 23. Richard M. Ebeling, "Globalization and Free Trade," Everett Dean Martin, Liberty (New York: W. W. Norton, The Freeman, April 2004, pp. 2-3; on this general theme of the 1930), pp. 193-238; see, also, John Morley, On Compromise benefits from freedom of trade and its continuing importance (Edinburgh: Keele University Press, 1997 [1877]). today, see Richard M. Ebeling, Austrian Economics and the 5. Guido de Ruggiero, The History of European Liberalism Political Economy of Freedom, Chapter 10, "The Global Econ­ (Gloucester, Mass.: Peter Smith, 1981 [1927]), pp. 18-19. omy and Classical Liberalism: Past, Present and Future," pp. 6. Albert Venn Dicey, The Law of the Constitution (Indi­ 247-81; and on related aspects of the same issue, Richard M. anapolis: Liberty Classics, 1982 [1885; revised ed., 1914]), p. 114. Ebeling and Jacob G. Hornberger, eds., The Case for Free Trade 7. Lord Hewart, The New Despotism (London: Ernest and Open Immigration (Fairfax, Va.: Future of Freedom Foun­ Benn, Ltd., 1929), pp. 28-29; Francis W. Hirst, Liberty and dation, 1995). Tyranny (London: Duckworth, 1935), pp. 67-74; Richard M. 24. David Henderson, Anti-Liberalism, 2000 (London: Insti­ Ebeling, "Civil Liberty and the State: The Writ of Habeas Cor­ tute of Economic Affairs, 2001), and David E. Bernstein, You pus," Freedom Daily (April 2002), pp. 9-15. Can't Say That! The Growing Threat to Civil Liberties from 8. Dicey, p. 132. Antidiscrimination Laws (Washington, D.C.: Cato Institute, 9. F. A. Hayek, The Constitution of Liberty (Chicago: Uni­ 2003). versity of Chicago Press, 1962), pp. 148-61. 25. Leonard E. Read, Anything That's Peaceful (Irvington- 10. Geoffrey Brennan and James M. Buchanan, The Reason on-Hudson, N.Y.: Foundation for Economic Education, of Rules: Constitutional Political Economy (Cambridge: Cam­ 1964). bridge University Press, 1985), pp. 1-18. 26. Ludwig von Mises, Socialism: An Economic and Socio­ 11. Werner Sombart, A New Social Philosophy (Princeton, logical Analysis (Indianapolis: Liberty Classics, 1981 [1951]), N.J.: Princeton University Press, 1937). pp. 468-69, 540.

15 Ideas and Consequences by Lawrence W. Reed .THE

^(irfens On Liberty)

MAY 2004

Telecom Regulations Don't Create Competitive Markets

ew of us would understand the jargon ment bull in the proverbial china shop. employed in a recent ruling overturning The blame largely falls on Congress. Key telecommunications regulations issued elements of the 1996 Telecommunications by the Federal Communications Com­ Act decreed outcomes but not means, leav­ Fmission (FCC). But it's not necessary to ing the FCC to expand its regulatory empire. know what "UNE-P" means or how "hot Indeed, the agency subsequently issued more cuts" are performed to take an interest in the than 10,000 pages of new rules, predictably proceedings. At stake are fundamental prin­ unleashing a frenzy of litigation. ciples of interstate commerce and property Ironically, the 1996 Act was intended as rights. an instrument of reform. In a major depar­ Three times in the past eight years, federal ture from six decades of state and federal courts have struck down as arbitrary and policy, Congress rightfully sought to end the over-reaching prior versions of the FCC reg­ monopoly franchise system in local phone ulations governing competition in local tele­ calling. Unfortunately, lawmakers presumed phone service. Three times the commission that government could create a competitive has been ordered to revise its autocratic market through regulation—a conceit that rules. The latest incarnation of the regula­ doomed their good intentions. tions, unveiled last October and struck down The most problematic aspect of the act is on March 2, is in some respects the worst of the requirement that major wire-line compa­ the lot, as if the FCC were increasingly deaf nies such as Verizon, BellSouth, SBC, and to judicial censure. Qwest allow rival firms to use their networks It's a troubling state of affairs for obvious at regulated rates. Such "forced access"—a reasons. Regulatory uncertainty has inhib­ regulatory taking of private property if ever ited telecom investment and innovation, there was one—was necessary, Congress rea­ thereby eroding the reliability of the network soned, to allow new entrants to gain market as well as impeding economic growth. The share. Once their business base was estab­ commission's intransigence, meanwhile, lished, competitors were expected to con­ insults the separation-of-powers doctrine struct independent facilities. and exposes the telecom industry to regula­ The FCC devised a complex formula to set tory abuse. It's a case study of the govern- access rates based on the cost of operating a Lawrence Reed ([email protected]) is president hypothetical network. The phantom net­ of the Mackinac Center for Public Policy (www. work would presumably feature the most mackinac.org), a free-market research and educa­ advanced technologies and operate at opti­ tional organization in Midland, Michigan. The mum efficiency. author would like to thank Diane Katz, director of science, environment, and technology policy at Of course, no such network actually the Mackinac Center, for her assistance in the exists. And with no market confirmation of preparation of this column. these hypothetical network costs, regulators

16 set the access rates artificially low. Because access rates are downright confiscatory. the rates fail to cover operating costs in Proponents claim that the regulations are many instances, the network owners are necessary to neutralize the monopoly advan­ effectively subsidizing their rivals. tages once enjoyed by incumbents. (So the Not surprisingly, the robust wire-line mar­ FCC, which for 60 years preserved that ket envisioned by Congress has not material­ monopoly system, is now the architect of ized. Reliance on incumbent networks has reform?) But such regulatory punishment largely failed to stimulate new products or appears to conflict with the ex-post-facto services, or even lower rates—the hallmarks clause of the Constitution, leaving us to of competition. In essence, forced access has wonder how our law-abiding actions today simply allowed new entrants to slap their will be sanctioned by government sometime names on existing services and call it compe­ in the future. tition. Most have no incentive to construct The latest rewrite of the telecom rules independent facilities. And faced with the also undermined the tenets of interstate com­ prospect of having to "share" their facilities, merce. The commission majority had many incumbents have been unwilling to directed 50 state utility commissions (and the undertake new investment. District of Columbia) to determine which ele­ ments of the local telecom network should Disappointing Results remain communal property. But as the U.S. Court of Appeals for the D.C. Circuit ruled In Michigan, for example, the Mackinac in March, this delegation of authority rep­ Center found that 89 percent of the local resents a "fundamental misreading of the law." wire lines billed by competitors in 2002 A handful of "conservative" lobbyists actually were serviced in whole or in part by have attempted to argue that this delegation an incumbent network, up from 62 percent of regulatory authority to the states is proper in 1999. Meanwhile, there has been a corre­ from a federalist perspective. But interstate sponding decline in the proportion of lines commerce is unquestionably the province of served by independent facilities. Competi­ the federal government, and nothing so tors utilized their own facilities to service a defines modern telecommunications as the mere 10 percent of their customers in 2002, absence of geographic boundaries. down from 29 percent in 1999. It is worth noting that the most rapidly In short, the forced-access regime has expanding sectors of the telecom industry— failed to achieve its most basic policy goals. wireless and cable telephony—are the least As stated by securities analysts with Fulcrum regulated. As history has repeatedly shown, Global Partners LLC: "The fact that we are technological progress thrives in the absence no closer to a deregulated market than we of centralized authority. Both alternatives were in 1995 speaks volumes for how inef­ represent significant competitive challenges fective the law was in the first place. The to local wire-line carriers—without subsidies incremental social burden that the Telecom or onerous regulation. Act of 1996 has placed upon the industry, If we strip away the technical particulars consumers and the country overall cannot that often cloud this policy debate, what we begin to be measured." essentially are left with are disparate visions But bad as the economic consequences about the power of markets to maximize have been, the surrender of constitutional technological innovation. It is clear that the and market principles is worse. There can regulatory model has failed to achieve policy hardly be a more direct violation of the Fifth objectives. Amendment "takings" clause than the FCC's All this is yet another reminder that devi­ regulatory declaration that "the incumbent ating from time-tested principles of a free must accept the novel use of, and modifica­ marketplace, property rights, and due tion to, its network facilities." From the process under constitutional rules carries standpoint of network owners, the regulated costly consequences. •

17 FREEMAN %(ltfeas OH Liberty)

MAY 2004 The Wisher and the Legislator: A Lesson from a Fairy Tale by Joseph 5. Fulda

he fairy tale, or fable, is a literary the multitude of consequences that will device by which adults—who have undoubtedly ensue, many of which we learned many of life's lessons the hard would not want. Unlike when objects of our way—impart wisdom to the young. It desire are earned slowly, there is no feed­ Tis at once an exciting and captivating story back about the wisdom and appropriateness and a lesson in moral imagination. It suc­ of the goal, no turning back or perhaps ceeds because it is simple and direct. merely turning aside—the wish is carried out Across most cultures, there is a recurring by the genie exactly as it is expressed in fable: The fairy tale of the three wishes. The words. There is thus no opportunity for re- poor chap who is at once hero and fool of evaluation, re-examination, and ultimately the story is given three wishes. The first wish reconsideration, as there is when one is inevitably spent on something foolish and embarks on a long path to a goal. trivial, but the wish is fulfilled powerfully Furthermore, when working toward a and right away, thereby emboldening the goal, a person commits his whole self to it in wisher. The next wish is much more serious, that he must take action after action to one that will thoroughly change the life of achieve it, and he must do so over a pro­ the wisher all at once. Inevitably, it brings longed period. When wishing, however, he disaster and ruination upon him. The third does not have to put thought, care, or wish is humbler—to be rescued from the dis­ repeated and sustained effort into attaining asters of his earlier wishes, with everything his goal. Each action a man has to put in his world restored to normalcy. This wish toward a goal takes effort, and each such also is granted, and the hero comes away a action is therefore a reason to abandon the much sadder but much wiser man. goal if it is not worth—if it is no longer What is the moral of this story? It is not worth—the effort. The actions that men quite that we do not know our own minds must take to achieve their dreams dampen and what we really want, because of course their enthusiasm for them. Engineers call in some important senses we do. I think the such dampening a "negative feedback loop," teaching of the story is that we are not wise and it is the hallmark of a stable system that enough to get what we want all at once by it centers around such a loop. "Positive feed­ merely wishing for it, for we cannot foresee back loops" quickly go out of control and rock the system's limits. Contributing Editor Joseph Fulda ([email protected]) So what, then, is it fair to conclude about is the author of Eight Steps towards Libertarianism (Free Enterprise Press). Copyright © 2004 Joseph knowing one's own mind? At every step of S. Fulda. The author dedicates this article to the the way toward a goal, a person knows memory of his beloved Aunt Ruth. whether the next step is worth it in light

18 of that small step's consequences—small whatever end they desire and then re-evalu­ enough to be seen and felt—and the effort ate both ends and means, always in light of required. Whether the step after that will the continued worthiness of the goal and the also be worth it is something he will not additional effort required. Laws are not like finally decide till it is ripe for decision. The life's goals. Many of them are foolish and saving grace is that even if a subsequent step trivial, like the first wish in the fairy tale. is no longer worth the effort, often that does Many of them are much more serious and not mean the prior steps were in vain: wreak havoc on everyone and everything in Instead of turning back, the man may turn sight in countless unthought-of ways. But aside, and choose a path parallel rather than unlike the sadder but wiser fool who through perpendicular to the original path. his learning becomes the hero of the tale, the legislators do not learn simply to undo their wishes expressed as legal fiats. Rather, seeing Laws Are Wishes the untoward consequences of their wishes, The astute reader will already have divined they remain, sometimes willfully, sometimes the point we wish to make. The legislator is a not, ignorant of the causes of the calamities wisher. Laws are wishes. And legislatures their wishes have brought about. And they have not learned the teaching of the child's proceed to "repair" the damage with simple but profound tale. Consider: Laws, another, yet another, and yet still another like wishes, are effected at any speed—even wish, and the calamities multiply as the all at once; with the exception of Prohibition wishes are effected by the genies of govern­ and a few other less notable cases, they are ment enforcers. rarely reconsidered. The legislatures of this That, my friends, explains the current land do not take incremental steps toward mess. •

Missing Mainspring? Lacking The Law? Call us at 800-960-4333 for all your FEE favorites.

19 MAY 2004 Losing the Law: From Shield to Weapon by William L. Anderson and Candice E. Jackson

n recent years lawmakers and enforcers Federal prosecutors usually don't pursue have increasingly criminalized business individuals making innocuous mistakes, but behavior. From the prosecution of they can if they so wish. The U.S. Supreme Michael Milken and other Wall Street fig­ Court already has ruled that intent to com­ ures in the 1980s to the indictment of mit a crime (the ancient doctrine of mens Martha Stewart in 2003, federal criminal rea, or "guilty mind") is no longer a requi­ law has become a wild card influencing eco­ site element in some criminal prosecutions. nomic matters in unpredictable ways. This The Supreme Court has created an entire affects everyone. Should this criminalization category of statutory crimes it calls "public continue, the result will be less private welfare offenses," permitting Congress and investment, as frightened executives decide state legislatures to provide criminal penal­ that investment in this country is not worth ties for acts and omissions that technically risking a stint in federal prison. violate a regulatory statute.1 The unfortu­ We must first explode the myth that only nate defendant need not even know that a "guilty" people get in trouble with the law. violation of the law occurred.2 While the Federal law today encompasses such a wide Court initially applied this doctrine to per­ range of actions that the majority of people mit Congress to dispense with mens rea reading this article have probably engaged in requirements for regulations concerning conduct that could result in federal criminal things like possession of narcotics and hand charges. grenades, the doctrine has evolved to include For example, readers who have miscalcu­ ordinary business activities, and threatens lated their income taxes and sent the incor­ today to become the rule for criminal liabil­ 3 rect form through the mail have committed ity rather than the exception. mail fraud, a federal felony. Anyone who The evisceration of mens rea is a mecha­ has sent wrong figures or information over nism for empowering the state. In a 1943 the Internet has committed wire fraud. In the Supreme Court decision, Justice Felix Frank­ first case, if you had the help of another per­ furter declared: "The good sense of prosecu­ son in figuring (or misfiguring) your taxes, tors, the wise guidance of trial judges, and that is conspiracy. the ultimate judgment of juries must be trusted. Criminal justice necessarily depends on 'conscience and circumspection' in prose­ William Anderson ([email protected]) is cuting officers."4 an assistant professor of economics at Frostburg State University, Frostburg, Maryland. Candice In other words, government employees Jackson ([email protected]) is litigation counsel for whose careers depend on convicting people Judicial Watch. determine the standard of justice. However,

20 reality is different from Frankfurter's idealis­ of Justice almost certainly illegally leaked tic picture. Mary Sue Terry, former attorney information to the press on the grand jury general of Virginia, recently declared that testimony given in the Stewart case prior to modern justice "has turned from seeking her indictment, yet another felony that pros­ truth to seeking convictions."5 ecutors ignored. If a prosecutor's own words are not evi­ There is an obvious pattern here. Govern­ dence enough of the alarming trend in crim­ ment officials who are sworn to uphold the inal law, consider a speech at Harvard Uni­ law broke that law—and could do so with­ versity in February 2003 by Judge Edith out any fear of reprisals, because for all Jones of the Fifth Circuit U.S. Court of intents and purposes the law does not apply Appeals. In the speech Judge Jones claimed to them. that the American legal system has been The U.S. Government charged Stewart "corrupted almost beyond recognition." with obstructing justice, conspiracy, and According to the Idaho Observer, "Judge securities fraud. "Obstruction of justice" Jones explained that zealous prosecutors are sounds ominous, but is often nothing more increasingly willing to sacrifice what is than a refusal to incriminate oneself to fed­ morally right for political expediency. She eral investigators—a refusal that should be also said that the change has come because protected by the Fifth Amendment. There is our nation's legal philosophy has descended no fixed standard defining the offense, and to 'nihilism.'"6 federal officials have near-absolute discre­ Jones further declared: "The integrity of tion over when to charge it. The basis for the law, its religious roots, its transcendent qual­ obstruction charge against Stewart was not ity are disappearing. . . . The first 100 years that she merely failed to cooperate, but of American lawyers were trained on rather that she lied when government agents [William] Blackstone, who wrote that, 'The asked why she sold her ImClone stock. (It law of nature . . . dictated by God himself . . . should be noted that the FBI takes a more is binding ... in all countries and at all casual attitude toward lying when it's done times; no human laws are of any validity, if by its own agents. The syllabus from an offi­ contrary to this. . . .' The Framers created a cial FBI course for new recruits on ethics government of limited power with this states that subjects of investigations have understanding of the rule of law—that it "forfeited their right to the truth."8) Even if was dependent on transcendent religious Stewart did lie, one can only wonder: how obligation."7 can it be obstruction of justice not to tell the truth to a government agent who is asking about something that is none of the govern­ The Martha Stewart Case ment's business? (Insider trading is not an Federal investigators often target individu­ objective crime, and Stewart was never als by stretching already dubious laws and charged with it.) regulations beyond recognition. Take the "Conspiracy" simply means that more Martha Stewart case. Stewart's indictment than one person was involved; in Stewart's and conviction demonstrate just how far fed­ case it is conspiracy to commit obstruction of eral criminal law and its application have justice. Furthermore, the evidence needed to strayed from their Blackstonian roots. Her prove a conspiracy can be so circumstantial name surfaced in the press because of an die- (such as phone records showing a conversa­ gal leak of information from a congressional tion) or untrustworthy (uncorroborated committee investigating the sale of ImClone "accomplice" testimony) that probably any Systems stock in December 2001. In other one of us could be accused and convicted of words, someone committed a felony by leak­ conspiracy to do something illegal. ing the information to the press, but federal The "securities fraud" charge against investigators ignored that. To make things Stewart (later dismissed by the trial judge) worse, someone from the U.S. Department was especially egregious. Prosecutors pinned

21 The Freeman: Ideas on Liberty • May 2004 this "crime" to her indictment just because liani, then U.S. attorney for the southern dis­ she publicly declared her innocence of the trict of New York, to go after upstart invest­ insider-trading charges rumored to be forth­ ment firms on Wall Street. With approval coming against her, but which were never from established Wall Street firms that did filed. U.S. Attorney James B. Comey (who not appreciate competition from companies since has been promoted to the number-two like Princeton-Newport and Michael position in the Department of Justice) stated Milken's Drexel Burnham Lambert, Giuliani that Stewart's public declaration of inno­ used RICO to destroy those companies and cence was actually illegal stock manipulation jailed Milken in the process.10 because it kept the price of Martha Stewart Living Omnimedia higher than it would oth­ Fighting the War on Drugs erwise have been. For mounting a public defense in search of a fair trial before the The War on Drugs took off during the government had proved her guilty of any­ 1980s, so federal prosecutors demanded— thing, the government added another poten­ and received from Congress—new "crime- tial prison term to her bill of indictment. fighting tools" to deal with drug rings. The Congress has created a classification of Comprehensive Crime Control Act of 1984, legal violations that we have termed "deriv­ for example, expanded the definitions of ative crimes."9 Under the Constitution, crimes like "money laundering," which is lit­ states are the entities responsible for defining tle more than depositing money allegedly and prosecuting "common law" crimes, garnered from criminal activity. While such as theft, robbery, and murder. To work "money laundering" brings visions of a around the Constitution's mandate of feder­ Miami Vice drug kingpin purchasing a new alism, Congress and the Supreme Court Mercedes with suitcases full of hundred- began to reinterpret the Commerce Clause to dollar bills, the charge usually is applied in mean that Congress could invent a national order to add prison time for people con­ set of crimes to cover activities that only victed of other white-collar crimes. The idea remotely affect interstate commerce. is that if someone has committed a crime in While Congress created the first "deriva­ the course of business, the money earned by tive crime," mail fraud, more than a century that business was ill-gotten, which then ago, this kind of crime really began to affect kicks the "money laundering" tripwire. businesses in 1970 with the creation of the Prosecutors found that such laws also Racketeer Influenced and Corrupt Organiza­ increased their ability to target anyone they tions Act, or RICO. Created supposedly to wanted, despite the intended scope of the deal with "organized crime," RICO created legislation. a new class of crimes in order to bring mob Like RICO, most crimes in the federal suspects into federal court where it was code are works of fiction, not real offenses. believed that the chances of convicting them Even the crimes that deal with real wrong­ of something would be stronger. doing, such as "fraud," are defined differ­ The RICO law declared that any dis­ ently from what most people would consider cernible "pattern" of crimes, such as prosti­ criminal fraud to be. Intent to deceive is tution, gambling, and the like, could be usually a crucial element of fraud. For exam­ bundled into a new federal crime of "racke­ ple, if I purchase a used car that has "low teering." (Of course, since no one "racke­ mileage" at a local dealer only to find out teers" someone else, this new "crime" was a later that the dealer tampered with the statutory fiction.) It did not take long for odometer, I can claim to have been prosecutors to discover that they could apply defrauded. But I have to prove that the it against ordinary business people about dealer sold me the car with intent to deceive. whom it was not even alleged that they had The federal system, however, attaches the connections to "organized crime." term "fraud" to a wide range of cases, and In the 1980s RICO enabled Rudolph Giu­ denudes the term of any real meaning.

22 Losing the Law: From Shield to Weapon

According to the well-known criminal- filled with even more people who by any defense attorney Harvey Silverglate, federal reasonable definition are innocent of truly criminal law creates what he calls a "third criminal behavior. category" of prisoners.11 The first category, The Founders believed that law should be Silverglate says, consists of those who are a shield to protect people both from those guilty of a crime. The second category who would prey on their person and prop­ includes those wrongly convicted of a crime. erty, and from the state itself. Today, law The third are those convicted under vague has become a weapon the state uses against and broad statutes for engaging in conduct us for the political benefit of those in power. that a reasonable person would not have If the original vision is not resurrected, we assumed is criminal. This third category rep­ will lose the law altogether. • resents not a reasonable system of laws, but 1. The Court itself has defined "public welfare offenses" to rather a dangerous trap for the unwary and mean violations of statutes (often carrying criminal penalties) politically unpopular. that "depend on no mental element but consist only of forbid­ den acts or omissions." Liparota v. United States, 1985. When Ronald Reagan became President in 2. See for example, Staples v. United States, a 1994 case in 1981, there were about 1,500 U.S. attorneys. which Justice Clarence Thomas summed up the Court's public welfare offense doctrine and refused to apply it to a statute Today, there are more than 7,000, all of requiring regulation of machine guns. Justice Thomas may be whom need high conviction rates to gain fighting a losing battle, however (see note 3). 3. For example, Edward Hanousek, a railroad supervisor, 12 promotions and increased pay. The federal was convicted on criminal charges of violating the Clean Water prison population in early 1981 stood at Act when an independent contractor accidentally ruptured an oil pipeline, spilling oil into a U.S. waterway in Alaska. about 20,000; today it is more than Hanousek was not even at the site that day and had no knowl­ 170,000.^ edge, intent, or ability to prevent the "crime," but his criminal conviction was upheld by the Ninth Circuit Court of Appeals, Most readers will never go to prison, but and the U.S. Supreme Court denied review of his case, their lives are affected nonetheless. As the Hanousek v. United States, 2000. 4. United States v. Dotterweich, 1943; also quoted in Paul number of people shunted into federal pris­ Craig Roberts and Lawrence M. Stratton, The Tyranny of ons rises, the human wreckage increases as Good Intentions: How Prosecutors and Bureaucrats are Tram­ pling the Constitution in the Name of Justice (Roseville, Cal.: families are devastated, and businesses and Forum, 2000), p. 63. reputations are destroyed. 5. Quoted in Paul Craig Roberts, "Jailing the Innocent," January 7, 2004, www.townhall.com/columnists/paulcraig Because it is politically feasible to target roberts/pcr20040107.shtml. business owners and executives, "white col­ 6. "American Legal System Corrupt beyond Recognition, Says Federal Judge," Idaho Observer, March 2003, http:// lar" prosecutions will continue. The political proliberty.com/observer/20030304.htm. feeding frenzy that occurred in the wake of 7. Ibid. 8. Quoted in James Bovard, Freedom in Chains: The Rise the Enron and WorldCom collapses has of the State and the Demise of the Citizen (New York: St. Mar­ resulted in even broader criminal statutes,14 tin's, 1999), p. 162; Bovard's source was Roberto Suro, "Law Enforcement Ethics: A New Code for Agents; FBI Trainees Lec­ and the "war on terror" has brought a host tured On Integrity, Deception," Washington Post, August 21, of new statutes replete with intrusive investi­ 1997, p. A.17. 9. See William L. Anderson and Candice E. Jackson, "Law gatory tools for use by prosecutors not just as a Weapon: How RICO Destroys Liberty and Undermines rhe against suspected terrorists, but also against Purpose of Law as a Shield," scheduled for publication in The Independent Review, June 2004. ordinary business people. 10. Appeals courts later overturned the Princeton-Newport convictions, but not before Giuliani was able to use his tenure Business owners and executives are not as U.S. attorney to get elected mayor of New York City. stupid. They realize that if trends continue, 11. From personal correspondence. the handwriting on the wall will be unmis­ 12. Roberts and Stratton. 13. 2002 Statistical Abstracts of the United States, compiled takable: invest in the United States, risk by U.S. Bureau of the Census. Information taken from rhe web­ going to prison. Entrepreneurial activity site of Federal CURE, www.fedcure.org. 14. When the United States was created, there were three will be chilled as the public, egged on by federal crimes: treason, counterfeiting, and piracy. Today there ambitious prosecutors and demagogic are more than 3,000 criminal statutes and 10,000 federal regu­ lations that can be interpreted as having criminal penalties for politicians, demands that the prisons be their violation.

23 The Therapeutic State by Thomas Szasz

-THE FREEMAN % (Ideas On Liberty) MAY 2004

On Autogenic Diseases

ur bodies are physico-chemical Called "malingering," this kind of derelic­ machines. When the function of the tion of duty was usually punished by execu­ machine deviates from what is gener­ tion. Webster's still defines "to malinger" as ally considered normal and if we "to pretend incapacity (as illness) so as to Oregard the deviation as harmful and avoid duty or work." Prior to World War II, unwanted, we call the event or process a malingering was, by definition, a nondisease. "disease." Like all physical-chemical events, Today, it is a "no-fault" (mental) disease: diseases have causes, which physicians call political-psychiatric correctness now decrees "etiology." The familiar causes of disease that the person called "patient" is, ipso are pathogenic microbes, toxic chemicals, facto, a "victim," not responsible for what x-rays, genes (heredity), and trauma (injury). ails him. (This may or may not be the case.) Curiously, one of the most important The idea of autogenic, or self-induced, illness causes of disease in the modern world— negates this premise. Unsurprisingly, the namely, the self, the body's owner—is not idea has not caught on. recognized as such by the medical profes­ Thanks to the corrupting influence of psy­ sion. Many years ago I suggested that we chiatry on medicine, faking illness is now call these diseases "autogenic," much as we officially classified as a disease, called "facti­ call diseases caused by physicians or med­ tious disorder." The widely used Merck ical interventions "iatrogenic." (Webster's Manual (not a psychiatric text) states: defines "iatrogenic" as "induced inadver­ "Patients may consciously produce the tently by a physician or surgeon or by med­ manifestations of a disease, e.g., by trauma­ ical treatment or diagnostic procedures.") tizing their skin, injecting themselves with There are many ways in which a person insulin. ..." This is foolish. Persons intent may cause himself to be ill, some innocent, on making themselves sick do not merely others blameworthy, depending on the point produce the "manifestations of a disease," of view of the person judging the agent's they produce a disease, by mutilating or poi­ behavior. The classic example of autogenic soning themselves, for example, with an illness is the soldier in the trenches during overdose of Tylenol. World War I who, in a desperate attempt to The American Psychiatric Association's save his life, shoots himself in the foot. definition of factitious disorder is even more foolish: "The essential feature is the presen­ Thomas Szasz ([email protected]) is professor of tation of physical symptoms that are not real. psychiatry emeritus at SUNY Upstate Medical Uni­ The presentation may be . . . self-inflicted, as versity in Syracuse. His latest works are Words to in the production of abscesses by injection of the Wise: A Medical-Philosophical Dictionary (Jan­ uary 2004) and Faith in Freedom: Libertarian Prin­ saliva into the skin." If such abscesses are ciples and Psychiatric Practices (May 2004), both not real abscesses, then persons whose death published by Transaction. is self-inflicted are not really dead.

24 Equipped with such profound neurobio- among them diabetes and cardiovascular logical insight into the nature of human dis­ disease. To be sure, most people who eases, we are appropriately unprepared—or, overeat do so not to become obese but for perhaps more accurately, misprepared—to other reasons, just as most people who understand the epidemic of autogenic dis­ smoke do so not to get cancer but for other eases that now plague us. reasons. Note, however, that we call smok­ ing a disease, but do not (yet) call overeating Obesity as a Paradigmatic a disease. Autogenic Disease Is the individual who is obese or has lung cancer responsible for his illness? (Ignore, On December 16, 2003, the New York for the sake of argument, that some non- Times reported that the Food and Drug smokers also get lung cancer.) Eating and Administration has approved Xenical "for smoking are behaviors under our conscious the treatment of obese teenagers." A control. Either we assume responsibility for spokesman for Hoffman-La Roche, the man­ our behaviors and their consequences or we ufacturer, is quoted as having said that this assign responsibility for them to others—the was "good news for children who battle manufacturers and merchants who provide obesity" and that "we're thrilled with the us with a high standard of living and com­ approval." That this development is good fort and amusement—and blame them. Thus news for the manufacturer of the drug is self- do the food companies, tobacco companies, evident. That it is catastrophic for children pharmaceutical companies, and so forth, who battle obesity and our society in general become the causes of our diseases. is less obvious but more ominous. None of this has anything to do with med­ The body is a machine fueled by calories. icine or science. All of this is the conse­ We call the fuel "food" and the act of fuel­ quence of post-World War II political- ing "eating." If fewer calories are put into economic developments: obfuscating the the body than it burns, then the body will differences between the interests of the self gradually lose weight and die. If more are and the interests of others and destroying put into it, it will become heavier than "nor­ the cash nexus in the delivery of medical mal," that is, obese. Xenical, we learn, "has services. several unpleasant side effects, including Formerly, Jones paid for the treatment of problems with bowel control, and it works his lung cancer, just as he paid for his ciga­ best when combined with a low-calorie diet rettes. Today, he still pays for his cigarettes, that limits foods high in fat." A diet low but others (the insurance pool or taxpayers) enough in calories is, by definition, effective pay for his medical care. If Jones's illness is in preventing obesity. an economic burden on others, then others Obesity is a typical autogenic illness. Eat­ have a rational interest in Jones's not mak­ ing and not eating are voluntary acts. If we ing himself sick. do not expect children, as well as adults, to The result is a negation of the differences exercise self-control over the foods they eat, between dangerousness to self and danger- over which behaviors do we expect them to ousness to others: the private sphere, free of exercise self-control? state regulation, merges into the public Obesity may be classified as a disease for sphere, the object of state regulation. The two reasons: because it is an unwanted devi­ principle of "caveat emptor" is replaced by ation from the norm and because it "causes" the principle of "caveat vendor." Welcome (leads to the development) of other diseases, to the therapeutic state. •

25 ,THL

i(\deas On Liberty)

MAY 2004 Scotland: The Bitter Taste of Independence by James L. Payne

or nearly a thousand years, the Scots policy, and monetary policy, while the Scot­ have been struggling to gain indepen­ tish government is in charge of most domes­ dence from England—and a bloody tic policy areas, including education, health struggle it has been, too, costing count­ care, transportation, and cultural affairs. Fless lives and sowing destruction in both Leaders of the SNP were optimistic, thinking countries. An act of union in 1707, and the that the election of a separate Scottish par­ suppression of revolts in 1715 and 1745, left liament would soon pave the way to full Scotland firmly a part of the United King­ independence—"independence heaven," as dom in modern times, yet the dream of Scot­ the leader of the SNP put it back in 1999. tish independence would not die. In the mid- The dream has soured completely. To twentieth century a handful of activists gave understand what happened, we need to step this goal a somewhat violent turn, blowing back and review a general point about pub­ up pillar-boxes of the Royal Mail and steal­ lic opinion in the modern welfare state. ing Scotland's coronation stone, the Stone of As originally conceived, the welfare state Scone, from Westminster Abbey. In the end, was expected to be an engine of political cooler heads prevailed. The Scottish Nation­ popularity. The politicians in charge of it alist Party (SNP, founded in 1934) persisted were supposed to win honor and esteem by in a peaceful campaign for self-rule that solving society's problems and providing the finally bore fruit in 1997. public with a vast range of free services. In that year a referendum was held in It hasn't worked out that way at all. Citi­ Scotland asking voters whether they wanted zens in modern welfare states are becoming to create a Scottish parliament to control increasingly disillusioned and cynical. In domestic affairs and, secondly, asking them country after country, from Japan to Swe­ whether they wanted to give this parliament den, from Australia to Italy, political scien­ the power to levy its own taxes. The Scots tists have documented a dramatic decline in embraced both ideas: 74 percent voted for public trust in government. the creation of a new Scottish parliament, One doesn't have to look far to explain and 64 percent voted to give it taxing pow­ why this has occurred: the welfare state can­ ers. Under the resulting arrangement, called not deliver as promised. Government can't "devolution," the British government in solve most social and economic problems, London continues to control defense, foreign for they are too complicated and too intractable to be fixed by laws, bureaucra­ Contributing editor James Payne (jlpayne@netw. com) visited Scotland in the fall of 2003. His latest cies, and appropriations. Second, govern­ book, A History of Force (Lytton), was published in ment cannot efficiently deliver high-quality, January. free public services. Because of its huge

26 waste factor, government has to overtax to believe that the cost overrun has been caused provide the service, or cut corners on qual­ mainly by padded contracts born of crony­ ity—or both. ism.) Finally, there is the problem of attracting The leader of the SNP, John Swinney, praiseworthy political leaders. The original summed up the national mood in November vision of the welfare state assumed far- 2003: "Holyrood [the parliament building] sighted, responsible, and selfless public offi­ has turned from a farce into a national scan­ cials. After all, if you're going to give gov­ dal and everyone knows it. People clearly ernment godlike powers and enormous understand that their pocket has been picked responsibilities in directing a vast welfare to the tune of 400 million." state, you need godlike people to run it. Cit­ One area of perpetual complaint is the izens of today are discovering—with the nationalized health-care system. Everything assistance of free and energetic mass that goes wrong is laid at the feet of the new media—that their politicians are nothing like government now responsible for it. Just one gods, that most are shortsighted, error- hospital, the new Edinburgh Royal Infirmary prone, and dismayingly self-centered. (ERI) opened last year, has given the govern­ Hence the malaise of public opinion in the ment enough grief to last for generations. modern welfare state: citizens who deplore, The hospital doesn't have enough beds to even loathe, the political class. It is this handle its caseload, so operations have to be malaise that has derailed the project of Scot­ cancelled—40 hip replacements were can­ tish independence. Devolution has given the celled in October 2003 alone—and patients Scots a close look at what comes along with with acute needs have to be transported long independence, namely, a modern big govern­ distances to other hospitals. Newspapers ment with all its intrusions and pretensions. revel in this kind of scandal. The Evening The Scots are concluding that full indepen­ News (Edinburgh) ran a picture of one dence under such a government would be an expectant mother sent 75 miles away to indignity they can just as well do without. Dundee. "We are absolutely furious," she told the reporter. Construction Scandal Another press story reported that despite the shortage of beds, the ERI has deliber­ The first scandal involved the construction ately kept one ward permanently closed. of the building for the Scottish Parliament. Administrators claimed they lacked the This was originally projected to cost 39.9 money to operate it. With a 6 million pound million pounds, and those who told the deficit, the hospital is cutting corners, and politicians they were hiding the true cost each corner cut produces another newswor­ were angrily rebuffed. Once construction thy scandal. One report detailed shortages of began, cost estimates began to rise. Scots linen, bandages, and syringes. Another news watched, first in surprise and then in shock, story highlighted complaints about the high as the announced cost rose and rose, reach­ charges for parking and telephone calls. A ing 400 million pounds ($650 million) at last former hospital administrator who had to count. (Expenses included $140,000 for a spend a few weeks in the ERI as a patient reception desk that Ikea could have supplied told reporters about the hospital's "disgust­ for $4,000.) To appease the popular furor, ing and inedible food," unhygienic wards, the politicians announced the formation of a and callous and inattentive staff. special investigating committee to find out When a woman died at the hospital as a why costs had escalated. This only added to result of falling out of bed, the Scottish the anger since the committee would cost an health minister made the "astounding mis­ additional million pounds, and would not take" (as the news story put it) of later send­ make any findings until after the building ing the family a letter wishing her a full was completed and all the money had recovery. When a second patient was also already been spent. (Privately, many Scots killed falling out of a bed a few weeks later,

27 The Freeman: Ideas on Liberty • May 2004

opposition politicians demanded an investi­ interested government officials are in Scot­ gation of this "shocking incident." land to stay. Taxes have increased signifi­ Whatever else one might say about it, a cantly in recent years, yet even the politi­ government-run health-care system turns cians concede that the promised service out to be, as Scottish officials are discover­ improvements haven't materialized: health­ ing, a perennial source of criticism directed care waiting lists are as long as ever, against the politicians in charge of it. promised class-size reductions in the schools Reporters found a juicy scandal in the fall haven't been achieved, new roads aren't of 2003 at Scottish Enterprise, the govern­ being built. Where has all the money gone? ment agency that is supposed to boost eco­ Mainly into the many layers of administra­ nomic development by giving subsidies to tion needed to manage (or, perhaps we promising firms. Instead of picking eco­ should say, attempt to manage) the sprawl­ nomic winners, the agency has exhibited an ing, incoherent empires that the welfare state uncanny flair for backing losers. The Scots­ has spawned. man reported that nine of the 16 major Paying more and getting less, the public is firms Scottish Enterprise invested in have deeply disillusioned. In the May 2003 elec­ declared bankruptcy, and the value of its tions, politicians urged a high turnout as a "investments" in private firms had plunged show of support for the new Scottish gov­ 70 percent. ernment. They were rebuffed by a record low turnout—less than 50 percent. A post­ Bureaucratic Greed election survey showed that most of the vot­ ers who stayed away from the polls did so The folly of taxing productive businesses "because they did not trust politicians to to subsidize failing ones may not bother keep their promises." Now that they under­ most Scots (who are rather out of touch with stand that a Scottish government does not Adam Smith's legacy), but they all under­ lead to "heaven" but to waste, mismanage­ stand another of the agency's faults: greed. ment, and political posturing, Scottish voters The bureaucrats in charge of Scottish Enter­ have lost interest in independence—as is evi­ prise are making out like bandits: the chair­ dent from the declining support for the party man has a salary of 181,000 pounds—more that advocates full independence, the SNP. It than even England's Prime Minister Tony went from 35 seats in the 129-member par­ Blair is paid—and each of the 12 regional liament in the 1999 election to 27 in 2003. directors takes down 100,000 pounds, well It was a well-deserved punishment. This over the salaries of top cabinet members in far-left socialist party has strongly promoted the Scottish government. An SNP leader the big-government cause in Scotland. In pointed out that in bygone days many direc­ the 1999 elections, it ran on a platform of tors in this unit served on a volunteer basis, increasing taxes, on the theory that the new without pay. Now, under a Scottish govern­ Scottish government could spend its way ment, they were looting the treasury. "Think into the hearts and minds of the people. of Scotland a wee bit," he implored, "and They got it exactly wrong. It is big gov­ consider taking a pay cut." ernment with its ludicrous promise to solve Everyone understands that it won't hap­ everyone's problems that has killed the pen, that overpriced government and self- dream of Scottish independence. •

28 .THE

iQdeas On Liberty)

MAY 2004 Rome and America: The Ideology of Decline by Harold B. Jones, Jr.

riting in 1835, Alexis de tude of self-reliant independence has died. It Tocqueville attributed the United is not simply that the world has changed, but States' commercial success to that Americans have. It is not simply that W American merchants' willingness our government has become intrusive, but to face uncertainty and danger. Europeans, that we do not resist its intrusions. Like every he said, wait for good weather and return to other people at every other time in history, port if the ship is damaged; the American we are getting the government we deserve. "departs while the tempest still roars . . . My article "Homeland Security Circa AD while on the go, he repairs his ship, worn 285" described the bureaucratic expansion down by the storm."1 The American settler, that left an empire helpless before its ene­ Tocqueville said, was "a very civilized man mies.4 But there is more to the story than . . . who plunges into the wilderness of the that. By the end of the third century, Roman New World with his Bible, a hatchet, and character was a thing of the past. The coura­ newspapers."2 When Anthony Trollope geous ingenuity of the farmers who put on traveled down the Mississippi in 1860, he sword and shield to resist first invading Gauls found people living in sod huts and laboring and later the armies of Hannibal had disap­ from dawn to dusk. There was no prospect peared. If it is true that Rome fell less to the for an immediate improvement in their con­ barbarians than to its own stifling bureau­ dition, yet they were optimistic about the cracy, it is true also that the bureaucracy future and felt not the slightest desire to took its power from citizens' inability to see return to civilization.3 the challenges of their time as a call to per­ These pictures contrast sharply with that sonal creativity and effort. Rome's fate was of Americans being expected to take comfort the result of a change in the way the Romans from Secretary Tom Ridge's "message of thought about themselves and their world. reassurance and confidence" about the The most important result of government Department of Homeland Security's vigi­ controls, said F. A. Hayek, is "a change in lance over a holiday weekend. They contrast the character of the people."5 While this also with the picture of people standing in may be true, it is only half the truth. The lines at the airport, removing their shoes, other half is that extensive government con­ and waiting meekly for an approving nod trols give expression to the ideas of the peo­ from a dull federal employee. The old atti- ple among whom they appear. They can arise only among a people who are psycho­ Harold Jones ([email protected]) is a logically prepared to submit to them. The professor at Mercer University and the author of Personal Character and National Destiny (Paragon similarities between the ancient and the House, 2002). modern experiences are worth considering.

29 The Freeman: Ideas on Liberty •May 2004

Among the proper functions of govern­ discussions in Cancun failed in large part ment, Adam Smith listed military defense. because of third-world representatives' The desperate condition in which the Empire unhappiness with such things as America's found itself late in the third century was not $1.6 billion cotton subsidy, which gluts entirely unrelated to the fact that after the world markets and makes it impossible for death of Trajan and again after the death of countries like predominantly Muslim Chad Marcus Aurelius, Rome's armies were with­ and Mali to compete. The Brussels-based drawn from their positions along the north­ Center for the New Europe has said the ern frontiers. As soon as the pressure on the European Union's Common Agricultural borders eased, barbarian hoards began to Policy is a major contributor to the poverty sweep across them. of Latin America, Asia, and Africa; it kills Viewed in this light, President Bush's 6,600 people a day.7 If the $125 billion the aggressive "war on terror" is an act of genius. United States plans to spend on its farm pro­ Terrorism is like every other human endeavor gram between 2002 and 2012 were elimi­ in that it labors under the constraint of nated, Islamic farmers might not suddenly limited resources. These resources can be love the United States, but their hatred deployed more conveniently in assaulting would be somewhat blunted by their delight soldiers in Iraq and Afghanistan than in over having such a rich market for their pro­ attacks on Western targets. The recent duce. Americans, meanwhile, would have bombing of Spanish train stations, while the advantages both of cheaper T-shirts and frightening, is probably less dreadful than a lower tax bill. what would be happening if the battle had It might be too much to hope that free not been moved into Islam's own backyard. trade could take the bitterness out of Islamic Like Rome at its height, the United States is fundamentalism. Fanatics with a grudge protecting itself by means of relentless against the world and a propensity for pressure on those who threaten it. showy violence may be simply a fact of mod­ But there is more to the story than that. ern life. There is nothing new about orga­ The Empire's invaders were driven by eco­ nized terror: it goes back at least to some nomic rather than ideological interests. They strains of anarchism, to the Western Federa­ were more interested in finding enough to tion of Miners, and to the Industrial Work­ eat than in plunder. "Where the tribes could ers of the World. On the other hand, these buy or obtain food peacefully," says Paul were all responses to economic pressures Johnson, "they seldom resorted to vio­ associated with the rise of international pro­ lence."6 By narrowing the range of possibili­ tectionism late in the nineteenth and early in ties for peaceful trade, the policy of using the the twentieth century. However that may be, provinces' riches for the benefit of the capi­ it is certain that Islam's unhappiness with tal city thus played a part in arousing tribes­ modernity is not entirely unrelated to poli­ men's hostility and in encouraging them to cies giving expression to Western farmers' press on until they came to the walls of conviction that they should not have to meet Rome itself. the challenge of international competition. The farmers' conviction, in turn, is similar Living at the Expense of Empire to the steel industry's belief that it had a right to be sheltered from the efficiencies of The policy of exploiting the provinces, in foreign business. It is similar also to the con­ turn, was an expression of the Romans' con­ viction recently expressed in highly skilled viction that they were entitled to live at the workers' opposition to free trade. Design expense of their empire. This conviction is engineers, machinists, and experts in infor­ remarkably similar to that of Western farm­ mation technology want to be protected ers, who think that in exchange for their from the competition of China and India, votes they have a right to be subsidized by where well-trained engineers are willing to the taxpayers. World Trade Organization work for less than they would be paid in the

30 Rome and America: The Ideology of Decline

United States.8 American industry and work­ Journal article about the Medicare prescription- ers agree with American agriculture in drug bill, AARP CEO William D. Novelli believing that they are entitled to a shelter talks repeatedly about such things as "retiree from the storms of change. benefits" and "accessible" prescription Like the citizens of third-century Rome, drugs.12 "We are stepping up our efforts in Americans believe they have a right to live the states to strengthen Medicaid coverage safely behind high walls. But there are hun­ and supplemental prescription drug pro­ gry people waiting at the gates, and the only grams," he says self-righteously. He seems alternative to peaceful exchange is war. not to understand that this involves costs, which someone must pay. As far as he is The Source of Weakness concerned, America's seniors are entitled to whatever they think they need simply A few years before Tocqueville visited because they are America's seniors. America, John Quincy Adams's Department But it is not just seniors. Every group that of State announced this policy: "The Ameri­ can think of a label for itself presses its claim can Republic invites nobody to come. We will to special treatment. When Aaron Wil- keep out nobody. Arrivals will suffer no dis­ davsky added up the membership of all the advantages as aliens. But they can expect no groups that had succeeded in gaining some advantages either. What happens to them form of "protection," he found that the total depends entirely on their individual ability and came to 374 percent of the American popu­ exertions, and on good fortune."9 The citizens lation.13 We all think we have a right to get of early nineteenth-century America seem to more for less effort; we all want to be freed have understood they had no right to anything from the burdens of competition; we all except the results of their own efforts. want to enlist the government in our cause. Over the course of the twentieth century, This is because we cling to ideas our that understanding disappeared. The citizens ancestors would have rejected as nonsense. of the United States learned to think of A hundred and fifty years ago Ralph Waldo themselves as entitled to whatever their votes Emerson told the crowds who had gathered could buy. Herbert Hoover was elected pres­ to listen to him that "though the wide uni­ ident because he promised "a chicken in verse is full of good, no kernel of nourishing every pot" and was replaced when the said corn" could come to a person except fowl failed to materialize. Franklin Roo­ through his or her own effort. "Nature suf­ sevelt was speaking to an existing conviction fers nothing to remain in her kingdoms when he talked about "self-evident" rights which cannot help itself. The genesis and to well-paid employment, "adequate food, maturation of a planet, its poise and orbit, clothing, and recreation," medical care, the bended tree recovering itself from the retirement income, and protection from the strong wind, the vital resources of every ani­ insecurity of old age.10 In its 1970 decision mal and vegetable, are demonstrations of the in Goldberg v. Kelly, the U.S. Supreme self-sufficing and self-relying soul."14 Court adopted the thesis of Charles Reich's These words would strike modern Ameri­ 1964 Yale Law Journal article: government cans as uncaring. The bookkeepers, mechan­ benefits met the constitutional definition of ics, artisans, and secretaries to whom they property, "not much different from the were originally addressed nodded to one absolute right of ownership that private cap­ another and agreed that it was just ordinary 11 ital once invoked," as Reich put it. common sense.15 Our ancestors were acutely Americans once believed that property aware of something we seem to have forgot­ was the result of personal thought and ten: the relationship between "earning" and effort. They now think of it as the result of a "deserving." Like the ancient Romans, the court decision or legislative fiat. Far from people of the United States seem universally avoiding the government, they seek its inter­ to labor under the illusion that their citizen­ vention on their behalf. In his Wall Street ship is a free ticket to the good things of life.

31 The Freeman: Ideas on Liberty • May 2004

The End of Civilization as We Know It

Edward Gibbon's The Decline and Fall of the Roman Empire begins with the death of Marcus Aurelius in AD 180. The date was a turning point because it was the moment at which power passed into the hands of lead­ ers who were unable the meet the demands of their times. This was a function less of personality than philosophy. The second century was the high tide in the story of Rome because it was an age during which the educated classes were imbued with an ideology that made for order and progress. When that philosophy went out of style, the Empire began to come apart. The second century was the great age of Stoicism, which according to William Lecky "furnished the principles of virtue, coloured the noblest literature of the time, and guided all the developments of moral enthusi­ asm."16 Although it included no specifically Marcus Aurelius economic doctrines, Stoicism encouraged the self-reliant attitudes on which free markets more than merely a coincidence. The nine­ depend. Its emphasis on individual responsi­ teenth century was the second age of bility, the inevitability of change, and the Stoicism. Emerson was a life-long student ultimate beneficence of short-term discom­ of Seneca, a Stoic sage.21 Second-century fort created a spirit of independence in Romans found the Stoic ideal in the stories everyone who came under its influence. of Plutarch; nineteenth-century Americans The last of the great Stoic philosophers found it in the stories of Horatio Alger and was the Emperor Marcus Aurelius. Describ­ the McGuffey's Reader. The George Long ing the work of his predecessor, he praised translation of Marcus Aurelius' Meditations Antoninus Pius' "unvarying insistence that went through many printings because it was rewards must depend on merit." The Stoic on the "must read" list of Victorians on both political ideal, he said, was "equality and sides of the Atlantic.22 freedom of speech for all, and a monarchy In the time of Aurelius himself, however, concerned primarily to uphold the liberty of the Stoic ideal was becoming unfashion­ the subject."17 Aurelius' thinking foreshad­ able. His footnote on where he was writing owed Adam Smith's doctrine of the "invisi­ tells us a great deal: "Among the Quadi, on ble hand": in one place he says that "a man the River Gran,"23 in other words, out on is always justified in seeking his own the frontiers, defending Rome from the good,"18 and in another that "all of us are consequences of its own protectionism. working together for the same end; some of Behind the frontiers, imperial and munici­ us knowingly and purposefully, others pal authorities found the public's entitle­ unconsciously."19 "Look at the plants, the ment mentality pressing them for the main­ sparrows, ants, spiders, bees," he advised, tenance of "fair" prices for grain, oil, and "all busy with their own tasks, each doing wine. Prevented by such regulations from his part towards a coherent world-order."20 obtaining a return on their efforts and their The similarity between these ideas and the capital, landholders found themselves sentiments of our American ancestors is unable to patronize the shops of urban arti- 32 Rome and America: The Ideology of Decline sans. Voluntary cooperation began to dis­ 3. David C. McClelland, The Achieving Society (New York: D. Van Nostrand, 1961), p. 13. appear, and men who thought the crises of 4. Ideas on Liberty, April 2003, www.fee.org/-web/Jones.pdf. their time could be solved by means of force 5. F. A. Hayek, The Road to Serfdom, 50th anniversary ed. (Chicago: University of Chicago Press, 1994 [1944]), p. xxxix. seized the reins. Aurelius was called back 6. Paul Johnson, A History of Christianity (New York: from fighting the barbarians to put down Simon & Schuster, 1976), p. 128. 7. Deroy Murdock, "U. S. Farm Welfare Harmful to Third a rebellion by Avidius Cassius. The next World's Health," Atlanta Journal-Constitution, September 19, hundred years would be the century of the 2003, p. A17. 8. Michael Schroeder and Timothy Appell, "Skilled Work­ generals. ers Mount Opposition to Free Trade, Swaying Politicians," "The marvelous civilization of antiquity," Wall Street Journal, October 10, 2003, p. Al. 9. Paul Johnson, A History of the American People (New Ludwig von Mises says, "perished because it York: HarperCollins, 1997), p. 288. did not adjust its moral code and its legal 10. Fred L. Israel, ed., The State of the Union Messages of the Presidents of the United States (New York: Chelsea House, system to the requirements of the market 1966), III, p. 2881. economy."24 It would be better, in terms 11. Charles Reich, "The New Property," Yale Law Journal, April 1964, p. 787. even of Mises's own ideas, to argue that 12. William D. Novelh, "AARP Stays Sharp," Wall Street ancient civilization grew rich under the influ­ Journal, December 4, 2003, p. A16. 13. Philip K. Howard, The Death of Common Sense (New ence of one moral code and disintegrated as York: Warner Books, 1994), p. 126. that code disappeared. One ideology carried 14. Ralph Waldo Emerson, "Self Reliance," in The Essays of Ralph Waldo Emerson (New York: Random House, 1944), it to prosperity and another to disaster. pp. 28, 43. America became great because its citizens 15. Johnson, American People, pp. 405-08. 16. Maxwell Staniforth, "Introduction" to Marcus Aurelius, once subscribed to the principle of individual Meditations, trans. Maxwell Staniforth (London: Penguin, responsibility. What will happen now that 1964), p. 9. 17. Marcus Aurelius, ibid. pp. 39, 40. this principle has been discarded remains to 18. Ibid., p. 172. be seen. The Roman experience suggests that 19. Ibid., p. 100. 20. Ibid., p. 77. it will not be pleasant. • 21. Will Durant, Caesar and Christ (New York: Simon and Schuster, 1944), p. 307. 22. Maxwell Staniforth, "Translator's Note" in Medita­ 1. Alexis de Tocqueville, Democracy in America, trans. tions, p. 32. Harvey C. Mansfield and Delba Winthrop (Chicago: University 23. Ibid., p. 44. of Chicago Press, 2000 [1835-40]), p. 386. 24. Ludwig von Mises, Human Action, 3d ed. (New York: 2. Ibid., p. 290. Regnery, 1966), p. 769.

Inspired? Shocked? Delighted? Alarmed? Let us know.

We will print the most interesting and provocative letters we receive regarding The Freeman articles and the issues they raise. Brevity is encouraged; longer letters may be edited because of space limitations. Address your letters to: The Freeman^ FEE, 30 S. Broadway, Irvington-on-Hudson, NY 10533; e-mail: [email protected], fax: 914-591-8910.

33 Our Economic Past by Stephen Davies •THE

i(ideas On Liberty)

MAY 2004 Would the Poor Go Barefoot with a Private Shoe Industry?

t is said that while we may rely on private "lasting," by which leather was molded to fit initiative to supply "nonessentials," some a model foot, proved a great challenge. things are so important to a decent life Moreover, the capital cost of the new that we cannot trust the vagaries of the machinery was a barrier for many small Icompetitive market. Some people would not shoemaking firms. get the vital product or service. The only Two men were to transform this situation solution, supposedly, is government provi­ in the United States and subsequently else­ sion to all, often free of charge. The prob­ where. The first was Jan Matzeliger, born in lems with this argument, as well as the great 1852, an immigrant to the United States benefits of a capitalist economy, are shown from Dutch Guiana (now Suriname), and the by examining the shoe industry. son of a Dutch sea captain and a slave Most would agree that shoes are essential woman. While working in a shoe factory in to a comfortable or decent existence. Today Massachusetts, Matzeliger devised a method even the poorest have shoes, and most peo­ of mechanizing the lasting process. He per­ ple of modest means have several pairs. fected it after years of work and great Shoes are available in an enormous variety expense, and obtained capital to create a of types, styles, and colors, at modest prices. production model from two local investors, It was not always so. In America just over Charles H. Delnow and Melville S. Nicholls. 150 years ago, shoes were made locally, on Matzeliger got a patent in 1883. His an individual basis, by skilled craftsmen. machine cut the cost of producing a pair of This may seem idyllic, but it was not. They shoes in half. A hand laster could produce were extremely expensive in real terms, so no more than 50 pairs a day. Using his much so that they could even be included in machine, one could produce up to 700 pairs. a will. Most people had only one pair that Matzeliger and his partners set up the Con­ would be made to last for years. The poor solidated Lasting Machine Corporation, in had no shoes; indeed, being without shoes association with two new investors, George was one of the classic marks of poverty. A. Brown and the second main figure in our Things began to change in 1848 with the story, Sidney W. Winslow. Matzeliger sold invention of the first shoe-sewing machine, his patent rights to the newly formed corpo­ and shoemaking moved from the home and ration in exchange for stock, which made small workshop to factories. However, him a wealthy man. He died from tuberculo­ making shoes was complicated and difficult sis in 1889. to mechanize. In particular, the process of Winslow was a business genius. The owner of a small shoe factory, he trans­ Stephen Davies ([email protected]) is a formed the industry by a crucial business senior lecturer in history at Manchester Metropol­ innovation. In 1899 he engineered a merger itan University in England. of the three main shoemaking-machinery

34 companies to form the United Shoe Machin­ ation we face with many services provided ery Corporation (USMC). Instead of selling predominantly or exclusively by govern­ its machines, the USMC leased them, which ment, notably education. The point is that meant that shoe manufacturers no longer once a product is supplied by government, bore the capital cost, including depreciation, we find it hard to imagine that it could be of their machinery. USMC also relieved provided in any other way without disas­ them of much of the maintenance cost. trous results. The assertion that a product is The combination of technical invention essential is supposed to end the argument. and business innovation transformed shoe- The story of the U.S. shoe-machinery making. The cost of shoes fell to a fraction industry also highlights several other points. of what it had been, while the wages of One is the critical part played in history by workers more than doubled by 1905. productive and creative individuals whose Thanks to the ease with which producers names are not remembered or lauded in the could obtain the machinery, the industry way that those of monarchs, politicians, and became very competitive, which encouraged generals are. Sidney Winslow did more to innovation and kept down costs. This led to benefit millions of people than many "public the situation we enjoy today where even the figures," yet is almost forgotten. Another is poorest have shoes and the variety con­ the way a market economy undercuts preju­ stantly increases. When leasing was applied dice. As a black man, Jan Matzeliger faced outside the United States, often through much prejudice, particularly in his social and arrangements with the USMC, the industry religious life. But in the business world his was transformed there also. color did not matter, and he had no trouble Let us suppose now that shoes were sup­ finding investors. Only his talent and appli­ plied by government. We have much evi­ cation mattered. dence of what the result would be. Everyone Finally, the story of the USMC shows the would have shoes, but the quality would be bad effects of misguided public policy. An poor. There would be almost no variety enormously successful business, worth over (except of the Army kind—two sizes: too a billion dollars by 1960 and a model large and too small) and certainly no "fun" employer, United Shoe was attacked by the shoes. The cost would be high, and there Department of Justice in a famous antitrust might even be rationing. If some private sup­ case, was broken up in 1968, and today no ply were allowed, we would have a few pri­ longer exists. (Ironically, the leasing policy vate firms providing high-quality shoes at was targeted as a tool of USMC's alleged exorbitant cost to the rich and the ruling monopoly practices.) The U.S. shoe manu­ elite. facturing industry has also mostly vanished. So when you put on your shoes or go to Privatize Shoe Production? buy a pair, be thankful and remember Jan Matzeliger and Sidney Winslow. Even more, Anyone suggesting that perhaps private be thankful that this essential product is not enterprise should produce shoes more widely provided by government and imagine what would be met with the indignant response: services provided by the government could "What! Do you want the poor to go without be like if the contemporary equivalents of shoes?" This, of course, is precisely the situ­ those two men were let loose on them. •

35 MAY 2004

Estonia Moves to Liberty by Norman Barry

e have read a lot about former dence imbued its citizens with a determina­ Soviet regimes struggling to shake tion to re-establish its own indigenous free­ off the last remnants of commu­ dom. It is working spectacularly well. W nism. It has not been easy. Even A little bit of history is relevant here. Esto­ Czechoslovakia (now the Czech Republic), nia is a separate country from the other when first led by the free-marketeer Vaclav Baltic states, Latvia and Lithuania, and has Klaus, had difficulties with privatization its own language, culture, and history. It was (why were the banks left in public hands?), originally ruled by the Russian tsars, but and Poland, despite successes, found itself between 1918 and 1939 it was an indepen­ with a reformed socialist party in charge. dent nation, precariously wedged after 1933 Indeed, in most of these regimes the old between the barbaric regimes of Nazi Ger­ communist parties simply changed their many and the Soviet Union. It was a victim names and got back into power. But at of the cruel cynicism of the pre-war pact least they were engaged only in simple rent- between these two and was occupied first by seeking (the acquisition of wealth through the USSR in 1939 and then the Nazis politics), rather than attempting to restore between 1941 and 1944. From 1944 to communism. All of eastern Europe is united 1990 it was again the victim of Soviet com­ in its contempt for anything approaching the munism. Nearly all the elements of the hith­ "nationalization of the means of production, erto thriving Estonian civil society were distribution, and exchange." repressed, and the country became little As you might expect, the most successful more than a province of the Soviet Union. of the "transition economies" is the one least When the Soviet regime began to disinte­ talked about. I refer to Estonia, a tiny Baltic grate in the late 1980s, Estonia was in the country, just opposite Finland, with a popu­ vanguard of the dissent. It had emotional, lation of less than 1.4 million and a tragic intellectual, and cultural capital that had not history in which it was the plaything of two been entirely depleted by communism. And totalitarian superpowers, Nazi Germany and there was a touch of romance in its success­ the Soviet Union. The loss in the twentieth ful bid for freedom. In 1988 there occurred century of Estonia's liberty and indepen- what became known as the "singing revolu­ tion." Vast numbers of the inhabitants of Contributing editor Norman Barry (norman.barry© this tiny country simply stood before the buckingham.ac.uk) is professor of social and polit­ public buildings and other symbols of com­ ical theory at the University of Buckingham in the U.K. He is the author of An Introduction to Mod­ munism and sang their traditional songs. ern Political Theory (St. Martin's) and Business Had Gorbachev used Soviet tanks against Ethics (Macmillan). such united opposition, one suspects they

36 would have been powerless to preserve com­ flat tax at 26 percent. A plan supported by all munism. Free elections were held in 1990, parties would reduce this to 20 percent by and a new constitution (based on earlier next year. Also, to encourage more foreign experiments in law and liberty) was formu­ investment, all reinvested corporate profits lated in 1991. Estonia adopted the German were exempted from the corporate income tax Civil Code, which is quite protective of beginning in January 2000. Without a repres­ property and contract. Estonia could now sive and exploitative tax system, the govern­ construct its own future. It chose liberty in ment has managed to balance its budget. its polity and in its economy too. As a further gesture to modernity, virtu­ It quickly set about the task of dismantling ally the whole country has become electri­ the communist state. A more or less complete fied.1 Around half of the population has privatization had been achieved by the mid- computers at home, and of those, nearly 75 1990s. There are competing political parties percent have access the Internet. Almost in the country, and there are fierce local everybody in the country has easy use of battles between them, but there is no real modern communication methods. This division on the crucial issues. All agreed that makes Estonia's labor force highly mobile Estonia must be a real market-based Western and adaptable. economy and have an independent judiciary All this has made Estonia a desirable place determined to protect both economic and to invest. The growth rate now exceeds 6.4 civil liberty. It has achieved those goals. percent per year, after falling back a little during the Russian financial crisis; unem­ Economic Progress ployment is now 10 percent and declining. Labor is virtually free and ready to quickly For much of the postwar period, Estonia take up new opportunities. Estonia is a had been connected to the Soviet economy, member of the World Trade Organization, but it quickly sloughed off these links. Those but one wonders why it bothered. The coun­ elements, industrial and agricultural, that try had already done what all free-market depended on state support were left to sur­ theorists say a country should do: it simply vive on their own in the market. There are declared unhindered commerce as its now no subsidies. Estonians quickly saw the unbending policy. Per capita GDP is now advantages of free trade and opened up their $5,000 (up from slightly under $3,000 in markets to world competition. Free trade 1997). That is not great, but it is very good was established with the European Union by east European standards and comfortably (EU) in 1993, and two completely free ports ahead of Turkey (less than $4,000), a coun­ were created, Munga and Sillamae. The con­ try that has a much longer experience with a nection with Europe proved particularly modern market economy. advantageous in 1998, when Russia All this progress by market methods has defaulted on its debts. As we shall see, that attracted little attention from Western connection has its downside, but for a observers, I guess because it was too simple nation newly emerging from communism, it and straightforward. The privatization was invaluable. Estonia now has one of the process was much more transparent than the freest trading systems in the world. Apart complex and only partially successful one in from a period in the mid-1990s, it has Czechoslovakia, and it had none of the enjoyed steady economic growth. crime associated with the Russian advance What was truly remarkable was Estonia's to capitalism. Estonia was undoubtedly rapid adaptation to economic reality once the helped by the fact that it is a small country ruinous Russian inheritance had been shelved. with an integrated social structure, which The country has become much more of a ser­ provided informal constraints on excess. The vice economy: taxes have been kept low, and country was recently ranked sixth out of 161 economic interference has been virtually countries in the Heritage Foundation Index nonexistent. There is now a single personal of Economic Freedom.

37 The Freeman: Ideas on Liberty • May 2004

The free-market world might have been course, the EU's regulatory socialism is a remiss in its attention to Estonia's unglam- long way from communism, but its rigorous orous journey to freedom, but the (moder­ enforcement will delay the transition to a ate) left has been predictably critical of some full-fledged market economy. It is too early of its alleged failings. Naturally, social policy to say what the effect will be. has drawn most of the fire. While unavoid­ The most dangerous feature of the EU ably retaining elements of the Soviet welfare legal structure is the enforcement of aquis system, especially old-age pensions, the new communautaire, according to which new free Estonia has not been at all extravagant members are obliged to accept all its existing in social spending. Hence, the critics. There laws, regulations, and policies, as well as was a complaint that only 1.5 percent of new ones. The new states of course had no GDP was spent on children and the family, part in the making of these, and they can and critics argued that welfare payments in only be altered by the unanimity of a treaty, general were too low.2 Apparently it lagged an almost impossible task. behind other eastern countries. It never How will this affect Estonia? It is difficult crossed the critics' minds that Estonia's to say, but things are not promising. The EU neglect of welfare may be one reason for its has the ludicrously inefficient Common success. Agricultural Policy, which shuts out cheaper An early European Commission report on foreign food and keeps some people tied to the country praised its successful transition the land. Estonia does not have a large agri­ from communism, but commented on its cultural sector and may escape the worst of backward level of social services and its poor this. Then there is the European Social Pol­ record on gender-equity issues. Critics seem icy, which contrasts markedly with Estonia's to forget that Estonia's small size and intri­ meager arrangements; as we have already cate and intimate social structure make self- noted, Estonia is under pressure to increase help and communal spirit much more effec­ its welfare expenditure. There is also the tive at ameliorating poverty and social future danger of tax harmonization, which deprivation than an expensive and inefficient would boost EU taxes way above Estonia's welfare state. It is also probably learning current levels. from the West's mistakes. The worst of the EU would emerge if its constitution were to be adopted because that would create a whole new set of "rights" Hidden EU Danger (mainly welfare "rights" guaranteed by the state) and new stultifying regulations, and All east European countries that success­ would abolish jurisdictional competition. fully applied for membership in the EU in However, the European constitution in its 2003 have approved of it by referendum. original form is virtually dead and, looking Estonia had a 66.84 "yes" vote in Septem­ optimistically, the new member states may ber, though there is evidence that support is slow the union's progress toward statism deeper in the intelligentsia and the middle and excessive regulation. classes than in the working class. One can But it is never wise to be optimistic see why the politics of the EU should be about Europe, and one day Estonians may superficially attractive to eastern Europe. come to regret the sacrifice of their burgeon­ These countries had been under Soviet ing free market for an overvalued political tyranny, and, in some cases, Nazism, and respectability. • one can appreciate their desire for security in a greater Europe. But there is a hidden dan­ 1. See Newsweek, March 11, 2002. ger in EU membership that will one day 2. "Gender and Social Policy: Comparing Welfare States in Central and Eastern Europe and the Former Soviet Union," 3 dampen the enthusiasm. Some of the regu­ Journal of European Social Policy (10) 2000, pp. 240-66. lations and social policies of the EU might 3. See Norman Barry, "A Classical Liberal's Conception of Political Liberty: America and Europe Compared," The Euro­ put their newly won freedoms at risk. Of pean Journal, vol. 9, no. 3, 2001, pp. 13-16.

38 CAPITAL Social Security Reform Can Be Less Paternalistic LETTERS To the Editor: John Attarian argues in "Is Social Security Reform Paternalistic?" (The Freeman, Janu­ Where Is the Dollar Defined? ary/February 2004) that plans to replace or To the Editor: reform Social Security with a system of com­ I was belatedly reading in the November pulsory private pensions are "far from being 2003 issue of Ideas on Liberty when I came advances," and are at least as paternalistic as across something that caught my eye. This Social Security. His arguments, though, are was the statement in George Leef's book puzzling. review of Pieces of Eight by Edwin Vieira, By calling Social Security "paternalistic," Jr., claiming that the Constitution defined a Attarian means that it takes away the individ­ dollar as 371.25 grains of fine silver. I could ual's responsibility to provide for one's retire­ not recall ever seeing such a definition in my ment and thus encourages individuals to give admittedly dilettantish studies of this docu­ less thought to the future, treating them like ment. As the statement was even referenced feckless children rather than responsible to a specific portion of the constitution, Arti­ adults. Attarian is clearly right about this, but cle I, Section 9, clause 1, it was a simple mat­ a compulsory private system—for example, ter to quickly check the reference. This con­ such as proposed by the Cato Institute—sig­ firmed that the matter detailed here was that nificantly increases the amount of freedom to there should be no prohibition by Congress plan for one's retirement and increases one's of migration or importation of persons responsibility to make such decisions. (slaves) prior to 1808. In a private system, one has a property The only reference to coining money in right in one's pension, which one lacks in the the Constitution is the authorization to Con­ pay-as-you-go system of Social Security, and gress "To coin Money and regulate the thus one gets to choose, within limits, how Value thereof and of foreign Coin" in Arti­ to invest one's contributions, and within lim­ cle I, Section 8. There is also the prohibition its, how to receive the results of one's con­ for the States to "coin Money . . . [or] make tributions during one's retirement. Of any Thing but gold or silver Coin a Tender course, a compulsory private system is not a in Payment of Debts" in Article I, Section voluntary, purely libertarian, retirement sys­ 10. (Regrettably, no such prohibition was tem, since it forces the individual to con­ given to the federal government.) tribute to a pension savings account and pre­ As neither of these portions of the Consti­ vents the individual from making certain tution codifies the specific value of a dollar savings and investment decisions, but the in terms of silver content, I was wondering if issue at hand is whether a compulsory pri­ this notion was an error of the author or of vate system is better than Social Security, not the reviewer? Could you shed any light on whether it is the best system or the least this matter? paternalistic system. The only place I can find in Mr. Attarian's article where he tries —R. R. SCHOETTKER By e-mail to refute the argument that a compulsory private retirement system increases freedom George Leef replies: and responsibility compared with Social My thanks to R. R. Schoettker and the Security is when he says that the compulsory other readers who caught my mistake. The private systems are "messier" than Social legal definition of the dollar as a coin with Security. This may be true, in that a system 371.25 grains of pure silver is in the Coinage where there is zero freedom to decide what Act of 1792. See http://landru.i-link-2.net/ happens with your payroll taxes may be less monques/coinageact.html. messy than a system where one has a right,

39 The Freeman: Ideas on Liberty • May 2004 hedged with restrictions, to choose how to Real savings in PRAs, with the miracle of invest one's contributions. However, the compound interest, will give all Americans issue isn't a quasi-aesthetic judgment about the ability to create real wealth. Taking messiness, but rather which system gives those funds out of the hands of the politi­ people more freedom to plan their lives and cians and putting them into workers' indi­ their retirement and in that sense treats them vidual accounts will be a big step forward more like competent adults. for freedom. Yes, it is not a perfect world, I have written this letter, not merely with each individual having complete con­ because I am puzzled by Mr. Attarian's argu­ trol over his or her life. But it is a big step in ment, but because the matter is a very impor­ the right direction. . . . tant one. Unless Mr. Attarian thinks Social —BOB COSTELLO Security will simply collapse and that a [email protected] purely libertarian system will arise out of its President, SocialSecurityChoice.org ashes, libertarians need to come up with a feasible liberty-increasing alternative to John Attarian replies: Social Security and other major welfare-state I did not make an "aesthetic" judgment programs. A system of private compulsory about "messiness," simply a judgment of the savings and insurance is one such alternative obvious fact that these schemes of forced that has been elaborated and defended by a saving and investment are more paternalistic number of libertarian writers (including me; than Social Security because the government see the forthcoming "The Moral Case for a is meddling and exerting control in many Market-Based Retirement System" in Social more ways: the decision to save; the forced Security and Its Discontents, ed. Michael saving of tax money; where the savings may Tanner, Cato Institute) and fellow travelers. be invested; how long the investments are If Mr. Attarian has a better feasible alterna­ to be held; when they may be drawn on; tive, I and other readers of The Freeman how much one may receive; and in what would be quite interested in learning about it. form (lump sum, annuity, etc., etc.). This is —DANIEL SHAPIRO obviously far more, and far worse, micro- [email protected] management of one's life than Social Secu­ Associate Professor of Philosophy rity undertakes. My image of the hovering West Virginia University mother overseeing Billy's every move is quite accurate. I was very puzzled by John Attarian's arti­ As for a feasible alternative, given the cle on Social Security reform. Social Security political realities I think the most we can is roughly 24 percent of the money going hope for is to phase Social Security out. The into the politicians' hands in Washington. Social Security Act should be repealed, and We are talking real money here, over $500 with it the payroll tax, which was intended to billion annually. Why do you think the create a mentality of entitlement and make Washington establishment is fighting reform the program untouchable. Social Security proposals with personal retirement accounts should be converted to a rigorously means- (PRAs)? PRAs are about real political power tested benefit financed out of general revenue and real political change. for those born before 1965. The younger Giving each worker more control and generations, born after 1965, should be fully ownership over their retirement assets is key on their own, free to make their own to decentralizing power away from Wash­ arrangements for old age with fully voluntary ington. Once every worker has savings in the IRAs, which should be totally tax-free as capital markets of our country, it will make compensation for their loss of all claims to a world of difference. . . . Social Security benefits. •

40 of government privileges from "the most infamous abuse and detraction, from per­ BOOKS sonal insults, nor sometimes from real dan­ ger, arising from the insolent outrage of furi­ ous and disappointed monopolists." Give Me a Break: How I Exposed John Stossel of ABC News has experi­ Hucksters, Cheats, and Scam Artists enced the wrath of all three of these anti- and Became the Scourge of the market forces. In this recent book, Give Me Liberal Media... a Break, he recounts his odyssey as a televi­ sion news journalist who has traveled from by John Stossel being a typical anti-capitalist "liberal" to a HarperCollins • 2004 • 294 pages • $24.95 staunchly pro-market libertarian. He first made his fame as an "in-your- Reviewed by Richard M. Ebeling face" investigative reporter on New York television who went after con artists, crooks, n the eighteenth century, Adam Smith and corrupt businessmen. Stossel tracked explained the three forces at work against them down and exposed their rip-offs of the establishment and maintenance of eco­ innocent and often naive consumers. What nomic freedom. In his first book, The The­ struck him was their total amoralism, as ory of Moral Sentiments, Smith warned of reflected in their wanton ability to lie right the arrogance and danger of what he called into the camera with no remorse or apparent "the man of system," or the social engineer, sense of guilt. who presumes to redesign man and society He assumed that what was needed was according to his own conception of a virtu­ ever-stronger government regulation and ous community. He considers people to be policing of the marketplace to curb the nothing more than pawns on the great chess­ unbridled criminality of the "greedy" and board of society, to be moved about to fit his anti-social conduct of too many business­ own ideological ideal and plans. (See my men. But then he began to look into the con­ essay "Free Markets, the Rule of Law, and duct and motivations of the regulators and Classical Liberalism," pp. 8-15 of this issue.) bureaucrats from whom he expected a solu­ In The Wealth of Nations, Smith lamented tion to these "market failures." Stossel soon what he called the other two forces hindering discovered that they either had their own the preservation of economic freedom: "the agendas for power and control, or served the prejudices of the public" and "the power of anticompetitive actions of selected special- the interests." By the prejudices of the public, interest business groups. So he decided to Smith meant the difficulty that many people investigate and report on the nature of gov­ have in following the logical arguments of ernment in practice, as well as the ideas and the advocates of freedom, and the ease with ideologies behind political intrusiveness in which they fall victim to the demagogic society. appeals of those who promise short-run Rather quickly, Stossel came face to face political favors and privileges at the expense with Adam Smith's "man of system," the of longer-run liberty and prosperity. ideological social engineer. He unearthed the And by the power of the interests, Smith twisting of facts justifying the regulation and was referring to the influence of special control over such things as consumer choice, groups who receive political benefits from market-driven production decisions, and the the government in the form of regulations environment. His exposes resulted in an and subsidies at the expense of the rest of the avalanche of accusations that he was in the society. Smith warned that they will use all pay of business interests and that he was the means at their deposal to destroy those against the poor and the public good. In who threaten the continuance of their privi­ other words, he was a dangerous "enemy of leges. Indeed, nothing can save the opponent the people."

41 The Freeman: Ideas on Liberty • May 2004

Then he faced the "prejudices of the pub­ FDR's Folly: How Roosevelt and lic." He received hate mail from viewers of His New Deal Prolonged the his television specials demanding that he be fired, killed, or, at the very least, exiled from Great Depression the human race. How could he question the by Jim Powell good intentions of the government or the Crown Forum • 2003 • 336 pages desirable results of the regulatory state • $27.50 unless he was, at the minimum, unbelievably stupid or, more likely, the incarnation of evil Reviewed by Burton Folsom, Jr. in the world? Finally, he faced the "power of the inter­ he Great Depression of the 1930s was ests." Unions, business interests, and profes­ by far the greatest economic calamity in sional associations that eat at the govern­ T U.S. history. In 1931, the year before ment trough attacked him as a vile and Franklin Roosevelt was elected president, dangerous threat to the "working man" and unemployment in the United States had the betterment of America. In addition, the soared to an unprecedented 16.3 percent. In politicians and bureaucrats, whose anticom­ human terms that meant that over eight mil­ petitive policies he put into the public eye, lion Americans who wanted jobs could not tried to squelch his television specials. find them. In 1939, after almost two full But in spite of the most determined terms of Roosevelt and his New Deal, unem­ attempts to gag him, or to get him removed ployment had not dropped, but had risen to from his high-profile television position, he 17.2 percent. Almost nine and one-half mil­ has survived. His television specials unmask­ lion Americans were unemployed. ing leftist ideologies and lies, and the abuse On May 6, 1939, Henry Morgenthau, of political power, have had consistently Roosevelt's treasury secretary, confirmed the high ratings. total failure of the New Deal to stop the Page after page recounts the details of his Great Depression: "We are spending more encounters with politically corrupt business­ than we have ever spent before and it does men and power-lusting bureaucrats. He not work. ... I say after eight years of this exposes the fraudulent methods used to Administration we have just as much unem­ spread myths and create fears about the ployment as when we started. . . . And an extent of poverty and the quality of life in enormous debt to boot!" America, and the safety of products avail­ In FDR's Folly, Jim Powell ably and able to the average citizen in the market­ clearly explains why New Deal spending place. And he highlights the absolute con­ failed to lift the American economy out of its tempt for the rights of others shown by those morass. In a nutshell, Powell argues that the who use the state for their own purposes. spending was doomed from the start to fail. Stossel ends his book with a series of clear, Tax rates were hiked, which scooped capital crisp chapters defending the logic and bene­ out of investment and dumped it into dozens fits of the free market, the importance of per­ of hastily conceived government programs. sonal and civil liberties, and the underlying Those programs quickly became politicized value of freedom in general. John Stossel's and produced unintended consequences, journey in the world of television journalism which plunged the American economy is proof that truth can win out. • deeper into depression. More specifically, Powell observes, the Richard Ebeling is president of FEE. National Recovery Administration, which was Roosevelt's centerpiece, fixed prices, stilled competition, and sometimes made American exports uncompetitive. Also, his banking reforms made many banks more vulnerable to failure by forbidding them to

42 Books expand and diversify their portfolios. Social lation of Roosevelt given by almost all histo­ Security taxes and minimum-wage laws rians. In the most recent Schlesinger Presi­ often triggered unemployment; in fact, they dential Poll (1997), the historians and pushed many cash-strapped businesses into "experts" chosen by Arthur Schlesinger, Jr., bankruptcy or near bankruptcy. The Agri­ collectively ranked Roosevelt as the greatest cultural Adjustment Act, which paid farmers president in American history, even though not to produce, raised food prices and every other American president had lower kicked thousands of tenant farmers off the unemployment rates than Roosevelt did for land and into unemployment lines in the his first eight years in the White House. As cities. In some of those cities, the unem­ late as 1999, David Kennedy won the ployed received almost no federal aid, but in Pulitzer Prize for a book (Freedom from other cities—those with influential Democ­ Fear) that largely praised the New Deal as a ratic bosses—tax dollars flowed in like legislative program and Roosevelt as its water. author. Powell notes that the process of capturing With the dawning of the 21st century, we tax dollars from some groups and doling may be witnessing the final departure of them out to others quickly politicized fed­ Roosevelt's loyal academic propagandists eral aid. He quotes one analyst who discov­ and those targeted recipients of his federal ered that "WPA employment reached peaks largess. In such a climate, Jim Powell has in the fall of election years. In states like given us, with FDR's Folly, a refreshing, Florida and Kentucky—where the New must-read account of the New Deal. • Deal's big fight was in the primary elec­ Burton Folsom is the Charles Kline Professor in tions—the rise of WPA employment was History and Management at Hillsdale College hurried along in order to synchronize with and author of The Myth of the Robber Barons, the primaries." The Democratic Party's abil­ currently in its fourth edition. ity to win elections became strongly con­ nected with Roosevelt's talent for turning on the spigot of federal dollars at the right time (before elections) and in the right Can Gun Control Work? places (key states and congressional dis­ by James B. Jacobs tricts). Oxford University Press • 2002 • 304 pages Powell's book is well researched and well • $27.50 organized. His chapter titles are a delight. He synthesizes a mass of secondary sources Reviewed by Jeffrey A. Miron (and some primary sources) in making a strong and persuasive case that the New an Gun Control Work? is a first-rate Deal was a failure and that the Roosevelt addition to the literature on gun control. presidency, at least in its first two terms— C The book is not an attempt to advocate was a disaster. Powell covers all the major either side of the debate. Instead, it is an New Deal programs; he draws on the analysis of whether various types of control research of historians both "liberal" and can achieve their stated objectives, especially conservative; and he is nuanced—this is no reducing violence and crime. Jacobs con­ hatchet job—in that he concedes that some cludes that gun control cannot work, by of Roosevelt's policies, such as tariff revi­ which he means it cannot effectively keep sion, were more economically sound than, firearms out of the wrong hands or reduce say, his industrial and agricultural policies. crime to any significant degree. FDR's Folly takes its place on the shelf This is an unusual piece of scholarship, alongside Gary Dean Best's Pride, Prejudice, especially in the literature on gun control. It and Politics and his more recent Retreat argues strenuously that controls are unlikely from Liberalism as liberating revisionist to have the effects hoped for by their advo­ works that challenge the long-standing adu­ cates. Yet Jacobs is not a gun devotee. It

43 The Freeman: Ideas on Liberty • May 2004 appears that he is saddened by his conclu­ emphasizes is the multitude of mechanisms sions, that he would prefer to live in a world by which new and existing gun-control laws without guns, and that he perceives guns to can be circumvented or evaded. Any restric­ have far more negatives than positives. tions on the sale of guns are undone to a However, Jacobs consistently concludes that substantial degree by straw purchases, fake essentially all currently envisaged types of IDs, gun thefts, and unscrupulous federal gun control fail to have the desired effects. firearms licensees. Jacobs notes that all these The book begins by identifying the prob­ avenues for circumventing control apply lem for which gun control might be the even if both primary and secondary pur­ "solution." Jacobs concludes that the key chases are subject to background checks and problem is violent crime, rather than suicides even if all guns are registered. The only pos­ or accidents. Suicide is a quantitatively sible mechanism for addressing the multiple important issue, but suicides are not a criti­ opportunities for criminals to get guns is cal factor creating a demand for gun control. confiscation of existing guns combined with Accidents with firearms are a cause for con­ prohibition of all new guns. Jacobs dismisses cern, but these incidents are rare and mainly that approach as utterly impractical, both affect persons who have "assumed the risk" because of the large existing stock of of being around guns. Jacobs dismisses the weapons that owners will give up only under notion that society should pass gun-control duress and because prohibition will generate laws, knowing they will be minimally effec­ a black market. tive, simply for the sake of "doing some­ Given the author's conclusions, it might thing." appear that gun-control opponents would After outlining the question to be welcome this book with open arms. That is addressed, Jacobs reviews the history of gun not quite right, however. control in America. This is an excellent sum­ Those opposed to controls will share most mary for those new to the subject and a use­ of Jacobs's conclusions, and they will be ful review for others. pleased to see those conclusions coming Jacobs then discusses the impediments to from someone who is not a fan of guns. Nev­ further gun control. One is the Second ertheless, opponents of gun control will find Amendment and the widespread belief the book unsatisfying—because while Jacobs among gun owners that it guarantees an is thoughtful and persuasive in his criticism individual right to keep and bear arms. of most gun controls, his critiques are about Jacobs suggests that even under an individu­ the limits of controls rather than about the alist interpretation of the amendment, there possible benefits of guns. is still scope for regulation of firearms. But That approach leaves unaddressed a he sees the technical implications of the Con­ deeper question: would eliminating guns be stitution as less relevant than long-standing desirable if the existing impediments were hostility to gun regulation on the part of a removed? Jacobs doesn't answer that ques­ substantial fraction of the country. tion, and the omission will give control A second critical difficulty that faces opponents pause. additional controls is the large number of Can Gun Control Work? is the kind of guns in circulation. This fact, combined calm, rational evaluation of public policies with the durability of most guns, implies that is all too rare today. • that even if no new firearms were obtained Jeffrey Miron is a professor of economics at by anyone in the United States from some Boston University. point forward, there will still be a high rate of gun ownership for decades. Thus even perfectly effective controls on new owner­ ship cannot address problems related to existing guns. The third key impediment that Jacobs 44 Books

The Real Environmental Crisis: Why example, he doesn't call global warming an Poverty Not Affluence, Is the imminent catastrophe. He says there are still many scientific uncertainties, and "if it turns Environment's Number One Enemy out that human activity is adding to the nat­ by Jack M. Hollander ural warming, the amount will probably be University of California Press • 2003 • small, and society can adjust to that as well, 237 pages • $27.50 at relatively low cost or even net benefit." In some circles, this is heresy. Reviewed by Jane S. Shaw Hollander is optimistic about reducing pollution from automobiles too. Already on he extraordinary thing about this excel­ the decline, this pollution is likely to disap­ lent book is not its content as much as pear entirely, he says, as competition devel­ T its source. Jack M. Hollander is a retired ops between the hybrids (electric and gaso­ professor of energy and resources at the Uni­ line-powered cars) and cars powered by versity of California, Berkeley. Although he hydrogen fuel cells. He predicts that the has had an impressive career in the field of "worldwide deterioration of air quality that energy (he has more than 100 publications accompanied the rise of the automobile cul­ to his credit), in the past he did not differen­ ture will be permanently reversed, and the tiate his views from those of scientists who world's dependence on petroleum will prob­ are pessimistic and even alarmist about the ably be drastically reduced, as well." environment. Nor does Hollander blindly support alter­ For example, a 1992 book Hollander native energy, such as solar or wind power. edited, The Energy-Environment Connec­ He concludes that much effort to jump-start tion, featured scientists such as Stephen these alternatives is misplaced. The govern­ Schneider, a well-known proponent of gov­ ments of such wealthy nations as the United ernment control to slow down global warm­ States are subsidizing "large-scale renewable ing, and John Holdren, who expressed alarm technologies for which there is little need," about the "folly of failing to stabilize world yet ignoring solar applications that could population." Although it avoided inflamma­ help poor people in rural regions lacking tory rhetoric, the book treated global warm­ electricity. He says that "poor countries have ing as a severe problem and expressed pes­ tremendous need for renewable energy simism about acid rain and air pollution. sources, and a number of ingenious yet Hollander has not repudiated his past affordable technologies have been available work, but has shifted gears. It's as though he for years." sat down one day and completely rethought, As these examples illustrate, Hollander without bias, the seriousness and extent of has written a book that, like Bjorn Lom- environmental problems. However it hap­ borg's The Skeptical Environmentalist, pened, he has come to the conclusion that offers upbeat views about issues usually poor people in developing countries suffer treated as crises. Unlike Lomborg, Hollander from the worst environmental problems: doesn't seem to be challenging the establish­ hunger, disease, and dangerously unsanitary ment. He is an insider telling it the way he water. Environmental problems in Europe sees it. Perhaps his moderate stance is one and North American simply pale in compar­ reason why this book hasn't received as ison. "Reducing poverty throughout the much attention as has the Danish statisti­ world should be a top priority for environ­ cian's. mentalists," he writes. Hollander has made an effort to consider The environmental crisis of poverty is the literature from both the doomsday and skep­ theme of the book, but another theme is tical sides. I was, however, dismayed by his inextricably entwined and almost more selection of a passage from Dickens's novel dominant. That is Hollander's reassessment Hard Times to illustrate air pollution in the of the severity of environmental issues. For nineteenth century. ("It was a town of red

45 The Freeman: Ideas on Liberty • May 2004 brick, or of brick that would have been red sion of this would have underscored his if the smoke and ashes had allowed it," the point. passage begins). Dickens, a master of fic­ These are minor criticisms. Although it tional exaggeration, is hardly a reliable comes as no surprise to many of us that authority on air pollution. I'm also a little poverty is the environment's number one surprised that Hollander is unaware of the enemy, at long last, thanks to Hollander, growing literature (started by economists) others may find it out too. • surrounding the environmental Kuznets Contributing editor Jane Shaw is a senior associ­ curve. This correlation between income and ate of PERC—the Property and Environment pollution shows that as countries become Research Center—in Bozeman, Montana, and more wealthy their environments initially coauthor with Michael Sanera of Facts, Not Fear deteriorate but then become cleaner. Discus­ (Regnery).

You are cordially invited to join us for our new one-day program

On the Road with FEE: Winning Freedom

Saturday, May 22, 2004 9:00 A.M.-6:00 P.M. at The Doubletree Hotel San Francisco Airport 835 Airport Boulevard Burlingame, CA 94101

This inspiring and informative event features presentations by:

Dr. Richard Ebeling, President, Foundation for Economic Education Sheldon Richman, Editor, The Freeman Anna Ebeling, Foundation for Economic Education Doug Bandow, Contributing Editor, The Freeman

The program is free of charge. To register, call FEE at 914-591-7230, or e-mail [email protected].

46 The Pursuit of Happiness by Russell Roberts •THE FREEMAN \Qdeas On Liberty)

MAY 2004

Have a Canadian Orange

uppose gasoline became so expensive orange for $1.50 and still make a profit. that getting oranges to Wisconsin raised There'd be rejoicing in the supermarket their price to $3 each. If that price were aisles of Green Bay. Brunch-goers in Madi­ expected to persist for a long time, there son would be toasting each other with fresh- Swould probably arise a Wisconsin citrus squeezed OJ. industry with all the trimmings. Orange Standing in a Green Bay supermarket and orchards would be planted near the Illinois weighing the virtues of a premium Wiscon­ border where the weather is warmest. There sin orange and an imported Canadian one would be a Wisconsin Citrus Growers Asso­ would be pretty easy. Canadian oranges ciation taking out ads to tell the citizens of would flood in. Some Wisconsin growers Wisconsin about the health advantages of would start losing money—trying to meet genuine Wisconsin orange juice. There'd be the Canadian competition at only $1.50 a number of orange-juice bottling plants might be just too hard. They'd start lobbying opening up too. the legislature to ban Canadian oranges. The price of an orange in Wisconsin After all, they'd explain, Wisconsin is a bet­ would still be a tad expensive, maybe $2. It ter place to grow oranges than Canada. It's would take some serious capital investment warmer. It would be foolish to let in Cana­ in greenhouses and heating systems to over­ dian oranges simply because Canadians have come the Wisconsin climate's disadvantages lower wages. That's an artificial advantage. as a place to grow oranges, and the price I doubt lovers of orange juice and Hunan would have to cover those costs. But it could beef with orange sauce and screwdrivers (the be done. Oranges would be a bit of a luxury. drink, not the hardware item) would be Most people wouldn't eat them as regularly interested in the exact reason that Canadian as they do now. oranges were helping to make the food and It might even be worthwhile to truck in drink they love more affordable. And they'd oranges from Canada. It's a short haul. be right. It wouldn't matter if Canadian True, it's colder in Canada. Not much. But a oranges were cheaper because Canadian little colder. So the greenhouse and heating orange growers were able to pay their work­ costs might be a little higher. But suppose ers less, or if Canadian soil happened to have Canada had lower wages than Wisconsin. a good mix of nutrients for citrus-growing, Even after the higher heating costs, let's say or if the Canadian natural-gas companies a Canadian orange grower could sell an received subsidies that keep heating costs artificially low. The only thing that would Russell Roberts ([email protected]) is a professor matter is that oranges cost less. Citizens of economics at George Mason University and the would have more money left over for other J. Fish and Lillian F. Smith Distinguished Scholar at the Mercatus Center. He is the author of The Invis­ things. They'd also have a lot more oranges ible Heart: An Economic Romance. to enjoy, now that the prices were lower.

47 The Freeman: Ideas on Liberty • May 2004

The citizens of Wisconsin would have a High-Tech Jobs to India higher standard of living. The Wisconsin Citrus Growers Associa­ I've been thinking about cheese and tion would argue that all those cheap Cana­ oranges because a lot of people are worried dian oranges were going to cause some about America losing high-tech jobs to unemployment in the Wisconsin orange India. We think of America as the "best" orchards. That would cause some hardship place to do programming in the same way for a while. But someone would be sure to we think of Wisconsin as the best place to notice that if the Canadians used some of make cheese and Florida as the best place to their land to grow oranges for Wisconsin, grow oranges. Programming jobs "belong" then some of those Wisconsin orchards here. The worriers argue that the lower would be freed up to use for something else. wages of Indian programmers are an artifi­ They could be planted with grass for dairy cial advantage, not a "natural" one. cows to munch on. The dairy industry could Keeping those jobs here if Indians can do expand. There would be more jobs in that them more cheaply makes no more sense industry. Without Canadian oranges, it than keeping those orchards going in Wis­ would be worth giving up some cheese to consin in a world where Canadian oranges have oranges. But if you could get oranges are available. It's particularly costly when from Canada, it would make more sense to Florida oranges can move cheaply. So too use that land for dairy farming. with programming jobs. If Indians are capa­ So what's the best use of the land in Wis­ ble programmers and their wages are low, consin? Is it better for dairy farming or bet­ then we give up a lot to artificially keep the ter for oranges? It seems obvious to us in the jobs here via some sort of protectionism or real world we live in that the "best" use of barrier to outsourcing. Wisconsin's land is dairy farming. In the real Yes, says the skeptic, but it's a bad trade— world, that's true because transportation low prices for lost jobs. But that's not the costs from Florida are low enough to make real tradeoff. The number of jobs isn't fixed. Wisconsin orange orchards an absurdity. The number of high-tech jobs that involve But if for some reason Florida oranges information isn't fixed either. Letting India weren't available, then the best use of Wis­ do some of those jobs for American firms consin land might no longer be dairy farm­ more cheaply than they can be done here ing. And if cheese suddenly gets cheaper to frees up the resources to do new things we make somewhere else, someday it might be can't imagine and that will create the new better to turn those dairy farms into the next job opportunities. And some of those oppor­ best alternative, whatever that might turn tunities will be in high-tech firms that are out to be given the nature of the land and the able to expand because they've saved skills of the people of Wisconsin. resources leveraging Indian labor. •

48