The New Argument in Economics The William Volker Fund Series In the Humane Studies EPISTEMOLOGICAL PROBLEMS OF ECONOMICS by Ludwig von Mises THE ECONOMIC POINT OF VIEW by Israel M. Kirzner ESSAYS IN EUROPEAN ECONOMIC THOUGHT Edited by Louise Sommer SCIENTISM AND VALUES Edited by Helmut Schoeck and James W. Wiggins A SOCIALIST EMPIRE: THE INCAS OF PERU by Louis Baudin RELATIVISM AND THE STUDY OF MAN Edited by Helmut Schoeck and James W. Wiggins FREEDOM AND THE LAW by Bruno Leoni MAN, ECONOMY, AND STATE-2 vols. by Murray N. Rothbard THE ULTIMATE FOUNDATION OF ECONOMIC SCIENGE by Ludwig von Mises PSYCHIATRY AND RESPONSIBILITY Edited by Helmut Schoeck and James W. Wiggins THE FREE AND PROSPEROUS COMMONWEALTH by Ludwig von Mises SCIENCE AND HISTORY: A CRITIQUE OF POSITIVIST EPISTEMOLOGY by Heinrich Rickert THE NECESSARY CONDITIONS FOR .A FREE SOCIETY Edited by Felix Morley ESSENTIALS OF ECONOMICS: A BRIEF SURVEY OF PRINCIPLES AND POLICIES by Faustino Ballve THE NEW ARGUMENT IN ECONOMICS Edited by Helmut Schoeck and James W. Wiggins The New Argument in Economics THE PUBLIC versus THE PRIVATE SECTOR Edited by HELMUT SCHOECK AND JAMES W. WIGGINS Papers by KARL BRANDT ARTHUR A. SHENFIELD LOWELL B. MASON GEORGE J. STIGLER JEROME WILSON MILLIMAN WILLIAM S. STOKES SYLVESTER PETRO ERNEST VAN DEN HAAG J. FRED RIPPY ELISEO VIVAS WILSON E. SCHMIDT W. ALLEN WALLIS D. VAN NOSTRAND COMPANY, INC. PRINCETON, NEW JERSEY TORONTO LONDON NEW YORK D. VAN NOSTRAND COMPANY, INC. 120 Alexander St., Princeton, New Jersey (Principal office) 24 West 40 Street, New York 18, New York D. VAN NOSTRAND COl\1:PANY (Canada) LTD. 358" Kensington High Street, London, W.14, England D. VAN NOSTRAND COMPANY, LTD. 25 Hollinger Road, Toronto 16,Canada Copyright, © 1963 by WILLIAM VOLKER FUND Published simultaneously in Canada by D. VAN NOSTRAND COMPANY (Canada), LTD. No reproduction in any form· of this bookJ in whole or in part (except for brief quotation in critical articles or reviews)J may be made without written authorization from the publishers. PRINTED IN THE UNITED STATES OF AMERICA Contributors KARL BRANDT, Professor of Economic Policy and Director of the Food Research Institute, Stanford University. He served as one of the three members of the President's Council of Economic Advisers from November 1, 1958, to January 20, 1961, and participated in the preparation of three of the President's Economic Reports. As a university professor and research director-before 1933 in Germany and since then in this country-he has served as a consultant to agencies of the Federal Government, foundations, inter­ national organizations, and foreign governments. He is the author of many books and articles on economic and agricultural policy issues. LOWELL B. MASON, LL.B., LL.D., Attorney. He has been As­ sistant Corporation Counsel of the City of Chicago, a member of the Illinois State Senate, and counsel to two subcommittee; of the United States Senate. In 1945 he was appointed by President Harry S. Truman to the Federal Trade Commission and was reappointed in 1949 for a seven-year term. Commissioner Mason is the author of The Language of Di'.ssent~ and is now a practicing attorney in Washington, D. C. v vi Contributors JEROME WILSON MILLIMAN, Associate Professor of Business Administration, Indiana University, on leave with Re­ sources for the Future, Inc., during 1962-63. He is a former consultant on water resource economics to the National Planning Association and to the RAND Corporation; currently he is consultant to the Committee for Economic Development on area redevelopment. He has written a number of articles in professional journals and (with Jack Hirshleifer and James De Haven) Water Supply: Eco­ nomics) Technology} and Policy (1960). SYLVESTER PETRO, Professor of Law at the New York University School of Law and member of the Illinois bar. He is a specialist in labor and antitrust law, and a contributor to legal and other periodicals. Among his books are: The Labor Policy of the Free Society (1957), Power Un­ limited: The Corruption of Union Leadership (1959), and The Kohler Strike: Union Violence and Administra­ tive Law (1961). J. FRED RIPPY, Professor Emeritus of American History, Univer­ sity of Chicago. He is the author of several books on the history and foreign relations of the Americas, includ­ ing Globe and Hemisphere (1958), Latin America: A Modern History (1958), and British Investments in Latin America (1959). WILSON E. SCHMIDT} Professor of Economics, The George Wash­ ington University, where he has been teaching since 1950. He has been a consultant to various organizations, includ­ ing the Industrial College of the Armed Forces and the American Enterprise Institute for Public Policy Research. In addition to many articles, he has written (with J. N. Behrman) International Economics: Theory) Practice) Policy (1957). Contributors vii ARTHUR A. SHENFIELD, Economic Director of the Federation of British Industries since 1955. He has served as assistant editor of the London and Cambridge Economic Service, lecturer in economics at the University of Birmingham, economic adviser to the government of Trinidad, chair­ man of commissions of enquiry, and chairman of the Finance Committee of the Imperial College of Tropical Agriculture, and was in active practice at the English bar. He has lectured on British economic affairs in various countries and is the author of numerous essays and articles on economic questions, and, in particular, reports on economic problems in the British Caribbean. He is Ford Foundation Visiting Professor in the University of Chicago Graduate School of Business for 1963. GEORGE J. STIGLER, Walgreen Professor of American Institutions, University of Chicago, and President-elect of the American Economic Association. He is the author of six books, in­ cluding Theory of Price and Production and Distribution Theories} and was chairman of the Price Statistics Review Committee, whose report was recently published by the Joint Economic Committee. WILLIAM S. STOKES, Senior Professor of Comparative Political In­ stitutions at Claremont Men's College and the Claremont Graduate School. He was chairman of the Latin American Affairs Committee of the American Political Science Association and has conducted research in all the Latin American countries, leading to over two hundred publica­ tions in English, Spanish, and Portuguese. Before accept­ ing an endowed chair at Claremont Men's College, he was Professor of Political Science at the University of Wisconsin. Dr. Stokes has lectured at many Latin Ameri­ can institutions of higher learning. His books are: Hon­ duras: An Area Study in Government (1950) and Latin American Politics (1959). viii Contributors ERNEST VAN DEN HAAG, Professor of Social Philosophy at New York University and lecturer at the New School for Social Research. He is a Fellow of the Royal Economic Society and of the American Sociological Association. In addition to many articles, his books include Education as an Industry) The Fabric of Society (1957) (with Ralph Ross) and Passion and Social Control (1963). ELISEO VIVAS, John Evans Professor of Moral and Intellectual Philosophy, Northwestern University. He is associate edi.. tor of Modern Age: A Quarterly Review. He has worked in the field of ethics and aesthetics and is now occupied with problems of philosophical anthropology or philosophy of culture. A contributor to technical jour­ nals and literary reviews, he has written The Moral Life and the Ethical Life (1950), Creation and DiscoV'ery (1955), and D. H. Lawrence: The Failure and the Triumph of Art. W. ALLEN WALLIS, President of the University of Rochester and Professor of Economics and Statistics. He is Chairman of the Editorial and Advisory Board and of the Executive Committee of the new Encyclopedia of the Social Sciences. Formerly Dean of the Graduate School of Business and Professor of Statistics and Economics at the University of Chicago, he has served on the staffs of Yale University, Stanford University, Columbia University, the National Bureau of Economic Research, the National Resources Committee, and the Ford Foundation. He spent two years at the White House, where he was a special assistant to President Eisenhower. He has served as editor of the Journal of the American Statistical Association) is co­ author of several books, including Statistics: A New Approach) and has published numerous technical articles on statistics and economics. Preface In September of 1961, at a place ideally suited for an undis­ turbed .exchange of ideas, a group of fourteen men spent one week together considering critically the early drafts of the papers finally presented in this volume. Including the editors, the group came from the following disci­ plines: economics, statistics, business administration, history, law, philosophy, political science, and sociology. In addition to their academic backgrounds, some of the participants in the symposium came from extensive experience in public service. The title for the volume was chosen in irony, of course. The "new argument" in economics and public policy is, as anyone familiar with economic history knows, even older than pre­ nineteenth-century socialism. Mercantilism and sumptuary laws, the latter even found in rather undeveloped tribal societies, antici­ pated many of the notions now revived in the present adoration of the "public sector." Perhaps most of the participants in our symposium had feelings about our topic similar to those expressed by President Wallis in his theme-setting essay. The fashionable scolding of the "private sector," while imploring compassion for the allegedly starved "public sector," for political and emotional reasons, has not really produced a novel or intrinsically viable problem. There are more attractive and meaningful issues which realistically demand ex­ amination. But sometimes men must devote themselves reluctantly to a final inquest, especially when it is necessary to separate promising ideas from sterile and inhibiting principles. Toward the later fifties, the intriguing dichotomy, the public sector vs.