THE

Features 8 Downtown Revitalization: City Governments Versus Consumers by J. H. Huebert 10 Hierarchy or the Market by Kevin Carson 17 Banning Payday Loans Deprives Low-Income People of Options by George Leef 19 Savoring "Three Cups of Tea": An Essay on the Future of Politics by James L. Payne 23 Slick Construction Under the Articles of Confederation by Joseph R. Stromberg 30 The Return of Debtors' Prison? by Wendy McElroy 35 The Free Market's Invisibility Problem by Joseph Packer Page 8 38 Exporting and Importing at the University by T. Norman Van Cott

Columns 4 From the President ~ The German Economic Miracle and the "Social Market Economy" by Richard M. Ebeling 15 Thoughts on Freedom ~ I Won't Vote! by Donald J. Boudreaux 21 Peripatetics ~ Health-Care Cons by Sheldon Richman 28 Our Economic Past ~ Migration, Markets, and Governments by Stephen Davies 40 Give Me a Break! ~ Presidents Can't Manage the Economy by John Stossel 47 The Pursuit of Happiness ~ How Free Markets Break Down Discrimination by David R. Henderson Page 4

Departments Perspective ~ Are the Voters Qualified to Pick a President? by Sheldon Richman Consumption Must Be Curtailed to Sustain the Human Race? It Just Ain't So! by Gene Callahan

Book Reviews 42 Globalization RADICALS by Donald J. Boudreaux Reviewed by Richard M. Ebeling 43 Radicals for Capitalism: A Freewheeling History of the Modern American Libertarian CAPITALISM Movement

by Brian Doherty Reviewed by Bettina Bien Greaves HHI\N DUHKKIV

44 Armed America: The Remarkable Story of How and Why Guns Became as American Page 43 as Apple Pie by Clayton E. Cramer Reviewed by George C. Leef 45 The European Economy Since 1945: Coordinated Capitalism and Beyond by Barry Eichengreen Reviewed by Waldemar Ingdahl W"J THE Perspective FREEMAN Are the Voters Qualified Published by to Pick a President? The Foundation for Economic Education Irvington-on-Hudson, NY 10533 Phone: (914) 591-7230; E-mail: [email protected] he big political buzz is over whether John www.fee.org McCain, Hillary Clinton, and Barack Obama President Richard M. Ebeling are qualified to be president. The voters are Editor Sheldon Richman T expected to decide, but are they qualified to do that? Managing Editor Beth A. Hoffman Assistant Managing Editor A.J. Gardner How would voters know who is up to this job? They Book Review Editor George C. Leef might try to make a judgment on the basis of character. Columnists But that won't get them far since most of what they Charles Baird David R. Henderson know about the candidates' characters is the result of the Donald J. Boudreaux Robert Higgs Stephen Davies Lawrence W. Reed theatrics we call campaigning. Voters get their impres­ Richard M. Ebeling John Stossel sions through the careful efforts of image consultants and Burton W. Folsom,Jr. Thomas Szasz media experts who make liberal use of focus groups. Walter E.Williams Considering that political platforms consist of Contributing Editors Norman Barry Dwight R. Lee unkeepable promises, no candidate should score high in Peter J. Boettke Wendy McElroy the character category anyway. James Bovard Tibor Machan But character isn't the only criterion people use. Thomas J. DiLorenzo Andrew P. Morriss Joseph S. Fulda James L. Payne Competence is another one. Here the theory of Bettina Bien Greaves William H. Peterson representative government really runs into trouble. John Hospers Jane S. Shaw A president today is expected to "run the economy." Raymond J. Keating Richard H.Timberlake How would voters know if a candidate—any candi­ Daniel B. Klein Lawrence H.White date—is competent to do that? Does being a senator, Foundation for Economic Education Board of Trustees, 2007-2008 governor, successful business person, or an effective Dan Grossman, Chairman campaigner demonstrate one's capacity to manage a Sally von Behren Frayda Levy $15 trillion economy? Lloyd Buchanan Paige K. Moore To answer that question, the voters would have to JefFGiesea Wayne Olson Edward M. Kopko Roger Ream know something about economics. Uh-oh. Walter LeCroy Donald Smith Most voters know nothing about how markets The Foundation for Economic Education (FEE) is a work—or even that they work—and how government non-political, non-profit educational champion of tends to sabotage them. As I've noted before, Bryan individual liberty, private property, the free market, and Caplan's book, The Myth of the Rational Voter, well doc­ constitutionally limited government. The Freeman is published monthly, except for combined Janu­ uments the widespread ignorance about economic ary-February and July-August issues. Views expressed by the principles. Public-opinion surveys unfailingly demon­ authors do not necessarily reflect those of FEE's officers and strate that most people believe, as articles of faith, that trustees. To receive a sample copy, or to have The Freeman come regularly to your door, call 800-960-4333, or e-mail 1) profitable market exchange is a zero-sum activity [email protected]. (one person's gain is another person's loss), 2) foreigners The Freeman is available on microfilm from University Microfilm bearing goods and services are threats, 3) job preserva­ International, 300 North Zeeb Road, Ann Arbor, MI 48106. tion is good and job destruction bad, and 4) bad eco­ Copyright © 2008 Foundation for Economic Education, except for graphics material licensed under Creative Commons nomic news counts more than good economic news. Agreement. Permission granted to reprint any article from The inconsequential nature of a single vote and the this issue, with appropriate credit, except "Presidents Can't Man­ costlessness of casting a feel-good vote guarantee that age the Economy." most individuals will have no incentive to examine their Cover photo by Andrew Bain, licensed under Creative Com­ mons Attribution-Noncommercial 2.0 Generic. economic biases before voting.

THE FREEMAN: Ideas on Liberty 2 PERSPECTIVE: Are the Voters Qualified to Pick a President?

Here's the problem for democratic theory: If most firms that prefer rigid bureaucratic management to people hold these demonstrably incorrect views, how entrepreneurial dynamism. But what happens when can they be qualified to elect a president? They have no government intervention tilts the field in favor of way to sort destructive or impossible promises from bureaucracy? Kevin Carson looks at the consequences reasonable ones. of the mixed economy and what might have been. As long as presidents have the power to meddle in States are beginning to outlaw payday-lending busi­ the economy (which means meddle with us) and are nesses. Do the bans protect the poor from predatory expected to do so, voters ignorant of economics are lending or merely deprive them of one of the few unlikely to make good decisions. Incompetent voters options they have left? George Leef isn't surprised by assure incompetent candidates and officeholders. the results. Most of the promises candidates make are about The lust for power has been present in every age, economic matters. Two candidates today promise to even during the American founding and early years of obstruct trade across the Mexican and Canadian bor­ the republic. Joseph Stromberg has some overlooked ders because consumers' freedom to accept the best facts about a romanticized age. offer allegedly has eliminated manufacturing jobs in In this era of pervasive government, it's good to be Ohio. (The candidates of course are not candid reminded that people working outside the political enough to blame consumer freedom, but that's what realm can do some amazing things. James Payne has one they mean.) such reminder. If voters don't understand markets, economic incen­ Civil contempt of court is a charge that few people tives, and the perverse dynamics of government inter­ give any thought to. But as Wendy McElroy reports, ference, how can they judge those promises? it's responsible for the revival of the debtors' prison The answer is they can't. Enthusiasts of representa­ in America. tive democracy typically assume the existence of Why are the opponents of free markets so much informed voters. But being truly informed means more better at making their case visually than libertar­ than regularly watching the news, reading a newspaper, ians are? Joseph Packer has a wake-up call for the free­ and browsing the candidates' websites. It requires more dom movement. than "caring." Being informed means understanding The conventional wisdom says countries import, basic economics—grasping, for starters, the contents of reluctantly, so they can export. That's ridiculous, says Henry Hazlitt's Economics in One Lesson, Leonard Norman Van Cott. Read's "I, Pencil," and Frederic Bastiat's "What Is Seen Our columnists have brewed up the following: and What Is Unseen." Richard Ebeling revisits the postwar German "eco­ In other words, a truly informed person must nomic miracle." Donald Boudreaux explains why he understand that no one can be qualified to be president won't vote. Stephen Davies looks at the role of migra­ because no one can do what a president is expected and tion in history. John Stossel says no president can man­ empowered to do. age an economy. David Henderson shows how markets Until that sort of informed person predominates, minimize irrational discrimination. And Gene Calla­ I will shudder at "get out the vote" campaigns. han, reading the claim that we will have to lower our living standards to help the poor countries, ripostes, • • • "It Just Ain't So!" Local-government efforts at revitalizing downtowns Our dogged reviewers scrutinize books on global­ have been astounding—if their goal was to create com­ ization, the modern libertarian movement, guns in mercial ghost towns. J. H. Huebert reports on an all- America, and Europe's economic history. too-common urban phenomenon. —Sheldon Richman The free market can be counted on to penalize srichman @fee. org

3 APRIL 2008 From the President The German Economic Miracle and the "Social Market Economy"

BY RICHARD M. EBELING

his summer marks the 60th anniversary of the the Nazi system of price and production controls was beginning of the post-World War II German kept in place. T"economic miracle." When the war ended in A small band of German free-market advocates had Europe in 1945, Germany was in a shambles. Its major survived the war. A leading figure in this group was cities had been destroyed either from Allied bombing or Walter Eucken, who was a professor at the University urban combat. Millions of its citizens had died in the of Freiberg. While restricted in what they could say war, and millions more were turned into empty-handed publicly under the Nazi regime, Eucken and his col­ refugees. Food was almost non­ leagues had maintained a net­ existent, and starvation gripped work among themselves with most of the population. the goal of sharing ideas for The Nazis had imposed a establishing a market-oriented comprehensive system of eco­ economy in the post-Hitler nomic controls on prices, wages, era that they all impatiently and production. They had turned awaited. While intellectually to the printing press to finance a isolated from other free-mar­ good part of the costs of war, ket economists outside Ger­ resulting in a "repressed infla­ many, they remained inspired tion" under the stranglehold of in their thinking by classical the price regulations. The liberals like Ludwig von increasingly scarce goods were Mises and Wilhelm Ropke, rationed or simply disappeared whose writings they read and from the stores. By the time Ger­ clandestinely shared. many surrendered in May 1945, One of Eucken's proteges the National Socialist version of German Reichstag building covered in graffiti from Soviet was an economist named soldiers the planned economy, and above :ommons.wik edia.org Ludwig Erhard. He was all the war, had brought Ger­ appointed economics minister many to a state of social and economic collapse. in the American zone in Bavaria in 1946. For two years Now the country was under the joint occupation of he used this position as a platform to advocate market the four Allied Great Powers: the United States, Soviet reforms. In radio broadcasts he frequently exhorted the Union, Great Britain, and France. German people to accept that they had brought their In the Soviet zone, factories not destroyed in the war current tragic circumstances on themselves and only were dismantled and shipped back to the Soviet Union. hard work, savings, and self-responsibility could restore Soviet soldiers terrorized the population, and Stalin their prosperity and gain them a new place among the proceeded to impose a communist political structure. civilized nations of the world. In the American and British zones Soviet-style bru­ In 1948 the British and American zones were com­ tality was rarely practiced, but the German population bined into one administrative unit, with Erhard as was viewed as "the enemy" to whom excessive sympa­ thy and generosity were not to be shown. Moreover, Richard Ebeling ([email protected]) is die president of FEE.

THE FREEMAN: Ideas on Liberty 4 The German Economic Miracle and the "Social Market Economy director of economics. In June he instituted a major "social market economy," was necessary and desirable to currency reform to restore monetary stability and to assure social harmony. They supported government end the inflationary after-effects from the Nazi period. regulation of the size and composition of large enter­ Not only was a new currency put in place, but it was prises. They supported urban and rural planning. And done through a process of reducing the money supply. they introduced the system of "co-determination," In June 1948 Germans in the Western zone could under which all large enterprises and corporations were exchange ten of the old marks for one new mark. legally required to have trade-union representatives Shortly after this, Erhard introduced the other included in the decision-making bodies of businesses. essential element of any successful economic-reform Thus from the start the institutional order in project: abolition of the price and production controls. postwar Germany was one that opened the door to On a Sunday, while all the Allied occupation authori­ special-interest-group politics, compulsory income ties were out of their offices, Erhard announced on the redistribution, union-power blackmail over business, radio that the next morning virtually all price controls and a general culture of political paternalism. would be abolished. General Lucius Clay, commander The real nature of this system was insightfully of American forces in Germany, called Erhard into his explained by Mises: office and said, "Herr Erhard, my advisers tell me you're making a terrible mistake." Erhard replied, "Don't listen [T]he supporters of the most recent variety of inter­ to them, General. My advisers tell me the same thing." ventionism, the German "soziale Marktwirtschaft" [social market economy], stress that they consider Recovery Begins the market economy to be the best possible and oarded goods in short supply suddenly came out most desirable system of society's economic organi­ Hof their hiding places now that they could be sold zation. . . . [But] it is necessary, they say, that the state at market-based prices. In the second half of 1948 interfere with the market phenomena whenever and industrial production increased 46 percent from its wherever the "free play of the economic forces" June level. And a year later, at the end of 1949, that pro­ results in conditions that appear as "socially" unde­ duction was 81 percent above what it had been when sirable. ... If it is in the jurisdiction of the govern­ the reforms had been implemented in the middle of ment to decide whether or not definite conditions 1948. After an initial spike in prices when the controls of the economy justify its intervention, no sphere of were abolished, by the end of 1950 the greater indus­ operation is left to the market. . . .That means the trial and agricultural output that was offered on a more market is free as long as it does precisely what the open market significantly reduced the cost of living. government wants it to do. Germany's economic-recovery path assured that well into the 1960s its rate of growth in output and produc­ Sixty years after these German reformers intro­ tivity would place it far ahead of virtually all the duced the "social market economy," it is clear that they other countries of western Europe, including those, were only planting the seeds of new forms of govern­ like Great Britain, that had been victors in the war. ment control and corruption. The market is either free The reforms brought about this economic miracle or it is under the regulation of the government. Either because they eliminated the worst institutional features individuals are free persons who may peacefully go of what had been Nazi central planning. But West Ger­ about their lives and associate with others through many was not transformed into a real free-market soci­ voluntary exchange, or they are pawns on a polit­ ety. Its intellectual architects, including Walter Eucken, ical chessboard, open to manipulation and control Wilhelm Ropke, and Ludwig Erhard were advocates of whenever their actions do not follow what those in a "middle way" between a truly free market and social­ power demand. ist planning. They believed that a large welfare state, the There is no third way.

5 APRIL 2008 Consumption Must Be Curtailed to Sustain the Human Race? It Just Ain't So!

BY GENE CALLAHAN

ared Diamond, in a January 2 op-ed in the New Diamond continues, "People in the third world are York Times, argues for a political solution to what aware of this difference in per capita consumption. . . . he sees as a looming "consumption crisis" facing When they believe their chances of catching up to be J humanity. He notes that the current consumption hopeless, they sometimes . . . become terrorists, or tol­ of many resources, such as oil and metals, is roughly erate or support terrorists." So why not allow the poor 32 times higher in the developed than in the develop­ every chance to catch up by promoting economic free­ ing world and that, given the earth's finite stock of dom? Then their improving living standards will give these substances, developing countries will be unable them hope for the future and lessen the tendency for to fulfill their desire to live First World ^^^^^^ them to embrace nihilism. lifestyles. He proposes mandating reduced To support his case, Diamond cites consumption in wealthier nations, so that China: "Among the developing countries the poor may consume a fair share of these that are seeking to increase per capita con­ limited resources. sumption rates at home, China stands out. Those concerned with individual . . . The world is already running out of liberty are likely to resist Diamond's resources, and it will do so even sooner if program because of its coercive nature. But China achieves American-level consump­ that objection may prove inadequate: many tion rates." people may believe our situation is so dire Here, Diamond has embraced a hoary that we need to sacrifice freedom to ensure Jared Diamond economic fallacy. What counts as a the survival of our species. However, I will commons.wikimedia.org "resource" is an economic question, not a argue that Diamond's case fails even on its own terms. material given. Things become resources when acting Diamond contends, "Now we realize that [a rising man conceives of how he can employ them to further population] matters only insofar as people consume and his ends. The history of economic development is one produce.... [Many commentators find a big problem in of creating greater value out of the same quantity of the] populations of countries like Kenya . . . growing physical inputs. Whereas in 1970 "it took [Americans] rapidly . . . but it's not a burden on the whole world, 15,000 BTU to produce $1 of GDP . . . [by] 2003, this because Kenyans consume so little." had fallen to 9,500 BTU, a decline of nearly 37 per­ However, the residents of countries like Kenya gen­ cent," writes Richard H. Mattoon, a senior economist erate problems out of proportion to their consumption at the Federal Reserve Bank of Chicago. Similarly, levels. Their relative poverty means that they burn dirty "since 1950 . . . 200 million acres of U.S. farmland but cheap fuels, that they cultivate much more land have been retired," despite the growth in America's than their First World counterparts to produce equiva­ population, says Jerry Taylor of the Cato Institute.

lent output, and that they devote little of their income Gene Callahan ([email protected]) is the author of Economics for Real to activities like creating wildlife preserves. People and Puck: A Novel.

THE FREEMAN: Ideas on Liberty 6 Consumption Must Be Curtailed to Sustain the Human Race?: IT JUST AIN'T SO!

Indeed, the nascent field of nanotechnology already able given a population growing from 100,000 to offers much more efficient use of raw materials, as 6,000,000,000. Fortunately, there was no need to well as holding out the possibility that the contents increase consumption of those products in step with of garbage dumps or sewage plants efficiently could our increased numbers. be transformed into valued consumption goods. To support his case, Diamond notes that "Most of (For examples, see http://tinyurl.com/32bm4v.) the world's fisheries are still operated non-sustainably And progress in space travel will make available . . . even though we know how to manage them in physical resources from beyond the earth. "Available such a way as to preserve the environment and the resources" are constrained by human ingenuity, not fish supply." by fixed physical endowments. But why are current fishing enterprises exploiting Diamond writes, "Per capita consumption rates in these resources so profligately? Private owners of lim­ China are still . . . below ours, but let's suppose they rise ited resource pools have an incentive to use them to our level. . . . Oil consumption would increase responsibly, not extracting so much for current income by 106 percent and . . . metal consumption by 94 per­ that tomorrow's income goes to zero. Notice that there cent." But as China becomes more prosperous, its is no crisis of sheep, chickens, or corn being harvested increasing demand for productive inputs and the conse­ "non-sustainably." But when the stock of a resource is quent rise in their prices will spur unowned, then every producer is entrepreneurs to employ those inputs motivated to grab as much of that more efficiently and to find alterna­ common pool as soon as possible, tives to scarce commodities. I suggest we humbly since other producers will be doing Diamond chastises those who admit to having no the same. advocate freedom as the best solution to poverty, saying, "[W]e . . . promise idea what kind of Political Will developing countries that if they lifestyle our descen­ iamond recommends reliance will . . . institute honest government Don "political will" to enforce a and a free-market economy—they, dants may achieve. command-and-control regime of too, will be able to enjoy a first-world conservation. Even if he has no con- lifestyle. This promise is impossible, a cern for the loss of personal freedom cruel hoax. . . ." his program entails, I suggest that he is betting on the I suggest we humbly admit to having no idea what wrong horse in this race. A conservation "solution" that kind of lifestyle our descendants may achieve. Think relies on coercing individuals to ignore their self-inter­ of Stone Age Jared Diamond berating optimists for sug­ est is inherently "non-sustainable": any time the "polit­ gesting that one day, most humans might be able to live ical will" enforcing it wavers, it is likely to fail. to the venerable age of 50 or 60 reached by only a Governments, always in need of the support or at least lucky few in his time. the acquiescence of their citizens, in times of crisis are Diamond advocates a future "in which all countries quite likely to opt for the reckless exploitation of some converge on consumption rates considerably below the resource over the threat of widespread unrest or rebel­ current highest levels [since] willingly or not, [Ameri­ lion. Preserving our natural heritage for the benefit of cans] shall soon have lower consumption rates, because future generations is a laudable aim, but our best hope our present rates are unsustainable." for realizing it is to create institutions aligning wise That conclusion assumes that raising living standards stewardship of the environment with individuals' desire requires ever more use of the same resources employed to improve their own lives, rather than fantasizing that today. However, Stone Age consumption of mammoth everyone can be united perpetually behind some cen­ tusks and inhabitable caves was clearly unsustain- tral planner's bucolic vision. ||)

7 APRIL 2008 Downtown Revitalization: City Governments Versus Consumers

BY J. H. HUEBERT

hat a thrill to visit cities that have "revital- lure suburbanites and others from all over the state, Wized" their downtown areas! From the And it did. For a very short time crowds indeed empty streets to the government offices to came. Politicians were quick to take credit for this the abandoned retail spaces—what's not to like? putative victory—declaring "mission accomplished" Well, everything, of course. like George W. Bush in Iraq within days of the mall's Not only are such areas unsightly and useless, they opening—while the media praised them for having often come at the expense of millions of taxpayer dol- "the courage to ignorthe eproject. the criticis" m and continue with lars and eminent-domain coercion. An early manager of the mall There's nothing wrong with feel­ declared it "almost competition- ing a bit nostalgic for when everyone proof," bringing to mind certain worked and shopped in a bustling claims about the "unsinkable" Titanic. downtown—although I happen to A visitor in those first days breathlessly enjoy today's so-called "sprawl," espe­ told a newspaper reporter that the cially as I think about how it demon­ mall's "novelty will never wear off." strates how well the market serves Now, though, the mall is just consumers with an ever-increasing about empty. Entrepreneurs saw variety of goods at ever-lower prices. opportunities soon after it opened But in any event, fuzzy feelings about to put malls where people actually downtown areas apparently aren't wanted them, in the suburbs cir­ very important to most people who cling the city, and that is where do have them, because those people everyone goes—including city- don't put their money where their dwellers like me. mouths are. They choose to live, There are no more "anchor" work, and shop in outlying neighbor­ stores in the City Center. The hoods instead. The City Center mall's third floor—once home to Voting, however, offers such peo­ Photo by .i. H. Huebert only the most upscale stores—in ple an opportunity to act on their emotions at virtually no personal cost. Thus we get recent years housed a public school in a former Henri government-sponsored "revitalize downtown" efforts in Bendel space, and now even that's closed. The second cities all across America that fail again and again. floor—with a Sunglass Hut and nothing else—is thriv- My city of Columbus, Ohio, tried its own ridiculous ing by comparison, plan along these lines about 20 years ago, when it built

a downtown mall called the "City Center." It opened in T u u i t n; i U * \- « A C ccc " r J. H. Huebert (jnnuebert(wjnnuebert.com) is an attorney and ajormer FEE 1989 to much fanfare, filled with stores intended to intern. THE FREEMAN: Ideas on Liberty 8 Downtown Revitalization: City Governments Versus Consumers

The ground floor is mostly empty, too, but it does Some might try to rebut this by pointing to govern­ have a food court of sorts, plus such attractions as a dol­ ment-subsidized projects that appear to have suc­ lar store, stores offering what one might charitably call ceeded. But these prove nothing. Undoubtedly, many "urban fashions," and a tattoo parlor. such cases involve businesses getting government help It's fitting that a government mall would have noth­ to do something they would have done anyway, and ing inside it, because government produces nothing. It thus amount to little more than a gift from hard-work­ is empty on the inside and ugly on the outside, with ing taxpayers to politically connected business owners. almost no glass or windows, but rather just a big brick The only way to determine what consumers want lump where once there were houses and businesses, in the former mall space is to sell the land and the before the government bulldozer came. building to the highest private-sector bidder with no The total cost to taxpayers to put up this now-aban­ strings attached. doned monstrosity? More than $72 million—plus Does that mean a flourishing mall or some new ample eminent-domain compulsion to destroy what lit­ attraction will take the place of the government disaster tle old-fashioned life and color the and have everyone flocking down­ area used to possess. town? No. Plenty of private buildings It s fitting that a in downtown areas struggle with high One More Attempt government mall vacancies and will continue to do so. Indeed, sometimes the most efficient ut never fear. Mayor Michael would have nothing BColeman has come up with a thing for an entrepreneur to do is to solution. The city has decided to sim­ inside it, because leave a building empty until a time ply take the mall back from the pri­ when it can be put to a higher and vate-public partnership that had been government better use than present conditions in charge of it, and this time the gov­ produces nothing. allow. All we can say for certain is that ernment will get it right. private hands are by their nature more But although the names of the likely than political hands to succeed politicians may have changed since 1989, the economic in determining what people really want most. reality never will. Government planners lack the incen­ That idea may frustrate politicians who imagine tive and ability to accurately forecast what consumers themselves capable of wishing a specific vision of a want. They are driven by political considerations and, at downtown into existence and of making people want best, by what they wish people would do. In contrast, something they have demonstrated again and again entrepreneurs in a free market have an incentive to they do not want. But there is no fairy godmother to determine what consumers really want and provide it, wave her magic wand for city politicians and their eco­ because they put their own cash—not taxpayers' nomically illiterate gaggle of planners. money—on the line. The reality is that mayors and council members may So-called public-private partnerships do not and nominally rule their cities, but the dead mall at the cannot resolve this problem because in such cases (as heart of Columbus, Ohio—like so many other "down­ with my local empty mall), the market is distorted. town revitalization" projects—stands as a monument to Businesses respond to government-created incentives, their impotence, and to the fact that in the free market, not consumer preferences. the consumer is king. @

9 APRIL 2008 Hierarchy or the Market

BY KEVIN CARSON

n an article in last June's Freeman, I applied some other people's money, or using other people's resources, ideas from the socialist-calculation debate to the for other people. Its managers, as Adam Smith observed I private corporation and examined the extent to 200 years ago, are "managers rather of other people's which it is an island of calculational chaos in the mar­ money than of their own." ket economy. I'd like to expand that line of analysis By its nature, the corporation substitutes administra­ now and apply some common free-market insights on tive incentives for what Oliver Williamson called the knowledge and incentives to the operation of the cor­ "high powered incentives" of the market: effort and porate hierarchy. productivity are separated from reward. As Ronald F. A. Hayek, in "The Use of Knowl­ Coase observed some 70 years ago, edge in Society," used distributed, or idiosyncratic, knowledge—the unique Those at the top If a workman moves from depart­ situational knowledge possessed by ment Y to department X, he does not each individual—as an argument make decisions go because of a change in relative against state central planning. concerning a prices, but because he is ordered to Milton Friedman's dictum about do so. . . . "other people's money" is well production process It can, I think, be assumed that the known. People are more careful and about which they distinguishing mark of the firm is the efficient in spending their own than supersession of the price mechanism. other people's money, and likewise in likely know as little spending money on themselves more as did, say, the chief So why is all this the case? Why so than in spending money on other does the corporation systematically people. of an old Soviet abandon the basic knowledge and A third insight is that people act agency benefits of a free market, and most efficiently when they completely industrial ministry rely on the same kinds of central internalize the positive and negative planning and bureaucratic incentives results of their actions. that free-market advocates rightly attack on the part of The corporate hierarchy violates all of these princi­ the state? Why does the corporation function, inter­ ples in a manner quite similar to the bureaucracy of nally, as an island of nonmarket operations? a socialist state. Those at the top make decisions con­ A classic essay by C. L. Dickinson, "Free Men for cerning a production process about which they likely Better Job Performance," was reprinted in the same know as little as did, say, the chief of an old Soviet issue as my article. Dickinson described the harmful industrial ministry. Kevin Carson ([email protected]) is the author ofStudies in The employees of a corporation, from the CEO Mutualist Political Economy. He blogs at Mutualist Blog: Free Market down to the worker on the shop floor, are spending Anti-Capitalism.

THE FREEMAN: Ideas on Liberty 10 Hierarchy or the Market

effects of the managerial revolution and the bureau­ laboring classes. These included the Laws of Settlement cratic style of corporate governance. He quoted Dou­ (a sort of internal passport system restricting the move­ glas McGregor (The Human Side of Enterprise): "Many ment of labor in search of better wages) and the Com­ managers agree that the effectiveness of their organiza­ bination Laws. tions would be at least doubled if they could discover how to tap the unrealized potential present in their Subsidizing Centralization human resources." he state's entry barriers, like licensing and capital­ Unfortunately, the structural preconditions of the Tization requirements for banks, reduce competi­ present system rule out, from the start, an organization tion in the supply of credit and drive up its price; which can tap that potential. The system starts from enforcement of artificial titles to vacant and unim­ the legacy of a historical process (called "primitive proved land has a similar effect. As a result, labor's inde­ accumulation" by radical historians of various stripes) pendent access to capital is limited; workers must sell by which the land was stolen on a their labor in a buyer's market; and large scale from the peasantry in the The effect of the workers tend to compete for jobs early modern period. The process rather than jobs for workers. included the enclosure of open fields, assorted "land State subsidies to economic cen­ the legal nullification of copyhold tralization and capital accumulation and other traditional tenure rights, reforms" of the early also artificially increase the capital- and the Parliamentary Enclosures of modern era was to intensiveness of production and common land. thereby the capitalization of the As Murray Rothbard observed, transform the landed dominant firm. The effect of such whenever we witness a majority of oligarchy's "property" entry barriers is to reduce the num­ peasants paying rent to a small class of ber of employers competing for "owners" for access to the land they in feudal legal fiction labor, while increasing the difficulty cultivate, it's a safe guess the cultiva­ into a modern for small property owners to pool tors are the rightful owners and the their capital and create competing landlords' "property rights" are some freehold right and enterprise. sort of feudal legal fiction stemming The cumulative legacy of these from conquest or privilege. The effect reduce the rightful past acts of state-assisted robbery, and of the assorted "land reforms" of the owners to at-will ongoing state-enforced unequal early modern era was to transform the exchange, determines the basic struc­ landed oligarchy's "property" in feudal tenancy tural foundations of the present-day legal fiction into a modern freehold economy. These include enormous right and reduce the rightful owners to at-will tenancy. concentrations of wealth in a few hands, the absentee The result of these expropriations was to drive the ownership of capital by large-scale investors, and a majority of peasants off the land, deprive them of inde­ hired labor force with no property in the means of pro­ pendent access to the means of production and subsis­ duction it works. tence, and force them into the wage-labor market—at Necessarily, therefore, the absentee owners must the same time as their former property was consoli­ resort to the expedients of hierarchy and top-down dated into the hands of the plutocracy. authority to elicit effort from a workforce with no As the industrial revolution developed in England, rational interest in maximizing its own productivity. further accumulation of wealth by the owning classes Oliver Williamson's concept of "satisficing" is relevant was fostered by state-enforced unequal exchange, the here. Workers have an interest in maintaining just result of coercive state restrictions on the free move­ enough productivity to keep their jobs and increasing it ment, free association, and freedom to bargain of the enough to earn whatever limited administrative rewards

11 APRIL 2008 Kevin Carson are available, but no rational interest in maximizing Market Outside, Planning Inside it per se, because any additional increase in produc­ he corporate hierarchy also interferes with effi­ tivity beyond the minimum will likely be appropriated Tciency in another way: by substituting planning for by management. market relations. Internally the corporation replaces Hierarchy necessarily results in the divorce of market exchange with central planning. The simulated effort from reward, and of productive knowledge prices used by its internal accounting system, necessar­ from authority. Each rung of authority interferes in ily, are largely fictitious. Even when they use outside the efforts of those who know more about what market prices as a proxy, the conditions under which they're doing; each rung of authority receives only those outside prices are set do not match the relations information filtered from below based on what it of supply and demand within the corporation. But wants to hear; and each rung of authority is account­ more often, internal transfer prices are assigned to able only to those higher up the chain of command goods for which there is no outside market, like inter­ who are even more unaccountable mediate goods unique to a firm; in and out of touch with reality. The that case, the prices are based on cost- hierarchy, in short, is a textbook In a self-managed plus markup. As Seymour Melman has illustration of the zero-sum situa­ observed in the case of Pentagon con­ tion that results from substituting enterprise, the same tractors (The Permanent War Economy), power for market relations. elected management cost-plus pricing creates perverse The obvious solution, the worker incentives to maximize, rather than cooperative, would—by uniting know­ that considers the minimize, costs. ledge with authority and reward with relative prices of The ideal, in terms of efficiency, is effort—slice through the overwhelm­ the allocation of goods entirely by a ing majority of the hierarchical different productive genuine price mechanism, with a corporation's knowledge and agency inputs, and the price minimum of vertical integration. problems, like a sword through the Insofar as the production process Gordian knot. The distributed knowl­ of the finished involves a series of discrete, severable edge of those engaged in production steps, the best way of avoiding infor­ would be applied directly to the product, is also mation and incentive problems may production process on their own experienced in the be to relate the separate steps to one authority, without the intervention another by contract—especially if of suggestion boxes and "quality actual production each step, organized under a separate improvement committees." The prob­ process in which the firm, takes the internal form of a lem of socially engineering the wages worker cooperative. and benefits system so as to "encourage inputs are used. Each step, although a black box to people to work" would disappear; those outside, is from an inside per­ the elimination of privilege and spective ideally suited to aggregating unearned income, and the receipt by labor of its full all relevant information for consideration by a single product, would tie reward directly to effort. group of decision-makers. In a self-managed enterprise, But this solution is ruled out by the system's struc­ the same elected management that considers the rela­ tural starting assumptions: concentrated wealth and tive prices of different productive inputs, and the price absentee ownership. So the hierarchical corporation is of the finished product, is also experienced in the actual adopted as a sort of Rube Goldberg expedient, the production process in which the inputs are used. They most rational means available given fundamentally irra­ are most qualified, of all people, to decide both the rel­ tional presuppositions. ative priority by which productive inputs ought to be economized, and the most effective technical methods

THE FREEMAN: Ideas on Liberty 12 Hierarchy or the Market of organizing production in order to economize those tively outsourced the responsibility for decisions on how inputs (that is, combining Mises's "entrepreneurial" and best to organize production to those engaged in produc­ "technical" functions without the intermediation of tion. And the other firm, if cooperatively owned by several layers of pointy-haired bosses). self-managed workers, is uniquely qualified to organize Just as important, unlike a production unit within a production most efficiently given the specified ins corporate hierarchy, the production workers within an and outs. Both the authority to organize production, independent producers' co-op fully internalize all the and the productivity benefits from doing so in the costs and benefits of their production decisions. Unlike most efficient manner, have been internalized by the case within a corporate hierarchy, there is no con­ those who have the most direct knowledge of the flict of interests resulting from the decision-making by production process. managers who stand to reap the benefits of increased But—again—the state's intervention in the market productivity while workers suffer only the increased raises almost insurmountable barriers to this form of burden of speedups and downsizing. For a self-managed organization. The state artificially promotes hierarchy at production unit, any decision concerning production the expense of markets by subsidizing the input costs of methods will be a tradeoff of costs large-scale enterprise and by protect­ and benefits, all of which are fully ing large corporations against the internalized by the decision-makers. The state artificially competitive ill effects of inefficiency. From an outside perspective, on promotes hierarchy at It subsidizes long-distance transporta­ the other hand, contracting firms are tion and thus artificially inflates mar­ able to make a virtue of necessity in the expense of ket and firm size. Its differential tax treating a particular stage of produc­ markets by advantages for corporate debt and tion—organized as a separate firm capital depreciation (or more accu­ —as a black box. The outside con­ subsidizing the input rately, its differential tax penalties on tractor and the internal corporate costs of large-scale those not engaged in such activities) hierarchy, equally, are ignorant of encourage mergers, acquisitions, and goings-on inside the black box. enterprise and by excessively capital-intensive forms of The difference is that an outside con­ production with high entry costs. Its tractor, unlike the apparatchiks in a protecting large cartelizing regulations, in addition, corporate hierarchy, has no need to corporations against limit competition in product features know what's happening in the inter­ and quality. Thus the boundary nal production process, and no power the competitive ill between hierarchy and market is arti­ to interfere with what he doesn't effects of inefficiency ficially shifted so that the dominant understand. So long as the inputs firms are far larger, more hierarchical, (likely in money terms) are specified and more vertically integrated than by contract and the outputs are verifiable and they would be in a free market. enforceable, what goes on inside the box isn't the The state's so-called "intellectual property" laws, contractor's problem. especially, are a powerful force for cartelization. Many If the ideal contract is Ian R. MacNeil's "sharp ins oligopoly industries were created by controlling by clear agreement, sharp outs by clear performance," patents (for example, AT&T was based on the Bell then it is far simpler and less costly to simply monitor patent system) or exchanging them (GE and Westing- the contractually specified "ins" and "outs" going across house). Patents also enable corporations to restrict the firm boundaries than to monitor the internal use of supply of replacement parts for their goods and thus inputs within the production process. The contracting render artificially expensive the choice to repair an party has no need to worry about the internal effi­ old car or appliance as an alternative to buying a new ciency of the production process because it has effec- one. This facilitates a business model based on

13 APRIL 2008 Kevin Carson planned obsolescence, large production runs, and DRM (digital rights management) used by Microsoft "push" distribution. and the entertainment companies, and the legal penal­ "Intellectual property" also artificially promotes ties for circumventing it, in effect outlaw precisely what hierarchy even in industries where the minimum level computers are made for: the replication and exchange of capitalization has ceased to be an effective barrier to of digital information. Without copyright and patent self-employment. One of the original justifications for monopolies, peer production by self-employed infor­ corporate hierarchy was that the enormous scale of mation and entertainment workers would likely be the even the minimum capitalization, in entertainment norm in software, music, and publishing. (It's probably and information, was an entry bar- no coincidence, by the way, that rier: To start a newspaper, radio sta­ industries dependent on such "intel­ tion, movie studio, publishing house, "Intellectual prop­ lectual property" monopolies are the or record company required, at mini­ erty" also artificially main profitable sectors in the global mum, an outlay of several hundred economy. It's a case of artificial "com­ thousand dollars. As a necessary result, promotes hierarchy parative advantage," created by state- media and entertainment were con­ erected barriers to the diffusion of centrated in the control of a few gate­ even in industries knowledge and technique. The most keeper corporations. where the minimum profitable industries are those whose profits amount to rents or tolls for Revolutionary Change level of capitalization access to artificial property.) ut as Yochai Benker observed in has ceased to be an The problem is not hierarchy in B The Wealth of Networks, the digital itself, but government policies that revolution has reduced the cost of the effective barrier to make it artificially prevalent. No basic item of capital equipment—the self-employment. doubt some large-scale production personal computer—to under a thou­ would exist in a free market, and like- sand dollars. And supplemental equip- wise some wage employment and ment and software for very high-quality desktop absentee ownership. But in a free market the predomi­ publishing, sound editing, podcasting, and so on can be nant scale of production would likely be far smaller, and had for a few thousand more. The ability to replicate self-employment and cooperative ownership more digital information on the Internet, at zero marginal widespread, than at present. Entrepreneurial profit cost, renders the corporate dinosaurs' marketing opera­ would replace permanent rents from artificial property tions obsolete. and other forms of privilege. Had the industrial revolu­ The gatekeepers' only remaining basis for power is tion taken place in a genuine free market rather than a the state's "intellectual property" monopolies—which society characterized by state-backed robbery and priv­ explains why Microsoft, the RIAA, and MPAA have ilege, our economy today would probably be far closer pursued such draconian copyright legislation to protect to the vision of Lewis Mumford than that of Joseph themselves from market competition. The intrusive Schumpeter and Alfred Chandler.

THE FREEMAN: Ideas on Liberty 14 Thoughts on Freedom

I Won't Vote!

BY DONALD J. BOUDREAUX

don't vote. least some people better off while making no one Whenever I reveal my steadfast insistence on not worse off. I voting, most people look at me as if I just admit­ (By the way, whenever I'm asked "Well, what ted to slaughtering my dogs for dinner. Maybe it's not would you do if everyone refused to vote?" I answer, illegal, say those looks, but it sure as heck is unseemly "Then I'll vote!") and irresponsible. The second reason I refuse to vote is that, unlike Fancying myself to be a morally upright person, I choices made in private markets, choosing among can­ obviously don't believe that not voting is in any way didates is excessively imprecise. Here's what I mean. If immoral or otherwise undesirable. Here's why. you see a shopper in a supermarket fill her grocery cart First—and least interestingly—my with three bottles of chardonnay, one vote will never determine the out­ chicken, one leg of lamb, six rolls of come of a political election. The While I almost paper towels, two dozen diapers, and a chances that my voting for candidate always prefer one bag of dog food, you can be pretty Smith rather than voting for candi­ certain that she wants each of those date Jones (or rather than not voting candidate to others, items and does not now want any of the at all) will assure that Smith wins the I cannot bring myself many other items for sale in the supermar­ election are practically zero. Put dif­ ket. The situation is very different in ferently, from my perspective, the to vote for my political elections. If you see the same outcome of any election will be what woman vote for candidate Smith, you it will be no matter what I do or preferred candidate cannot legitimately conclude that she don't do at a polling place on elec­ because doing so is wants all of the positions taken by tion day. Because my time is valuable, Smith. Perhaps this voter voted for I never vote; I instead spend my time too likely to be Smith despite Smith's promise to on activities whose outcomes I am misread as an raise taxes. more likely to affect. Some people insist that non-vot­ endorsement of some A Package Deal ing is "selfish." Perhaps. But note that policies that I oppose. have never encountered a candidate I'm not the only person to benefit i:wit h a serious chance of winning from my refusal to spend my time elective office who did not take posi­ pointlessly. By not voting, I have more time to prepare tions on many major issues that I find to be unwise or for the classes I teach, or more time to write articles immoral. So while I almost always prefer one candidate that (I hope) at least some people enjoy reading, or to others, I cannot bring myself to vote for my pre­ more time to spend helping my son with his home­ ferred candidate because doing so is too likely to be work or just enjoying time with my family. Because my misread as an endorsement of some policies that I refusal to vote changes nothing, the cost to others of my not voting is zero. But the cost of my voting to oth­ Donald Boudreaux ([email protected]) is chairman of the economics ers (my students, my colleagues, my adoring reading department at George Mason University, a former FEE president, and the public, my family) is real. So by not voting, I make at author of Globalization.

15 APRIL 2008 Donald J. Boudreaux oppose. And this misreading is more likely if my pre­ to exercise power over me is legitimate. So if I vote I ferred candidate wins the election! have much weaker grounds for complaining than I My third reason for not voting is that voting regis­ have if I don't vote. ters only each voter's order of preferences and not that I'm frankly saddened by the number of people who voter's intensity of preferences. Unlike in private mar­ tell me that if I don't vote I have no right to complain kets where I can refuse to buy a good or service if I about government. This familiar refrain is nonsense. judge its price to be too high—and then decide to buy My rights—as recognized, of course, by the signers of that same product if its price falls—in elections each the Declaration of Independence—exist because I am a voter merely gets to say which candidate he prefers human being. These rights are not created by govern­ above all who are on the ballot. If I vote for Smith ment. Because I am a human being who respects rather than Jones, this means only that the rights of all other persons, my I prefer Smith to Jones. My vote for rights should be respected even (or Smith reveals nothing about how Even if my candidate especially!) if I don't participate in much I prefer Smith to Jones. politics. Particularly today, with gov­ Because intensity of preferences is loses, I implicitly ernments at all levels recognizing few every bit as much a part of human agree—by voting— constitutional restraints—that is, likes and dislikes as is the order of pref­ with government itself barely even erences—and because in most choices that the process of pretending to play by the rules— in our lives we have at least some abil­ selecting people to why should any peaceful person be ity to express the intensity as well as obliged to vote in order to retain the order—voting allows each of us to exercise power over his natural rights to life, liberty, make only half-choices. The process and property? simply gives no opportunity for any me is legitimate. Finally, even the practical justifi­ voter to express how much he prefers cation for voting—that it lets your Smith to Jones. "voice be heard"—is wrong. Forget that no one vote will ever swing an election. Forget that it matters not Legitimate Process? one whit if your preferred candidate wins (or loses) y fourth reason for not voting is that I disapprove by 34,767 votes instead of by 34,766 votes. The rele­ Mof the political process and want no part of it. Of vant fact is that there are countless better ways to course, government wants part of me and my wealth; get your voice heard. practically speaking, there is little I can do to prevent Writing this column is one way that I get my voice being harassed and shaken down by the state. If I vote, heard. Casting a vote is not the only way to get your though, I give some legitimacy to the process. If my voice heard politically, and, more importantly, politics is candidate wins, then what moral right do I have to not the only venue in which our voices should be complain about his pursuing policies that he said dur­ heard. Denizens of a free society ought never be fooled ing the campaign he'd pursue but which I find into thinking that the only relevant way to be heard in deplorable? Even if my candidate loses, I implicitly that society is by yanking levers every few years in vot­ agree—by voting—that the process of selecting people ing booths. (£§)

THE FREEMAN: Ideas on Liberty 16 Banning Payday Loans Deprives Low-Income People of Options

BY GEORGE LEEF

n 2006 North Carolina joined a growing list of in doing so, will choose the course of action that is states that ban "payday lending." Payday loans are most likely to succeed. Sometimes a person faces diffi­ I small, short-term loans made to workers to provide cult circumstances and has to choose the option that's them with cash until their next paychecks. This kind of least bad. But that doesn't change the analysis. If he's borrowing is costly, reflecting both the substantial risk out of money and needs cash until his next paycheck, of nonpayment and high overhead costs of dealing with he will have to consider various unpleasant alternatives many little transactions. I wouldn't borrow money that and choose the best one. way, but there is enough demand for such Obtaining money through a payday loans to support thousands of payday- loan works like this: The borrower, after lending stores across the nation. They proving to the lender that he is employed make several million loans each year. and has sufficient income, writes a check But no longer in North Carolina. to the lender postdated to his next payday Pointing to the high cost of payday for some amount, say, $300. The lender borrowing, a coalition of groups claiming gives him a smaller amount of cash, say, to represent the poor stampeded the $260. The lender then cashes the check North Carolina General Assembly into on its due date. That is obviously a very putting all the payday-lenders out of high annual rate of interest if you consider business. The reason I'm writing about the $40 fee as an interest charge. A payday this now is that the North Carolina loan is not an attractive option—unless Office of the Commissioner of Banks all your others are worse. No one would recently felt the need to justify the ban do it unless every other course of action with the release of a study purporting to looked even costlier. demonstrate that the politicians did the Nevertheless, the North Carolinians right thing. How do they know? Because who worked to abolish payday lending are payday lending "is not missed." The pre­ comrnons.wikimedia.org eager to say they did no harm. A group posterous lack of logic in this whole exercise cannot called the UNC Center for Community Capital con­ pass without comment. ducted a telephone survey of 400 low- and middle- Before we look at the defense that has been given income families in the state about how they deal with for this Nanny State dictate, we should consider what I financial shortfalls. Only 159 reported having had call Sowell's Axiom: You can't make people better off financial troubles they couldn't meet out of their regu­ by taking options away from them. (It's named for the lar income. From this small number of responses, the economist Thomas Sowell, one of whose books drove people doing the study concluded that "Payday lending this point home to me many years ago.) An individual will act to further his self-interest, and George Leef ([email protected]) is book review editor of The Freeman.

17 APRIL 2008 George Leef is not missed." That's because, based on the telephone also asked how they respond when they have a money surveys, "almost nine out of ten said payday lending was shortage. The results showed that people coped in vari­ a 'bad thing' and "twice as many respondents said the ous ways, including paying bills late, dipping into sav­ absence of payday lending has had a positive effect on ings, borrowing from family or friends, using a credit their household than said it has had a negative effect." card to get cash, or merely doing without things. Jump­ There you have it. Most people said payday lending ing on that information, North Carolina's deputy com­ was "bad" and few miss it now that it has been banned. missioner of banks, Mark Pearce, said in the November That certainly proves that the state did the right thing 14, 2007, Raleigh News & Observer, "Working people in getting rid of it. Or does it? don't miss payday lending. They have a lot of financial Completely forgotten in the rush to justify the ban options and they use them." are the people who said they think they are worse off We can only wonder why it doesn't occur to Pearce for not having this option anymore. Yes, they were a that having one more option might be good. What if minority of the respondents, but that is no reason to someone has already exhausted all possible money conclude that "payday lending is not missed." An accu­ sources and faces serious consequences from either pay­ rate conclusion would instead be, "Payday lending is ing late (suppose the next missed payment means the missed by some people." power gets turned off) or doing without (you've got to Maybe the silliness of this approach have some car repairs so you can get will be apparent if we consider a Completely forgotten to work)? A payday loan might be the hypothetical case that parallels it. best option left. Imagine that a group of people in in the rush to justify In an August 2006 paper on the New York hates opera. They regard it the ban are the payday-lending business ("Payday as too costly and time consuming, and Lending and Public Policy: What a bad moral influence. Using their people who said they Elected Officials Should Know"), political connections, they succeed in Professor Thomas Lehman of Indiana getting the city government to ban think they are worse Wesleyan University found that this live opera productions. Out goes off for not having kind of lending fills a market niche the Met, the Civic Opera, and any and concluded, "Preventing or limit­ other companies. this option. ing the use of payday loan services A year later this group commis- only encourages borrowers to seek sions a survey asking 400 New Yorkers if they miss hav­ out and utilize less attractive alternatives ... that put the ing opera in the city. Since most people don't care borrower in an even weaker financial position." about or even dislike opera, the results come in show­ A November 2007 study by two economists with ing that the overwhelming majority of New Yorkers the Federal Reserve Bank of NewYork ("Payday Holi­ agree "Opera is not missed." Would that justify taking day: How Households Fare after Payday Credit Bans") opera away from the, say, 5 percent who said they came to the same conclusion. Authors Donald Morgan would like to have had the option of going? and Michael Strain found that a ban on payday lending My point is that the views of the people who don't results in increased credit problems for consumers.They patronize a business or art form shouldn't count for wrote, "Payday credit is preferable to substitutes such as anything. The people who don't like opera are free not the bounced-check 'protection' sold by credit unions to go, and the people who think payday lending is and banks or loans from pawnshops." "bad" are free to avoid it. As long as anyone wants So I maintain that Sowell's Axiom holds. When gov­ to attend an opera or needs a payday loan, the govern­ ernment takes away options, it is bound to make some ment has no business forcibly depriving them of people worse off. Instead of acting like Big Nanny, gov­ those choices. ernment should stick to enforcing laws against coercion Returning to the North Carolina study, people were and fraud. ffi

THE FREEMAN: Ideas on Liberty 18 Savoring "Three Cups of Tea": An Essay on the Future of Politics

BY JAMES I. PAYNE

ow can we make the world a better place? other contexts, should have turned their backs on Truly this has been the $64,000 question of this crude approach. Hthe modern age, and politicians and ideolo­ Yet, for the most part, they haven't. Generation after gists have bloodied the twentieth century clamoring weary generation, well-meaning social reformers have against each other to offer the world their answer. taken their petitions to government, convinced, as the Yet strangely, these disputing politicians and ideolo­ world in general is convinced, that government is the gists have all shared a basic premise. They have assumed agency we must use to make the world a better place. that government is the agency that should be used to save When, one wonders, will this fixation fade? the world. Well, perhaps it is today starting to fade—in the This faith in government is deeply quiet, unnoticed way a great cultural A New Voit rii-er 3o puzzling. Governments have started change begins.The straw in the wind is the absurd and terrible wars. Governments rhree warm reception given by book clubs and have slaughtered scores of millions of Cups of ^ea college campuses to an unusual book, Three their own peoples. In domestic T Cups of Tea: One Man's Mission to Promote affairs—regulation of the savings-and- Promote Peace Peace. . . One School at a Time. It recounts at a T(me loan industry, mortgage lending, hurri­ how mountain climber Greg Mortenson cane disaster relief, agriculture, college became a social reformer. Returning from loans, public housing, medical care, to a failed effort to scale the peak K2, name a few—government has stum­ Mortenson lost his way and was taken in bled into embarrassing mega-scandals. by Pakistani villagers, who nursed him One would think that this record of back to health. One day he saw the chil­ catastrophe and bungling should have dren of the village trying to learn school made people hesitant to look to gov­ lessons, sitting on a patch of open ground, ernment for solutions. with no teacher, no books, and writing by http://www.gregmortenson.com Another thing that should make scratching with sticks in the dirt. It tore his people skeptical about government is its unseemly heart. Mortenson promised the villagers to come back modus operandi. Government is not a high-minded and build a school for them. To make coauthor David institution that approaches the world in a spirit of Relin's gracefully written long story short, Mortenson gentle persuasion and self-sacrifice. Its officials don't eventually did return, built the school, and founded a lead by setting an inspiring example. Government charity that has gone on to build some 60 more. relies on laws and on taxation, tools that are based on Contributing editor James Payne ([email protected]) has taught political force, on threats to throw you in jail, or seize your science at Yale, Wesley an, Johns Hopkins, and Texas A&M. His recent books property, or kill you. One would have supposed that include A History of Force: Exploring the Worldwide Movement idealists, who look askance at the use of force in Against Habits of Coercion, Bloodshed, and Mayhem (Lytton, 2004).

19 APRIL 2008 James L. Payne

This bestseller is recommended reading at schools advised him to let friendly clerics submit the issue to across the country, including Montana State, South the Supreme Council of Ayatollahs in Qom, Iran. Dakota State, the University of North Carolina, Carroll Agents of the Council visited the schools and inter­ College, San Diego State, and Vanderbilt. "It's just an viewed locals about Mortenson's morals and character. inspiring story," said Greg Young, Montana State's vice Eventually, the Council issued its judgment: "Our Holy provost for undergraduate education. "The implied Koran tells us all children should receive education, message is our students could serve the world, change including our daughters and sisters. Your [Mortenson's] the world, using this as an example." noble work follows the highest principles of Islam, to tend to the poor and the sick.. . .We direct all clerics in The Voluntary Way Pakistan not to interfere with your noble intentions. hat Young didn't add, because provosts aren't You have our permission, blessings, and prayers." Wpermitted to contradict the Zeitgeist so directly, Remember, this high praise came from fundamen­ is that Mortenson's example squarely contradicts the talist Iranian clerics, a group not disposed to view assumption that government is the way to change the Americans kindly. Can one imagine a U.S. government world. Mortenson built his schools through his own agency working so delicately and thus inspiring gen­ dedication, and by inspiring others to donate funds vol­ uine trust and cross-cultural good will? Episodes like untarily. That he succeeded with a ridiculously tiny this go far in persuading the reader that Mortenson's budget (his first school cost $12,000) throws into relief sincere voluntary action is promoting tolerance in a the failings of governments with their jillions of tax way government never could. dollars. In Pakistan, the villages had no schools because More than a century ago, the bestseller sweeping the government had failed to live up to its promise to campuses and book clubs was Edward Bellamy's Look­ provide them. In Afghanistan, where Mortenson also ing Backward, a Utopian novella that had the federal built schools, the U.S. government makes promises, but government in charge of every aspect of economic the money vanishes into bureaucratic rat holes. production and distribution. This management would Mortenson's experience goes beyond demonstrat­ be so flawless, said Bellamy, that "No man any more ing that voluntarism is more efficient than govern­ has any care for the morrow, either for himself or his ment. He shows that it is the humane and sensitive children, for the nation guarantees the nurture, educa­ method as well. Because he can't force people to do tion, and comfortable maintenance of every citizen anything, Mortenson relies on persuasion and his own from the cradle to the grave." Don't laugh: this book example of sacrifice and commitment. He meets with postulating a wise, selfless, unbiased, efficient, prompt, locals, listens to their opinions and advice, and tries to and honest federal government sold millions of learn from them, a personal approach vital in these copies, and "Bellamy Clubs" were formed all across days of global misunderstanding and tension. The U.S. the country to bring this vision, called "nationalism," government, operating in the sweeping, arrogant way into reality. governments act, has provoked suspicion and hostility Perhaps Mortenson's book will today inspire young­ in Muslim communities around the world. Morten­ sters to consider a different "ism," voluntarism, as the son, following the sensitive, voluntary approach, builds way to make the world a better place. On one level, bridges of genuine understanding between cultures. Mortenson is far ahead of Bellamy. Bellamy's book was For example, a local cleric issued a fatwa against fiction, and his image of government as a wonderful Mortenson, arguing that it was un-Islamic to educate problem-solver was not based on the actual perform­ girls, as Mortenson was proposing to do. To counter ance of any government. Mortenson's picture of volun­ him, Mortenson didn't get on his high horse and rant. tarism's glowing success comes from a step-by-step He asked for guidance from his local mentors. They demonstration in the real world. (f|

THE FREEMAN: Ideas on Liberty 20 Peripatetics

""SSSL Health-Care Cons

BY SHELDON RICHMAN

conomist Joan Robinson (1903—1983) wrote, However, one group can be compelled to partici­ "The purpose of studying economics is not to pate in a government plan: the American people in E acquire a set of readymade answers to economic their dual capacities as taxpayers and consumers of questions, but to learn how to avoid being deceived by medical services. This is the key to any political "solu­ economists." tion." That's why Hillary Clinton insists against A better reason to study economics is to avoid being Barack Obama that any program must be mandatory. deceived by politicians; they are the far greater threat to Given the premises both candidates share, Clinton has life, liberty, and the pursuit of happiness. When you logic on her side. Without compulsion, any govern­ consider that the typical political campaign is little ment program must fail even on its own terms. You more than a series of confidence games, understanding might think that's a good argument against govern­ basic economics is a matter of survival. Without such an ment programs, but politicians and most other people understanding one is an easy mark. don't believe physical force perpe­ Case in point: How would one see trated by government is objection­ through the flimflam served up as When you consider able. Go figure. health-care policy without a working that the typical Candidates who promise univer­ knowledge of economic principles? sal and affordable medical care don't When politicians promise "universal political campaign is really believe they can lower the true and affordable" medical care and insur­ little more than a costs of the relevant goods and serv­ ance, how else are we to know that ices. Instead, their plans contain those promises can't be kept. Indeed, series of confidence methods, overt and covert, to shift attempting to keep them would some people's expenses to others. gravely damage our medical care (even games, understanding The overall price tag won't shrink— more), our prosperity, our liberty. basic economics is a indeed, it can be expected to What we call medical care/insur­ grow—but the money price to ance is a bundle of goods and services matter of survival. selected individuals would diminish. that have to be produced. They aren't (Nonmonetary costs, such as waiting found superabundant in nature. Production of those times, would increase.) things entails real opportunity costs in terms of The problem for those who promise universal and resources (labor, intellectual capital, machinery, and affordable health care is that medically we are not all more, which could be used in alternative ways. The created equal. Because of genetics and lifestyle, some people engaged in this production are (so far) free to do people are more likely to get sick than others, and some other things if they choose. They can't be compelled to people are already sick. This upsets the politicians'plans, practice medicine, run hospitals, invent medicines, or and they must do something about it. Clinton declares, offer insurance policies. This sobering thought should "I want to stop the health-insurance companies from be kept in mind when analyzing politicians' plans for discriminating against people because they're sick." medical "reform." Any proposal that would drive medi­ cal service providers and resources into other lines of Sheldon Richman ([email protected]) is the editor of The Freeman and work could hardly be said to be in the general interest. a contributor to The Concise Encyclopedia of Economics.

21 APRIL 2008 Sheldon Richman

One doesn't know whether to laugh or cry at a Even with subsidies the politicians wouldn't let statement like that. Is it ignorance, stupidity, or dema- insurers charge market prices for long because this goguery? Real insurance lets people hedge against would anger voters and break the budget. So inevitably, financial ruin by pooling their risk of misfortune with the Clinton principle must lead to price controls. others. For reasons that shouldn't need explaining, peo­ We know what price ceilings bring: shortages. Why ple who present a low risk for whatever is being would a company that cannot charge enough to cover insured against would reasonably be charged less for its costs and earn a competitive profit continue in busi­ coverage than people who present a high risk. For one ness? Thus the principle of nondiscrimination com­ thing, low-risk customers would be unwilling to pay bined with price controls would inevitably dry up the premiums that overstated their perceived risk. I recall supply of private "insurance." At that point, the politi­ reading that the fire-insurance company founded by cians would declare that the "free market" failed and Benjamin Franklin set premiums according to how that government must step in to be the sole health fire-resistant a building was. Was that a reasonable or insurer. Then government could have full control over outrageous thing to do? who gets what kind of medical attention. It would be The depth of the lack of understanding about insur­ in the triage business, a terrifying prospect for sure. It ance is on stark display whenever someone demands that would also dictate prices to doctors, hospitals, and drug the terms of coverage for a sick person be companies, speeding up the exo­ the same as those for a healthy person. dus from that profession and those Risk grows out of uncertainty. But if When the industries. As supply withered and someone is already sick, there is no uncer­ demand inflated (because of the tainty about his need for medical care. government seeks to illusion of low prices), government "Insurance" in this case would not be real enforce a counterfeit would impose more and more dra- insurance but rather a subsidy provided by conian controls. others or prepayment for future expenses. right—such as the There's a lesson here. When the "right" to medical government seeks to enforce a The Real Story counterfeit right—such as the o be actuarially sound, insurance care—no expansion "right" to medical care—no expan­ Tmust discriminate on the basis of sion of freedom results. Instead, risk. If the government bars insurers of freedom results. government power expands—to every- from such price-discrimination, they one's detriment. really wouldn't be in the insurance business at all. It One way for politicians really to keep their promise of would be more accurate to call their activity a forced lower medical costs would be to uncover all the ways the subsidy. We should at least call a thing what it is. government artificially raises costs today. It does this in a Where would the Clinton principle of nondiscrim­ variety of ways: restricting supply through licensing and ination lead if the government seriously enforced it? If patents, boosting demand by lowering the apparent price an "insurer" is allowed to charge only one price regard­ of services, promoting third-party payment for even less of risk, it would have to set the price high in order expected routine services, raising drug-research expenses, to be able to cover the riskiest customers. But that imposing coverage mandates on insurers, forbidding would not honor the politicians' promise of affordable interstate competition in insurance, and on and on. coverage. Moreover, young, healthy people would opt But politicians don't talk about those things. They out, preferring to spend their money otherwise or to presumably wouldn't get credit merely for repealing save it in order to self-insure. So the government could destructive interventions and letting the competitive not let this stand. To "fix" things, it would compel free market provide universal affordable medical care— everyone to participate and force the taxpayers to sub­ as it has provided so many other things universally sidize low-income people. and affordably. (§)

THE FREEMAN: Ideas on Liberty 22 Slick Construction Under the Articles of Confederation

BY JOSEPH R. STROMBERG

riting lately on the Fourth Amendment, Northern and Southern." There was "not one . . . Professor Thomas Y. Davies decries the universally recognised Constitution, but two, widely W "originalism" practiced by certain Supreme different, and indeed conflicting" (my italics). Court justices and sundry legal commentators. On But what of our first constitution, the Articles of historical-hermeneutic grounds, he faults face-value Confederation? For a time, they suited most of the originalism for missing "the shared, implicit assumptions people and the states. On the other hand, a vocal group that informed the public meaning" on which a given in Congress was violently unhappy over the Articles' constitutional provision rested. Underlying the Fourth failure to establish effective federal (national) power. Amendment were common-law rules Joseph Jones of Virginia, newly about arrest, which later Americans arrived in mid-1780, complained, managed to forget entirely. This Constitutional "This Body never had or at least in amnesia set in somewhere in the early few instances have exercised powers nineteenth century. Accordingly, interpretation had adequate to the purposes of war. . . ." recovering the amendment's meaning been "twofold from the Charles Thomson lamented in 1784, becomes difficult, if not quite impos­ "A government without a visible sible. Long ago, Americans simply outset . . . Hamiltonian head must appear a strange phenome­ understood the underlying rules, which non to European politicians. . . ." were more detailed—and more favor­ and Jeffersonian, or With new members, a dangerous able to our liberties—than today's indeed Northern optical malady often set in—"Conti­ Justice Department "rules of engage­ nental Vision." Writing to James ment," or shooting licenses, which and Southern." Madison on February 20, 1784, seem to owe more to military "law" Thomas Jefferson described the than to common law. process: "[Young statesmen learn to] If originalism entails the problem Davies raises, it see the affairs of the Confederacy from a high ground; also has at least one more. Original intent, meaning, or they learn the importance of the Union & befriend understanding is inevitably multiple. John L. O'Sulli- federal measures when they return." Continental vision van, former editor of the Democratic Review, noticed this and "insufficient" power: Here was a dilemma, one in 1862. The Constitution, he wrote, was America's that American nationalists—James Wilson, Madison, "ark of the covenant," but "no man could ever exactly Alexander Hamilton, Robert Morris, and many oth­ say what the Constitution was." Its "elastic generalities ers—determined to resolve. In their view, the country of phrase" hid the deep divide "between the 'Consoli­ needed a mercantilist political economy, a standing dation' and the 'State Rights' parties in the Convention.

. .." Constitutional interpretation had been "twofoldfrom Joseph Stromberg ([email protected]) is a historian and freelance the outset . . . Hamiltonian and Jeffersonian, or indeed writer.

23 APRIL 2008 Joseph R. Stromberg army, public debt, and effective central taxation—things seized property, repressed Tories, suspended habeas cor­ structurally and systematically interrelated. Nationalists pus, and undertook "measure after measure that wanted central power, as much of it as possible. Under entrenched upon the normal life of the community the Confederation they made some interesting attempts drastically." Regrouping, he concludes: "The fact, how­ to get it. We may begin with war powers. ever, that this legislation came from the state legislatures Invoking vague war powers, early American nation­ whereas the war power was attributed to the United alists urged that Congress ought to have certain powers States in the Continental Congress served to obscure and, therefore, did or "must" have them, neatly get­ the fact that the former was really an outgrowth of the ting an "is" from an "ought." Big on assertion, Con­ latter" (my italics). gress spent the war complaining of its lack of real This calls to mind the paradox, which I have noted power, including power to tax. Yet mysteriously, previously ("On Misplaced Concreteness in Social Americans defeated Britain without anyone's giving Theory," The Freeman, May 2006), whereby actual suc­ Congress many powers it craved or claimed. What cessful social action tends to be denounced as a dread­ actually happened? ful evil or social problem. In the case at hand, cooperation serves to allocate author­ Acting Without Authority ity away from those who acted. n practice, Congress coordinated In the hunt for added Whether that authority really entailed Irevolutionary activity in the 13 congressional powers, a spectral "war power" need not incipient states and conducted diplo­ detain us. Whatever that last abstrac­ matic activity in their (plural) name. nationalists employed tion did for Congress from 1776 to In so doing, Congress constantly rec­ deductions from 1781, and even under the Articles, ommended specific actions to the 1781-1783, it did very little for it after states, relying on them to carry the International Law and 1783 without the war. Nationalists measures out. Before ratification of pleaded Machiavellian saw this problem coming. Late in the the Articles (1781), Congress often war, Gouverneur Morris hoped for "a undertook measures for which it necessities and Continuance of the War, which will could show no obvious authority convince people of the necessity of whatsoever, including the debt it cre­ moments. Obedience to common Counsels. . . ." ated, its adoption of a European-style In the hunt for added congres­ code of military "justice" for the Continental Army, and sional powers, nationalists employed deductions from its creation of that army itself. Congress could only International Law and pleaded Machiavellian necessities appeal to the wartime emergency, iron necessity, "pub­ and moments. According to Merrill Jensen, they sought lic safety," and the like. Under the Articles, nationalists "to establish precedents [from which] they could argue complained endlessly of the powers Congress had the sovereignty of Congress" (my italics). Jensen stresses "lost" with ratification. They referred of course to ear­ the interest of certain land companies in having their lier congressional claims of inherent power—those titles confirmed by the higher "government," as well as being "proven" by the fact that Americans in their states the public creditors' desire to have depreciated paper had been good enough to cooperate. The price of claims redeemed at somewhere near face value. following Congress's advice and recommendations Hamilton hoped Congress would simply assert was to be told later that one had followed orders and "undefined Powers" and see what they got away with. obeyed commands. They should "assume Congress had once had such pow­ American historians largely agree with the original ers" (my italics). Boldness was needed to build a gov­ claimants. Legal historian Edward S. Corwin was a case erning coalition of army, public creditors, and other in point. Congress had, he admits, "no real governing nationalists. Madison was more indirect. In a Report to power." The states, on Congress's recommendations, Congress in March 1781, he, James Duane, and James

THE FREEMAN: Ideas on Liberty 24 Slick Construction Under the Articles of Confederation

Varnum asserted a "general and implied power. . . to carry "Power of compelling the several States to their Duty into effect all the Articles of the said Confederation and thereby enabling the Confederacy to expel the against any of the States" but could find "no determi­ common Enemy." nate and particular provision" (my italics). They there­ But Congress could not make the states ratify an fore urged amendment of the Articles so that Congress amendment for a modest impost, much less one for could "employ the force of the United States" against their own coercion or blockade. For now, big notions states failing to meet funding requisitions. drawn from Machiavelli, Vattel, and Pufendorf were of After Rhode Island rejected an amendment to cre­ no avail. They did serve, however, in building both ate a federal impost, Hamilton, Madison, and Thomas nationalist ideology and a theory of the union, and they FitzSimons drew up a lengthy Congressional Reply in yet serve historians who want philosophical founda­ December 1782, calling the impost "a measure of tions for the practical—even cynical—system the necessity." Congress, they urged, had "an indefinite nationalists put over a few years later. power of prescribing the quantity of money to be Another possible way out was the treaty power raised." This brought the impost duly inscribed in the ninth Article of "within the spirit of the Confedera­ Confederation. In a centralizing tion" (my italics). Further, Congress, Jefferson did not try mood, Jefferson himself, writing to "empowered to borrow money," had to find implied James Monroe from Paris on June power "by implication, to concert the 17, 1785, advocated using the treaty means necessary to accomplish that powers in the power "to take the commerce of the end." Arguing against Rhode Island's Articles, nor did he states out of the hands of the states" position, Robert Morris—federal and give it to Congress, which under financial czar—wrote on October 24, deduce powers from the Articles had "no original and 1782, "[I]f a thing be neither wrong some congressional inherent power" over the subject. nor forbidden it must be admissible But Jefferson did not try to find [and] if complied with, will by that sovereignty that implied powers in the Articles, nor very compliance become constitu­ did he deduce powers from some tional." Now, mere acquiescence "necessarily" arose congressional sovereignty that "nec­ was "consent," and consent bred under international essarily" arose under international legality. Meanwhile, having thought the thing over, other states had law The treaty-power dodge reap­ "rescinded" their earlier approval of peared much later, fueling the Old the impost amendment. Right's Bricker Amendment movement of the early Nationalist aspirations for revenue did not lessen 1950s. Senator John Bricker (R-Ohio) and his support­ with time. In a speech on January 28, 1783, Madison ers wanted to keep Congress and the president from found "general revenue" to be "within the spirit of the aggrandizing themselves under the vaguely worded Confederation." Hamilton agreed, but un-bagged the treaty clause of the present constitution. They meant for cat by saying,"[I]t was expedient to introduce the influ­ their amendment, which failed in the Senate by one ence of officers deriving their emolument from . . . vote in February 1954, to meet the problem. Congress" (my italics). Madison often suggested naval blockades of offending states. He seems also to have Utilizing Public Debt spotted an implied power to coerce the states, even ationalists focused more and more on the public without an amendment. (Thirty years later, as president, Ndebt. Congress quit issuing credit money in late Madison tried to coerce Britain and France with an 1779. Thereafter, as Madison wrote to Jefferson on May embargo, but got the War of 1812 instead.) Even Gov­ 6, 1780, Congress became "as dependent on the States ernor George Clinton of New York spied an implied as the King of England is on the Parliament." National-

25 APRIL 2008 Joseph R. Stromberg ists saw this situation as completely improper. And so, arguing a mass of undigested social-contract theory big Lance Banning observes, they "proposed to use the enough to sicken a hog. Here is an economical expla­ national debt to create a single nation—or at least an nation: ambitious men with political, economic, and integrated national elite—where none existed in 1783." ideological motives wanted a central government with E.James Ferguson writes, "The Union was a league vague (therefore large) powers. They had, doubtlessly, a of states rather than a national system because Congress certain kind of public spirit. The system they created lacked the power of taxation. This was not an over­ unfolded its inherent defects over time. To provide sight." Further, the federal debt itself was "inconsistent" cover for their more specific goals—power, profit, pros­ with such a union. Jack N. Rakove adds, "Congress perity, fisheries, security for slavery, land grabbing, lacked the effective power or, once the Articles were glory, fame, good government—the framers issued great ratified, the constitutional right either to levy taxes on clouds of political "science" and theory that have con­ its own authority, or to compel the states to obey its fused Americans ever since. Madison was the outstand­ recommendations. It is certainly true that the states ing mystifier, but there were others. Nationalists artfully would never have ratified the Articles had they con­ decried the governments of the states while championing tained such provisions. . . ." the Sovereign People, neatly dodging the question of Nationalists feared the states would who the people were and whether pay off the debt. Like the English there were 13 peoples or one. Whigs in 1649, they needed the debt as Nationalists The constitutional deed and its the "cement" of union, as Hamilton conducted an defending rationales do not seem called it. The debt was needed, in much grander than the origins of Rakove's words, "to justify endowing unrestrained many other states. But as Jesse Congress with independent revenues." campaign against Lienesch has written, the founders If revenue were found, public creditors succeeded in presenting themselves and the underpaid officer class would the Confederation's as demigods who saved the nation. It rally to the cause of national power. limits on power. is a point of American orthodoxy to All these advocates well understood believe them. Charles Beard and the inflationary potential of consoli­ J. Allen Smith, seconded by Albert dated public debt in the hands of fractional-reserve Jay Nock, got much flak for recognizing that the Fed­ bankers. The economy would boom under their own eralists had mixed motives and self-serving goals. profitable management. To win ratification, American nationalists, rechris- Nationalists conducted an unrestrained campaign tened as "Federalists," sold the new7 Constitution as a against the Confederation's limits on power. "Water document involving "limited" and "enumerated" would not boil" due to the Articles. More important, powers. On this reading, any power not obviously nationalists discovered The People. Within doors, Fed­ granted was not granted and the new outfit would not eralists habitually denounced the people as a great rab­ have it. Having cornered themselves verbally, Federal­ ble, the source of danger, wild enthusiasms, paper ists showed their original understanding in the first money, and attacks on property. Now they hastened to Congress by enacting all manner of laws directly in embrace John Locke's empty marker of popular sover­ conflict with their assurances to the ratifying conven­ eignty to justify a takeover in the name of the people. tions. Senator William Maclay of Pennsylvania espe­ Then they hustled the people off stage so the new cially noted the Judiciary Act, Hamilton's funding machine "could go of itself." system, economic coercion to force Rhode Island to ratify the Constitution, the War Department, a stand­ Social-Contract Theory ing army—and federal consolidation generally. (See Anyone who reads Madison's enormous journal of Maclay's Journal at http://tinyurl.com/3ch2nm.) the Constitutional Convention will find the delegates Seeing this, the Federalists' opponents, with a different

THE FREEMAN: Ideas on Liberty 26 Slick Construction Under the Articles of Confederation original understanding, argued for theirs as "Republi­ any simple originalism means clinging to original mis­ cans" led by Jefferson, John Taylor, and others. They takes. The framers' opinions were certainly original; meant to hold the former promising parties to their how or whether they dictate to us today through the pledges. Historian Garry Wills affirms that the ether is another matter. (<5§) ratifiers were somewhat swindled, but holds this to be a universal blessing that makes modern American Works Used governance possible. Lance Banning, "James Madison and the Nationalists, And for all their high-minded talk about The Peo­ 1780-1783," William & Mary Quarterly, April 1983. ple, popular consent, and so on, nationalists did not rule Edward S. Corwin, The President: Office and Powers, New out violence. Benjamin Rush wrote Richard Price on York, 1957. June 2, 1787, that, if needed, "force will not be want­ Thomas Y. Davies, "Correcting Search and Seizure His­ ing," since the wealthy and military classes wanted a tory," Mississippi Law Journal, vol. 77, 2007. new government. As Jensen writes, "It was power, not Jonathan Elliot, Debates in the State Conventions on the powers, that they wanted." Adoption of the Federal Constitution, I, 1973 [1830]). Could the nationalizers have gotten their way by E.James Ferguson,"The Nationalists of 1781—1783 and ingeniously stretching the Articles? One possible way the Economic Interpretation of the Constitution," would have been to filch the states' powers and Journal of American History, September 1969. reassemble them into a collective power. Nationalists E.James Ferguson, The Power of the Purse, Chapel Hill, might have contended that a majority of congressional N.C., 1961. delegations—each delegation embodying, fully and Paul Leicester Ford, ed., The Works of Thomas Jefferson, immediately, its state's separate sovereign powers—could, IV, NewYork, 1904. in concert, do any old thing, outside the Articles, that Merrill Jensen, "The Idea of a National Government came to mind. Similar ideas had yielded results before during the American Revolution," Political Science the Articles came into force in 1781. Quarterly, September 1943. The nationalists were not the sort to be denied Jesse Lienesch, "The Constitutional Tradition: History, power. They might have made interesting inroads by Political Action, and Progress in American Political discovering "indefinite" or "implied" powers, or by Thought, 1787-1793," Journal of Politics, February invoking the Articles' "spirit." Patiently accumulating 1980. "precedents," they could cash them in, down the William Maclay, The Journal of William Maclay, United road, as grounded on powers that had always "been States Senator from Pennsylvania, 1789—1791, New there." But nationalists were not as patient as, say, the York, 1965. Supreme Court. Roger McBride, Treaties versus the Constitution, New And certain structural advantages still remained to York, 1955. the states and the people(s). Their key advantage John L. O'Sullivan, Union, Disunion, and Reunion: A Let­ involved taxation. Congress had to ask the states for its ter to General Franklin Pierce, London, 1862. money. It still seems a good arrangement. Jack N. Rakove, The Beginnings of National Politics, New Here our sub-theme—originalism—returns. It York, 1979. appears that original contestants contested many constitu­ Murray Rothbard, Conceived in Liberty, IV, New tional "meanings" at the very beginning. On this view, Rochelle, N.Y, 1979.

27 APRIL 2008 Our Economic Past

Migration, Markets, and Governments

BY STEPHEN DAVIES

ne of the hottest political topics today on ment by the "pathfinder" often personal and idiosyn­ both sides of the Atlantic is immigration. cratic. The central point, however, is the individuality OWhat, though, do we mean by this and and personal nature of the decisions that both consti­ what light does history cast on our present concerns tute and drive the process of migration. and anxieties? Today there is a tendency to see the extent and level Migration, the movement and resettlement of peo­ of migration as unprecedented. This is not true. In this, ple, is one of the universals of history. In some periods as in other respects, we are only starting to approach the it happens on a relatively small scale, while at other situation of the late-nineteenth and early-twentieth times there are large-scale movements with significant centuries. At that time the plethora of border controls effects. Sometimes entire tribes or ethnic groups move that we now have to deal with was hardly even imag­ as single entities. This is a frequent feature of the history ined. In Europe in 1900 only two states required a pass­ of Africa for example and can also be observed in many port for entry, the Russian and Ottoman Empires. parts of Eurasia during the Late Antique period This was regarded as a sign of their backwardness—the between roughly 250 AD and the long-term trend in most parts of the eighth century. world for the previous 200 years had The other form that migration Migration, the been for controls on movement to takes, which has become the norm in movement and fade away or be abolished. most of the world since the Middle The scale of migration in the Ages, is individualistic. Here individu­ resettlement of nineteenth century was massive als or families move from one part of both absolutely and proportionally. the world to another. people, is one of the Between 1815 and 1914, more than A lot of literature is concerned universals of history. 20 million people emigrated from the with what motivates people and United Kingdom. To put this into households to migrate. There is a context, the overall net increase of longstanding debate over whether it is "push" factors British population between 1801 and 1911 was 26.5 (the desire to get away from unpleasant conditions) million. (Thirteen of the 20 million went to the United or "pull" ones (the desire to move to a place with bet­ States.) Britain was not alone in this. No fewer than 5.5 ter conditions) that should be emphasized. Recent million Italians emigrated between 1900 and 1910, work suggests that although in reality most cases mostly to the United States and Argentina. In Sweden involve a mixture of both, "pull" is commonly more 20 percent of the total population emigrated between important than "push." 1860 and 1910. Nor was movement on this scale con­ Another feature identified by recent research is fined to Europe; there were enormous movements "chain migration," in which the individuals who ini­ within Africa and parts of Asia, such as China and India, tially migrate are then followed by relatives and people not to mention the Russian Empire, while the United from their own immediate place of origin.This explains States saw the steady movement of population out why most migration is not random or uniform but to the west. tends to be from one specific place to another equally Stephen Davies ([email protected]) is a senior lecturer in history at specific place, with the reasons for the original move- Manchester Metropolitan University in England.

THE FREEMAN: Ideas on Liberty 28 Migration, Markets, and Government

The last few examples and the American case in par­ Many pre-modern regimes recognized this. Thus the ticular highlight two central points that need to be Chinese state for much of its history had a system of made about migration in the modern world. The first is internal controls that (at least in theory) restricted that since 1800 the significant migration has been not movement within the empire. In medieval times there so much from one part of the world to another as from were legal restrictions on the freedom of movement for the countryside to the city. To move from rural Sicily or most of the lower orders of society. Opposition to the Ukraine to Milan or Kiev was as dramatic a move immigration because of social and cultural effects is a in many ways as from either location to NewYork. species of the wider genus of opposition to change in The other point is that what matters is movement general, just as protectionism and restraints on trade and per se, not movement that happens to cross a geopolit­ exchange are partly driven by the fear of the changes ical border. In terms of its impact, both on the individ­ brought about by free economic choices of individuals. uals involved and in the aggregate on the places of Individuals and families make many decisions over origin and reception, there is no fundamental differ­ such matters as what to buy, what kind of work to do, ence between movement within the boundaries of a and where to live. In the aggregate these personal deci- state and movement that crosses over sions produce large-scale unintended those boundaries. To take a more outcomes that are often discomfiting recent example, the United States was Opposition to to many. The question is whether profoundly changed by the massive immigration because should we accept these outcomes and movement from south to north that trust human interaction and ingenu­ took place between 1920 and 1960 of social and cultural ity expressed through personal (with a lull during the Depression), a actions and cooperation to deal with migration contained entirely within effects is a species of any problems, or whether should we the boundaries of one nation-state. In the wider genus of use political power and accept the Britain large migration from England position that collective choices into South Wales between 1890 and opposition to change should trump individual ones. 1920 completely transformed the in general. If we adopt the second position recipient society. Among other things we should recognize that what drives it made Welsh a clear minority lan­ it is, above all, the desire, in the words guage as compared to English. Many large cities in of Hilaire Belloc, to "always keep ahold of nurse, for fear Scotland and the north of England were deeply affected of getting something worse." If we are tempted to do so, by the inward movement of large numbers of Irish there is something else to consider. British commenta­ from the 1840s onwards. tors have engaged in much hand-wringing over how Thus it is not really a question of whether immi­ the recent influx of migrants from Eastern Europe is gration (or indeed emigration) should be controlled, putting a huge strain on schools, public housing, social- but whether the movement of people beyond their welfare departments, the police, and public transport. immediate locality should be regulated. If the con­ These all have one thing in common: They are provided cern is that the unintended outcome of many indi­ by the state. There are no anguished complaints from vidual decisions to move will be changes in society grocery stores, restaurants, or private landlords. They and ways of life, these are as likely to arise when the have adapted, started to provide new services and prod­ movement is within a state as when it is over the bor­ ucts, and gained from the influx of new skills. We should ders of a state. note this contrast and learn from it. (It

29 APRIL 2008 The Return of Debtors' Prison?

BY WENDY MCELROY

. Beatty Chadwick, a former corporate lawyer, onment, with estimates ranging from tens of thousands has been imprisoned in a Pennsylvania county to hundreds of thousands. Hjail for over 13 years even though he has What is contempt of court? The United States has never been arrested, criminally accused, or tried. Chad­ two basic types of contempt: criminal and civil. Con­ wick is imprisoned on contempt-of-court charges that tempt of court has been called the "Proteus" of the sprang from a contentious divorce. His case dramatizes legal system because Proteus was the Greek sea god a continuing debate over the use and misuse of civil- who could change his shape at will. In short, contempt contempt imprisonment. of court can assume many forms due to three factors: Many people view contempt of civil court as an the judge is often the sole evaluator of when contempt uncommon and relatively benign sanction that is flexed has occurred; federal law differs from state laws, which only to enforce court orders or often vary from each other; and crim­ respect for the court. If the sanction is inal contempt is remedied differently seen to have bite, it is usually in con­ Contempt of court from its civil parallel. nection with high-profile cases in has been called the Nevertheless, all contempt charges which journalists refuse to reveal share certain characteristics. In its their sources and so are imprisoned "Proteus" of the most basic form, contempt of court is until they relent or it is clear that legal system because a ruling through which a judge sanc­ further imprisonment will not com­ tions a deliberate act or omission to pel compliance. Proteus was the act that he or she considers to be dis­ In reality such imprisonment Greek sea god who obedient, obstructive, or disrespectful seems to be commonplace and it can to the court. The ruling is the sternest devastate lives. Arguably, the most could change his remedy a judge can impose on "bad common form of civil imprisonment behavior," such as refusing to obey a is for nonpayment of child support. shape at will. court order or uttering obscenities in When a "deadbeat" parent is jailed for court. Punishment can be imposed on nonpayment by a family-court judge, the actual charge anyone within the court, including attorneys, parties to is contempt of civil court. How many "deadbeats" are a lawsuit or criminal action, witnesses, and spectators. imprisoned each year is unknown because family This article focuses on civil contempt on a state level courts are not required to maintain such records and and analyzes criminal contempt only by way of contrast. rarely do so. This means that family-court judges act In theory a key difference is that criminal charges are with less transparency and less accountability than those in other venues do. Moreover, there is no national data­ Contributing editor Wendy McElroy ([email protected]) is the base of "deadbeat" parents incarcerated each year. In editor of ifeminists.com and a research fellow for The Independent Institute short, there is an amazing lack of data on such impris- in Oakland, California.

THE FREEMAN: Ideas on Liberty 30 The Return of Debtors' Prison?

more serious than civil ones and often involve the loss informed the court her husband had wired $2.5 mil­ of liberty. Thus criminal defendants have protections of lion out of the country. The judge ordered him to due process that civil defendants do not enjoy. In some retrieve the money and place it in a court-controlled cases, however, civil contempt involves imprisonment account until the divorce was settled. Beatty Chadwick against which the offender, or contemnor, has no legal claimed that most of the money had been lost in a protection or recourse except eventual compliance. foreign business deal gone bad; however, a small What are some of the other key differences between fraction of the money showed up in a U.S. bank under civil and criminal contempt? his name and the court did not believe his story. In both, contempt can be either direct or indirect. In April 1995 Chadwick was imprisoned until the Direct contempt is committed in the presence of a money was produced. presiding judge; for example, interrupting the judge. Traditionally, a contempt-of-court sentence contin­ Indirect contempt is committed outside the pres­ ues only as long as there is a reasonable expectation ence of the presiding judge, for exam- of coercing compliance. Otherwise, pie, neglecting to pay court-ordered the imprisonment becomes a punish­ child support. "It is abhorrent to ment, which is a criminal sanction In civil court, once the direct con­ our concept of and beyond the authority of civil temnor has been advised of the con­ courts. tempt, a fine and/or imprisonment personal freedom that may be imposed immediately. The the process of civil An Affront to Liberty imprisonment is generally for a few 1974 New Jersey Supreme days but can span months. The con­ contempt can be A,Cour t case, Catena v. Seidl, is temnor has no legal right to an attor­ often cited regarding this point in ney or a trial or any defense. The used to jail a person civil contempt. "It is abhorrent to our judge's ruling cannot be appealed. In indefinitely, possibly concept of personal freedom that the indirect civil contempt, the contem­ process of civil contempt can be used nor is entitled to notice and a hearing for life, even though to jail a person indefinitely, possibly at which to present evidence and he or she refuses to for life, even though he or she refuses rebuttal. Then, at the sole discretion to comply with the court's order. . . . of the judge, the contemnor may be comply with the [Cjontinued imprisonment may reach imprisoned until compliance is com­ a point where it becomes more puni­ pelled. With noncompliant contem­ courts order." tive than coercive and thereby defeats ners, imprisonment usually ends the purpose of the commitment." when the judge concludes that continuation is ineffec­ In 2002 U.S. District Court Judge Norma Shapiro tive. If the judge does not reach that conclusion, it is ordered Chadwick's release on grounds that continued possible for the imprisonment to be indefinite. imprisonment would not compel compliance. That By contrast, in direct or indirect criminal contempt, same year, then-Third U.S. Circuit Court of Appeals the contemnor retains the rights of due process. The Judge Samuel Alito overturned Shapiro. He said, sentence, which is meant to punish rather than to com­ "Because the state courts have repeatedly found that pel compliance, is of a set length. Mr. Chadwick has the present ability to comply with Thus in practice a civil-contempt charge can be far the July 1994 state court order, we cannot disturb the more serious than a criminal one. state courts' decision that there is no federal constitu­ Consider H. Beatty Chadwick's 13 years of impris­ tional bar to Mr. Chadwick's indefinite confinement for onment. The facts of his case are straightforward. In civil contempt so long as he retains the ability to com­ 1977 Chadwick married Barbara Jean Crowther. In ply with the order requiring him to pay over the 1992, she filed for divorce. In 1994 Barbara Chadwick money at issue."

31 APRIL 2008 Wendy McElroy

Thus Alito, now a U.S. Supreme Court justice, common law. Civil law, which is also known as Conti­ asserted the right of a civil court to hold a contem­ nental or Romano-Germanic law, is at least as wide­ nor in prison in perpetuity. The only question was spread as common law; for example, it is the basis of whether the contemnor has the ability to comply. French Civil Law and the Swiss Civil Code. The funda­ In Chadwick's case the ability is far from clear. In mental difference between the two systems is that com­ 2003 former Pennsylvania Judge A. Leo Sereni oversaw mon law derives rules or precedents from specific an 18-month investigation in which two accounting cases and civil law starts with rules and applies them firms attempted to track down Chadwick's money. to specific cases. No trace was found beyond what had been identified For purposes of this article, however, the fundamen­ a decade before. Sereni recommended Chadwick's tal difference is that most civil-law countries do not release, stating, "My God— if he had stolen $2 million, recognize civil imprisonment for contempt. In their he would have been out a couple of years ago." (Appar­ book The Civil Law Tradition: An Introduction to the ently, the state maximum for that crime is or was Legal Systems of Western Europe and Latin America, legal a seven-year term.) Chadwick's lawyer has added that scholars John Merryman and Rogelio Perez-Perdomo his elderly client now suffers from non-Hodgkin's wrote, "Another fundamental difference between the lymphoma and requires "outside" civil law and common law traditions medical attention. occurs in enforcement proceedings. In February 2006 the presiding Much of the world, Civil law jurisdictions have nothing court held that Sereni had "over­ comparable to the common law stepped his bounds" and Chadwick's including most of notion of civil contempt of court. . . . incarceration should continue. western Europe, [I]n the common law a person can be Is the Chadwick case an aberration compelled to act or to refrain from that has slipped through the cracks of functions without the acting by the threat of imprisonment an otherwise reasonable system? Or is common-law or fine for contempt of court—that it an extreme example of a common­ is, for refusing to obey a court order place occurrence that suggests family tradition of civil addressed to him or her as a person. courts are out of control in the use of . . . The civil law, by way of contrast, contempt imprisonment? imprisonment. knows no civil contempt of court and The "legal crack" theory confronts tends to operate solely in rem. This a problem. According to the Chicago Tribune, the case means that regardless of the type of claim one has has produced "a dozen pleas to the county courts, nine against another person, the only way one can collect to state appeals courts, nine to the Pennsylvania the claim is by obtaining a money judgment." Supreme Court, six to the nearby federal court, four to Much of the world, including most of western the Third Circuit Court of Appeals and two to the U.S. Europe, functions without the common-law tradition Supreme Court." For an injustice to withstand sus­ of civil imprisonment. Thus it is not clear that elimi­ tained efforts to remedy it, the "crack" has to be both nating the practice would harm North American massive and widespread. A mere aberration should be jurisprudence in any manner. easier to correct, and higher courts should not affirm it. Indeed, there are good reasons to believe that elimi­ Yet if the Chadwick case points to widespread abuse, nating the imprisonment would improve justice in how should civil contempt be reformed? Or, more fun­ North America. damentally, should the sanction be abandoned entirely? First and foremost, there is the human cost. The misery inflicted by imprisonment is the most obvious An Alternative? human cost. But critics of civil contempt argue that bandoning civil contempt would not be absurd. such imprisonment is also violation of constitutional AAfter all, that specific power derives from British rights that should apply not merely to criminal matters

THE FREEMAN: Ideas on Liberty 32 The Return of Debtors' Prison? but also to civil ones—at least, if punishment involves In theory a judge imposes contempt charges as a last the deprivation of liberty. These critics refer primarily resort and in a manner that respects rights. But when a to the rights of due process that are protected by the judge (or any human being) is given absolute and vir­ Sixth Amendment but also to those within the Fifth tually unaccountable power over another, frequent and Fourteenth Amendments. abuse is the predictable result. This is especially true The Sixth Amendment states, "In all criminal pros­ when an act of contempt directly challenges a judge's ecution, the accused shall enjoy the right to a speedy authority or constitutes an insult. In short, the judge and public trial, by an impartial jury of the state and becomes the injured party; this fact alone should dis­ district wherein the crime shall have been committed qualify him or her from rendering a decision on the . . . and to have the assistance of counsel." Although alleged injury. As Justice Hugo Black stated, "When the civil contempt is not a criminal prosecution, the line responsibilities of lawmaker, prosecutor, judge, jury and between the two blurs with imprisonment and when disciplinarian are thrust upon a judge he is obviously the penalty is imposed as a punishment rather than a incapable of holding the scales of justice perfectly fair remedy. and true and reflecting impartially on the guilt or inno­ The Fifth Amendment states, "No person shall be cence of the accused. He truly becomes the judge of held to answer for a capital, or otherwise infa­ his own cause." mous crime, unless on a presentment or indictment of a Grand Jury . . . nor shall be Political Abuse compelled in any criminal case to be a wit­ t is not merely the judge who can abuse ness against himself, nor be deprived of life, Icontempt of court charges; it is also politi­ liberty, or property, without due process of cians. A famous example of contempt being law; nor shall private property be taken for used politically is the 1895 imprisonment of public use without just compensation." One labor leader Eugene V. Debs. Debs was of the traditional measures of whether a arrested both for conspiracy and for contempt crime is "infamous" is the severity of punish­ Eugene V. Debs of court following his prominent role in the ment that may be imposed for its violation; commons, wikimedia.org Pullman Strike, during which the American the punishment of indefinite imprisonment would Railway Union refused to handle Pullman cars or any seem to make civil contempt an "infamous crime." cars attached to them, including those carrying U.S. The relevant section of the Fourteenth Amendment mail. The federal government obtained an injunction reads, "No State shall make or enforce any law which against the strike, which it sent in the Army to enforce. shall abridge the privileges or immunities of citizens of On the charge of conspiracy, Debs had a jury trial in the United States; nor shall any State deprive any per­ which famed civil rights attorney Clarence Darrow son of life, liberty, or property, without due process of defended him; the case was dropped mid-trial. On the law; nor deny to any person within its jurisdiction the charge of contempt, the judge in his sole authority sen­ equal protection of the laws." Again, imprisonment tenced Debs to six months in prison. seems to require the observation of due process. The danger of contempt-of-court charges being Arguably, civil contempt also impinges on First abused rises when the case being decided is controver­ Amendment guarantees of free speech. The need for sial and open to political pressure. transparency and accountability within the justice sys­ Can the good of society (or other specific individu­ tem is a hotly debated issue. A prerequisite of meaning­ als) be balanced against the cost and danger of con­ ful debate is the ability to criticize the conduct and tempt of court? In civil contempt the "good" is usually decisions of judges. As civil-contempt laws read today, defined as "paying up"—for example, child support. It however, a person who accuses a judge of misconduct is difficult to understand what "good" is accomplished can be found guilty of contempt of court even if he or by imprisoning nonviolent parents who are behind in she is able to prove the truth of the statement. payments. Although data on the number of "deadbeat"

33 APRIL 2008 Wendy McElroy prisoners is vague and often anecdotal, "deadbeat" dads Imprisonment for civil contempt is an unnecessary almost certainly constitute the majority of civil- and dangerous exception to the due process to which contempt imprisonments. Often the stated goal is to every individual is entitled both by the Constitution pry loose hidden money from the parent. But there is and by natural right. It also involves a confusing, incon­ no statistical proof or studies to indicate that imprison­ stant maze of laws that collapse the traditional distinc­ ment motivates a parent who can pay up to do so. tion between criminal and civil courts. As Justice Black Moreover, society tracks wealth through bank accounts, observed, "It would be no overstatement ... to say that tax returns, pay stubs, and myriad paper trails; if wealth the offense with the most ill-defined and elastic con­ is not discoverable and attachable, there should be a tours in our law is now punished by the harshest pro­ presumption that it doesn't exist. The accused should cedures known to that law." not be guilty until proven innocent. I believe civil-contempt imprisonment is a legal The possibility that many insolvent "deadbeats" are aberration that creates an artificial and arbitrary punished for their poverty has given rise to the accusa­ respect for courts. It also acts as a barrier for the tion that America has reinstated debtors' prisons. A open evaluation and criticism of judges, which is debtors' prison is simply a prison for those unable to necessary to a healthy transparency within the judi­ pay a debt. In 1833 the United States eliminated such cial system. institutions at the federal level and most states followed Civil-contempt imprisonment is far from a benevo­ suit, refusing to impose the criminal penalty of impris­ lent or rarely flexed power. Unless the law is changed or onment on insolvent debtors. Currently, the typical eliminated, Beatty Chadwick will spend the rest of his wording about debtors' prisons within state constitu­ life in jail without ever being arrested or heard by a tions is, "No person shall be imprisoned for debt in jury; tens of thousands—and, arguably, hundreds of any civil action, or mesne or final process, unless in thousands—of "deadbeat" parents will be sent to the cases of fraud." It is still possible, however, to be incar­ modern equivalent of debtors' prison. cerated for nonfraudulent debts such as nonpayment of The power of a judge to imprison without recourse alimony or child support. should be eliminated. %

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THE FREEMAN: Ideas on Liberty 34 The Free Market's Invisibility Problem

BY JOSEPH PACKER

dvocates of liberty face an invisibility prob­ The Persistence of the Fallacy lem, first identified by nineteenth-century ritical reflection should make it clear what is lost A French libertarian Frederic Bastiat in the Cthrough the youth's vandalism, and yet the bro­ appropriately titled essay "What Is Seen and What ken-window fallacy seems ever present in our society. Is Not Seen." Through a simple story, Bastiat Paul Krugman even used it to suggest that the Septem­ exposed the fallacy that later underlay Keynesian ber 11 attacks would boost economic growth because economics. of the costs of reconstruction. ("The driving force A young boy breaks a shopkeeper's window, initially behind the economic slowdown has been a plunge sparking outrage from the townspeople. When the in business investment. Now, all of a sudden, we locals begin to discuss the incident, they conclude that need some new office buildings. As I've already there is a positive side. The glass will need to be indicated, the destruction isn't big compared with replaced, making work for the the economy, but rebuilding will gener­ glazier. The glazier will spend the ate at least some increase in business money he makes on bread. The The importance of spending," "Reckonings; after the Hor­ baker will then spend that money, visuals for ror," New York Times, Sept. 14, 2001; and so on. The townspeople offer http://tinyurl.com/32h7hy.) consolation to the victim: "It's an argumentation has Bastiat's title clearly identifies what ill wind that blows nobody some only grown since lies behind the persistence of this falla­ good. Such accidents keep industry cious reasoning. The importance of going. Everybody has to make a Bastiat's time. visuals for argumentation has only living. What would become of grown since Bastiat's time. Much effort the glaziers if no one ever broke has been expended by libertarians in a window?" making the case for how the market could address any Wait! Bastiat says. "Your theory stops at what is seen. number of potential problems. This is important work, It does not take account of what is not seen." The mis­ but presenting a brilliantly argued case for libertarian- take in their reasoning is that the townspeople do not ism only means success in a world of completely consider what use the shopkeeper would have put his rational people. If we were living in that world, liber- money to had he not spent it fixing the window. tarianism would have prevailed long ago. The charts and Perhaps the shopkeeper would have purchased a new graphs (the seemingly lone visual aids) trotted out by hat, giving work to the local haberdasher, or placed economists to make the case for laissez-faire economics the money in a bank, which would then lend it as cap­ are more likely to put audiences to sleep than inspire ital for an entrepreneur. The poor reasoning of the townspeople has become known as the broken- Joseph Packer ([email protected]) is a Ph.D. student at the University window fallacy. of Pittsburgh School of Communication.

35 APRIL 2008 Joseph Packer them to action. Defenders of the free market need new seeing a libertarian documentary being widely pro­ visual rhetorical strategies that highlight the human moted, despite the fact that libertarians make up costs of intervention. roughly 13 percent of the American population, Emmanuel Levinas, a French philosopher who according to research by David Boaz and David Kirby. wrote extensively on ethics, rooted the ethical obliga­ Is there an American over the age of 25 who does tion between human beings as one that stems from not remember the terrible images from the Exxon direct viewing of the human "face." The case of Jessica Valdez oil spill? These images evoke strong anti- McClure seems to confirm Levinas s theory. Jessica fell corporate feelings even though the company has into a well in 1987. Her plight drew massive attention now spent over $3 billion to alleviate the environmen­ and resources that could have saved countless more lives tal impacts and has paid restitution to the affected if put to other uses. The visual image fishing industry. of a child stuck at the bottom of a How many individuals have seen well created an irrational prioritiza­ Many Americans pictures, much less heard of, the tion of her case. A review of the rele­ Milwaukee disaster? Over 400 times vant psychological literature by Paul have been confronted as much pollution was knowingly Slovic, president of Decision with images of dumped in Lake Michigan in 2004 by Research, offers a more comprehen­ local governments that understood sive confirmation. He found that children working in they would not be held accountable. individuals were more likely to factories; however, Americans have been inundated with donate money to individuals rather pictures of melting icecaps, but have than groups, and smaller groups they do not see the they seen pictures of the children rather than larger ones. Researchers images of the 5,000 starving because of our energy poli­ attribute this to human beings having cies? Numerous studies show that gov­ an easier time empathizing with Nepalese girls forced ernment policies pushing ethanol as a small groups, combined with smaller solution to global warming act to raise groups contributing to a stronger into prostitution food prices, leaving the world's poorest feeling of being able to create actual because of U.S. trade to starve. This on top of the fact that change. Slovic also found individuals most scientists believe the corn were much more willing to donate sanctions against ethanol being pushed by the govern­ money to a cause if a picture of those child labor. ment will have no effect on warming. suffering was available. He concluded Many Americans have been con­ his review of the literature by saying fronted with images of children work­ that statistics of human suffering have had and will con­ ing in factories; however, they do not see the images of tinue to have a terrible track record of promoting the 5,000 Nepalese girls forced into prostitution because action. As Stalin is often alleged to have said, "One of U.S. trade sanctions against child labor. These facts are death is a tragedy; a million is a statistic." The innate not secret, but their lack of visual presence means they human desire to prioritize the visual gives a strong are all but invisible to most Americans. rhetorical edge to opponents of the free market.

Modern-day statists seem incredibly adept at com­ The Effectiveness of Imagery manding the attention of the public. Have you ever magery is effective, especially when combined with noticed how there exists an unending stream of I skillful storytelling. If you can honestly tell me that documentaries criticizing the free market? Roger and you watched Roger and Me without being overcome Me, Wal-Mart:The High Cost of Low Prices, This Is What with deep grief and anguish, then you must have a Democracy Looks Like, and Sicko are some of the titles heart of stone. And recall what images stay with you that immediately pop to mind. I can't remember ever from Roger and Me. Although Michael Moore offers

THE FREEMAN: Ideas on Liberty 36 The Free Market's Invisibility Problem statistical representations of the economic downturn of ure" (Enron, Exxon Valdez, and so on) are taken as Flint, Michigan, it's the images of individuals evicted opportunities to usher in sweeping regulation. Initial from their homes that haunt me. It is only by removing forays into visual argumentation by libertarians have myself from the movie and viewing it in the larger con­ already proven largely successful, whether Ron Paul's text of the positive effects of outsourcing that I can see enormous presence on YouTube or John Stossel's the flaws in Moore's logic. Unfortunately, I don't think investigative journalism on "20/20." Libertarians need most Americans have the patience or a strong enough to open a third front that tackles the statists in the background in libertarian thought to be able to take visual realm, where they have too long held a danger­ on this task. (I know I didn't until many years after ous monopoly. (^) seeing the film.) Libertarians can cry "unfair" and write all the scathing reviews they want, but both history Works Used and the relevant scientific data indicate that it will Frederic Bastiat, "What Is Seen and What Is Not Seen," do little good. (1850), http://tinyurl.com/ydasa2. Instead they need to take up the tactics long David Boaz and David Kirby, "The Libertarian deployed by the statists. Although we have a late start, Vote," Policy Analysis no. 580 (2006), we also have the enormous advantage of having a much http://tinyurl.com/y4wfby. stronger position to advocate. Historically, libertarians Paul Krugman, "Reckonings; after the Horror," New have used this great strength against themselves by York Times, Sept. 14, 2001. assuming that truth alone would be enough to win the Emmanuel Levinas and Sean Hand, The Levinas Reader, day. Libertarians must learn a lesson that the market­ Translated by Sean Hand and Michael Temple, place has taught the business community over and over Blackwell Readers. Oxford, UK; Cambridge, Mass.: again: having the best product is not enough. This does B. Blackwell, 1989. not mean ending the scholarly work that delves into Phil McKenna, "Corn Biofuel 'Dangerously Oversold' the nitty-gritty of what a world free of statist policies as Green Energy," New Scientist (2007). would look like. Nor does this mean ending the statis­ Johan Norberg, In Defense of Global Capitalism, Wash­ tical work that so effectively makes the case for free ington, DO: Cato Institute, 2003. markets. (Both of these things were instrumental in James R. Otteson, Actual Ethics, Cambridge, UK; New converting me and many others to libertarianism.) York: Cambridge University Press, 2006. Instead it means recognizing that a comprehensive C. Ford Runge and Benjamin Senauer, "How Biofuels case is not always as valuable in swaying public opinion Could Starve the Poor," Foreign Affairs (2007). as having effective case studies that take visual form. Paul Slovic, " 'If I Look at the Mass I Will Never Act': This sad fact has been proven time and time again Psychic Numbing and Genocide," Judgment and Deci­ when isolated incidents of highly visible "market fail- sion Making 2, no. 2 (2007): 79-95.

37 APRIL 2008 Exporting and Importing at the University

BY T. NORMAN VAN COTT

've been an economics professor at public universi­ "I do what I do for the joy of watching young minds ties for going on 40 years—the last 30 at Ball State develop" or "The affirmation that comes from pushing I University in Muncie, Indiana. In the parlance of back the frontiers of knowledge is what motivates economics, this means I've been a long-time "exporter" me." Export/import terminology only applies to of economics knowledge. Those paying my salary—stu­ them, they intone, if you label them importers of "joy" dents, parents, and taxpayers—have been "importers." and "affirmation." Students and parents import voluntarily. Taxpayers less While high sounding, such labels are disingenuous, if than voluntarily. not stupid. Take away these folks' imported housing, Considerable effort goes into these exports. Noble clothing, food, medical care, entertainment, education, and self-sacrificing on my part? Hardly. Rather, along with the countless other things that go into economics exports are a means to an living, and they're ill-housed, ill-clad, end for me, a self-serving end no and ill-fed—if not dead—professors. less. To wit, my exports enable me to Universities abound Again, the benefits people reap from buy—that is, import—things pro­ with folks whose the marketplace appear when they duced by others. An amazing array of import things produced by others. things. Things ranging from life- avocation, if not part- Only workaholics see intrinsic value sustaining necessities to frivolous time occupation, is in their exports. amenities (including leisure activi­ Does this have implications for ties). Far more of these things, in parading their above- "national households"? You bet, even fact, than I could ever obtain were the-economic-fray though nations are not literal house­ I producing them myself. The bot­ holds. A "national household's" eco­ tom line is that I export in order demeanors. nomic activity is nothing more than a to import. summary of the actions of its residents, Many of my university colleagues, each responding to the incentives he especially liberal arts/humanities professors, indignantly or she faces. The question here is whether the forego­ object to an export-to-import description of their ing applies with equal force to export/import activity efforts. Not surprising. Universities abound with folks between members of different "national households." whose avocation, if not part-time occupation, is parad­ The answer, again, is: most assuredly. Or as Adam Smith ing their above-the-economic-fray demeanors. Export put it in his 1776 classic, The Wealth of Nations: "What in order to import? Mercy, that smacks of commercial­ is prudence in the conduct of every private family, can ism, and we're above that, say these self-styled pillars of scarce be folly in that of a great kingdom." economic piety.

If cornered into explaining their motivation, these T. Norman Van Cott ([email protected]) is a professor of economics at Ball piety pillars wrap themselves in platitudes such as, State University, Muncie, Indiana.

THE FREEMAN: Ideas on Liberty 38 Exporting and Importing at the University

What a "national household" exports corresponds But the quintessential connect-the-dot failure, to what its citizens give up in order to import things at least to my thinking, is how the pundit/political of greater value from their counterparts in other class describes international negotiations ostensibly "national households." U.S. soybean exports to China, designed to increase international trade. To wit, for example, represent fDrsaken animal feed (meat) actions that increase Americans' access to imports are for Americans. The exports are worth the forgone labeled U.S. negotiating "concessions."That is, permit­ meat to the extent they make it possible for Ameri­ ting Americans to import more is a bargaining chip to cans to buy yet-more-valuable Chinese-produced secure comparable foreign "concessions" for U.S. goods, say, umbrellas. The worst- exports. That's like my reluctantly case scenario for Americans, in accepting the housing, food, and fact, would be exporting without Unfortunately, clothing that my economics exports importing—in the soybean case, less make possible. Make sense? Yeah, if meat and no umbrellas. pundits and politicians you're a workaholic. never connect the So whom should we believe— Connecting the Dots pundit/politicians at home or pun­ nfortunately, pundits and dots between personal dit/politicians in the public square? Upoliticians never connect the households, including At home these opinion makers dots between personal households, export in order to import, while sug­ including their own, and the "national their own, and the gesting the "national household" household." The result is a business "national household." imports in order to export. My fifth- and political culture saturated with grade teacher used to scold me about advocacy of national workaholism— my actions speaking so loudly that extolling exports and damning imports. Who hasn't she couldn't hear what I was saying. The same applies heard pundit/politician sloganeering about how to pundit/politicians. Look at what they do at home. exports are "good" and imports are "bad?" You know, After all, that's where their own living standards are on exports "create" and imports "destroy" jobs? Ditto for the line, a consideration long noted for focusing imports being "dumped" on Americans or likening attention on essentials. Their nostrums for the imports to "invading foreign armies." Tracing low- "national household" are a product of the mental sloth priced imports to "tilted economic playing fields" is that always ensues when people spend other people's another slogan. money for the supposed benefit of someone else. |§)

39 APRIL 2008 Give Me a Break!

Presidents Can't Manage the Economy

BY JOHN STOSSEL

he presidential candidates have been repeatedly Ignorance and Intervention asked how they would "manage the economy." president who sees the global economy as a TWith the exception of Ron Paul, every candi­ Acompetition among nations will be tempted to date has accepted the premise that this is something the intervene on behalf of the "United States" and create president of the United States should do. "good American jobs." That's how governments mess Or can do. up economies. Nonsense. McCain says, "It is government's job to help workers Democrats act like the president is national eco­ get the education and training they need for the nomic manager. Republicans pay lip service to free new jobs." Mike Huckabee (who glories in public- markets, tax and spending cuts, and works projects as a job-creation less regulation—before proposing machine) and Barack Obama talk in big programs to achieve "energy The candidates see similar terms. independence," job training, and a the global economy That hardly shows confidence in cooler climate. the free market, which, if allowed, John McCain says it's important as an arena in which would train and educate workers just for government to do something "to fine. But it shows misplaced confi­ sustain our leadership in manufactur­ countries compete dence in the federal government, ing." Why? Manufacturing jobs are against one which, as journalist Jim Bovard has no better for America than other shown, has an unbelievably bad track jobs. Some argue that they are worse. another—an record at doing it. The endless list of How many parents want their chil­ economic Olympiad programs, like the Manpower Devel­ dren to work in factories rather than opment and Training Administration, offices? Increasing service jobs in with winners Comprehensive Employment and medical, financial, and computer Training Act, Job Training Partnership sectors while importing manufac­ and losers. Act, STIP, BEST, YIEPP, YACC, tured goods doesn't hurt America. It SCSEP, HIRE, etc., wasted billions and helps America. "distorted people's lives and careers by making false The candidates see the global economy as an arena promises, leading them to believe that a year or two in in which countries compete against one another—an this or that program was the key to the future. Federal economic Olympiad with winners and losers. Politi­ training programs have tended to place people in low- cians love to promise they will keep America No. 1, as paying jobs, if trainees got jobs at all." if that matters in a worldwide marketplace. Sen. Hillary Clinton told the New York Times America as a nation does not compete against China recently, "I want to get back to the appropriate balance or South Korea or Japan. American companies com­ of power between government and the market. You try pete against companies in other countries, but that's John Stossel is co-anchor of ABC News' "20/20" and the author of something else. The purpose of production is consump­ Myths, Lies, and Downright Stupidity: Get Out the Shovel—Why tion, and American consumers prosper when foreigners Everything You Know is Wrong, now in paperback. Copyright 2007 compete successfully with American companies. by JFS Productions, Inc. Distributed by Creators Syndicate, Inc.

THE FREEMAN: Ideas on Liberty 40 Presidents Can't Manage the Economy to find common ground, insofar as possible. But if you everyone. When politicians propose regulations to fix really believe you have to manage the economy, you some problem, they should ask if some earlier interven­ have to stake a lot of your presidency on it." tion created the problem and if the new regulations Notice that she equates government power and will make things worse. The answer to both questions market power. That is absurd. "Power" in a free market is usually yes. means success at creating goods and services that The economy is far too complex for any presi­ your fellow human beings voluntarily choose to buy. dent—no matter how smart—to manage. How can Government power is force: the ability to fine and politicians and bureaucrats possibly know what hun­ imprison people. dreds of millions of individuals know, want, and aspire Politicians who talk about managing the economy to? How can government employees fathom what ignore the fact that, strictly speaking, there is no econ­ trade-offs to make in a world of scarce resources? omy. There are only people producing, buying, and sell­ They can't. That's why free people are more prosper­ ing goods and services. Eleep that in mind, and one ous than unfree people. realizes that government action more often than not Presidential candidates should promise to keep their interferes with the productive activities that benefit hands off the economy. (f|

The Foundations of Morality By Henry Hazlitt

IfV- <&ti 111 ^is impressive work Henry Hazlitt explores the proper foundation of . morality, offering a unified theory of laws, morals, and manners. Noted economist Leland Yeager, in his foreword to this edition, says that The • (|» g Foundations of Morality "provides (in my view) the soundest philosophical • b basis for the humane society that is the ideal of classical liberals." FlIIHHliitililh fll liltl'tliiil , This challenging work on ethics fits in the great tradition of Adam Smith's •-.->• Theory of Moral Sentiments and David Hume's Treatise of Human Nature. It is a well-reasoned, tightly argued book that amply rewards its readers.

Published by the Foundation for Economic Education 416 pages, paperback $14.00

To order, visit our online store at www.jee.org, or call 800-960-4FEE. Please add $3.00 per copy for standard postage and handling.

41 APRIL 2008 Boudreaux reminds us of the glorious achievements Book Reviews of globalization in the second half of the nineteenth century and the years before World War I, and the dam­ age done by the politics of collectivism in the first half Globalization of the twentieth century. While the period after 1945 by Donald J. Boudreaux did not represent a return to free trade, Boudreaux Greenwood Press • 2008 162 pages • $55.00 explains that the regime of freer trade that followed World War II greatly enhanced living standards for Reviewed by Richard M. Ebeling hundreds of millions around the globe. Since the fall n the mid-nineteenth century, of the Soviet Union and the end of the Cold War, a S IFrenc h classical-liberal econo­ movement toward market-oriented reforms in former mist Frederic Passy, who would communist countries and the Third World has spread share the first Nobel Peace Prize in the prosperity that comes from greater economic 1901, predicted: "Some day all bar­ freedom, raising hundreds of millions more people riers will fall; some day mankind, out of poverty. constantly united by continuous In clear and compelling language, Boudreaux transactions, will form just one describes the advantages of the division of labor and workshop, one market, and one specialization based on comparative advantage. He family. . . . And this is . . . the grandeur, the truth, the reminds us that the benefits from trade come not from nobility, I might almost say the holiness of the free- exports but from the better and less-expensive imports trade doctrine; by the prosaic but effective pressure of those exports enable people to buy. As a result, he [material] interest it tends to make justice and harmony demolishes the fallacies underlying people's fears prevail in the world." about trade deficits. Alas, for mankind the triumph of free trade in the This leads him into a detailed discussion of the nineteenth century did not last. There was soon a coun­ supposed "exceptions" to the case for free trade. terrevolution against liberty in the forms of socialism, Boudreaux points out that while one can make up nationalism, and interventionism that led to the return scenarios that appear to justify protectionism, the of state planning, government control, and restrictions alleged exceptions are logically flawed and historically on international exchange in the twentieth century. unproven. His examples are "dumping" (the supposed But the disastrous effects from all forms of political selling of goods in another country below the "cost of and economic collectivism over the last hundred years production") and "infant industry" policy (helping a have brought about a revival of market-oriented ideas new domestic industry with tariffs until it can compete that has given a new respectability to free enterprise against foreign rivals). and free trade. General ignorance of economics and the Boudreaux also responds to those who fear that power of special interests, unfortunately, continue to globalization threatens cultural diversity and national push the world back to a more protectionist path. identity. He shows that, in fact, not only does global­ There are some advocates of liberty, however, who ization often assist the preservation of cultures, but are attempting to educate the public about the benefits it also enriches each one by adding contributions from of free trade. One of these individuals is Donald J. other societies. Boudreaux, chairman of the economics department at Finally, Boudreaux turns to the institutions needed George Mason University and a former president of for successful globalization. These include private prop­ FEE. His new book, Globalization, is an excellent expo­ erty, relatively unregulated markets, an impartial rule of sition of the logic and benefits of free trade and an law with equal treatment for both citizens and foreign extremely insightful critique of many popular rationales investors, a stable and sound monetary system, and lim­ against international trade. ited government with low taxes. Countries that follow

THE FREEMAN: Ideas on Liberty 42 Book Reviews those rules not only reap benefits from trade but also ism who had opposed the New Deal and its Keynesian create a healthy climate of freedom for their own spending programs began fighting back. people. Three books by remarkable women, published while If prosperity through globalization is to continue, we the war was still going on, began to rekindle faith in the must all know and defend the ideas on which it is old American philosophy and, according to the Cato based. In Globalization, Donald Boudreaux does an Institute's David Boaz, can be credited with having excellent job in assisting us. @) "given birth to the modern libertarian movement." Doherty devotes a chapter to them—The God of the Richard Ebeling ([email protected]) is the president of FEE. Machine by Isabel Paterson, The Discovery of Freedom by Rose Wilder Lane, and The Fountainhead by Ayn Rand.

Radicals For Capitalism: Doherty identifies five individuals as having played A Freewheeling History of the Modern major roles in postwar libertarianism: Mises, the Aus­ American Libertarian Movement trian-born economist who fled war-torn Europe in by Brian Doherty 1940 after teaching and writing on free-market eco­ Public Affairs • 2007 741 pages • $35.00 nomics for decades and then continued his work in America; F. A. Hayek, student, friend, and colleague of Reviewed by Bettina Bien Greaves Mises in Europe and author of The Road to Serfdom ustrian economist Ludwig (1944), which created a sensation by maintaining that A.vo; n Mises said, "He who socialist economic planning, then popular with most wants to improve conditions must nations, actually leads to fascism and Nazism, the very propagate a new mentality, not evils the free countries were fighting; Ayn Rand, a merely a new institution." But refugee from communist Russia who wrote the dra­ propagating a new mentality is not matic novel Atlas Shrugged—which converted a genera­ as easy as flipping a switch. It takes tion of young people into enthusiastic advocates of time; an idea that starts in the mind capitalism and opponents of the altruistic welfare state; of one person must travel to others Murray Rothbard, son of Jewish immigrants and an by persuasion—talking, teaching, writing, broadcasting, ebullient, irrepressible "radical for capitalism" who or simply by setting an example. Only if an idea gains attracted many enthusiastic young followers who later general acceptance will it bring social change. became serious economists and libertarians; and Milton Brian Doherty, a senior editor of Reason, has written Friedman, also the son of Jewish immigrants and a bril­ a "freewheeling" history of the libertarian movement liant, charismatic intellectual who had substantial polit­ developed in America by "radicals for capitalism" who ical success by pushing for "half steps in the direction of have tried to "propagate a new mentality." Doherty less government." reports the activities of many individuals—dedicated The book also covers libertarian organizations. The and colorful characters all—who, each for his or her first organization started after the war dedicated specif­ own reason, helped promote the libertarian mentality. ically to promoting the freedom philosophy and capi­ Doherty traces the freedom philosophy back to Jef­ talism was FEE, founded by Leonard Read. As a ferson and the Founding Fathers, through the philoso­ long-time member of FEE's staff and a participant in phers and thinkers of the eighteenth and nineteenth Mises's NewYork University seminar, I knew most of centuries, down to present times. The ideas of Marx the people mentioned in Radicals for Capitalism and and Keynes, the popularity of Franklin Delano Roo­ Doherty interviewed me when researching this book. sevelt, and two world wars overwhelmed the limited- The radicals for capitalism Doherty writes about government voices that survived the Depression, include anarchists, pacifists, atheists, anticommunists, effectively silencing opposition to the government. draft resisters, science-fiction writers, academicians, Once the war ended, however, the radicals for capital­ political activists, goldbugs, religiously motivated per-

43 APRIL 2008 Book Reviews

Armed America: The Remarkable Story of How and Why Guns Became as American as Apple Pie

by Clayton E. Cramer Thomas Nelson • 2006 • 257 pages $26.99

Reviewed by George C. Leef

layton Cramer wrote Armed C!'America as a rebuttal to for­ mer Emory University history professor Michael Bellesiles's Arm­ ing America: The Origins of a National Gun Culture. Bellesiles Leonard Read and Ludwig von Mises at a FEE seminar in the 1950s. FEE Archives created a furor by purporting to show that, despite everything sons, and even several individuals who tried to establish Americans are taught, firearms free-market Utopian "libernations" outside the domain played a very small role in the country's early history. of any existing government. Radicals for capitalism also Bellesiles sought to prove that guns of all types had established think tanks, wrote books, published jour­ actually been rare in the colonial period and early nals, gave lectures, and taught. years of the United States. Financing for most of these libertarian ventures Gun-control advocates were overjoyed. The book came from real-life capitalists, entrepreneurs who had was given glowing reviews in all the important places acquired wealth in our relatively free-market system. and won the illustrious Bancroft Prize awarded by Anti-New Deal businessmen helped FEE get started. Columbia University. Its many champions swallowed Free-market foundations paid Mises's salary at NYU, whole Bellesiles's claims without ever checking his provided student scholarships, financed economics sources. Why bother? The author was a professor at a seminars, and subsidized many libertarian organizations. prestigious university, and besides, the thesis was per­ Charles and David Koch, whose father raised them fectly suited to the gun-control agenda. Bellesiles's con­ with the idea that big government was bad govern­ tention supposedly refuted the arguments of Second ment, donated millions to libertarian causes. Amendment scholars who maintain that the language Radicals for capitalism undoubtedly contributed to of the amendment recognizes an individual right to the climate of libertarian opinion that made it possible keep and bear arms. Opponents of that understanding for Barry Goldwater to run for president in 1964, insisted that the Second Amendment was only intended and also for Ronald Reagan to run and win the presi­ to secure a collective right, namely, the right of govern­ dency in 1980. ments to arm militias and other official forces. The In any free society, ideas are always changing—in opponents welcomed Bellesiles's revisionist history as ladies' fashions, lifestyles, the role of government, indi­ support for that view. vidual freedom and responsibility, and economic and There was a gigantic flaw in Arming America, how­ civil rights. Doherty has written a fascinating history of ever. The evidence was largely bogus. Dozens of skep­ how radicals for capitalism and their fellow travelers tics scrutinized the book's documentation, and one helped to "propagate a new [libertarian] mentality" in scholar after another, including Clayton Cramer, found this country. (|| glaring misquotations and fabrications in the footnotes. When challenged, Bellesiles at first tried to brush off Bettina Greaves ([email protected]) served FEE for more than four decades as a senior staff member, resident scholar, and trustee. his critics and later took to attacking their supposed

THE FREEMAN: Ideas on Liberty 44 Book Reviews motives. His evasions were unavailing. In time it sible? As Cramer writes, "If every American militiaman became clear to all but his most die-hard ideological was not a crack shot, he was certainly a good enough allies that Bellesiles had written a fraudulent and shot with his fowling-piece, musket, or rifle, to terror­ dishonest book. Columbia revoked his Bancroft Prize, ize the finest army in Europe at the time." and Oxford University Press announced that it would Cramer never ventures directly into the debate over no longer sell the book. the meaning of the Second Amendment, but he doesn't Despite the mountain of evidence against Arming need to. Armed America thoroughly refutes the notion America, there are still people who contend that there that guns were rare and therefore the drafters of the were only a few minor problems with it and that its Constitution must have meant to protect only a collec­ thesis still stands. That's why Cramer wrote his book: to tive, state-centered right. Hats off to Clayton Cramer prove beyond question that Bellesiles was wrong and for his dogged pursuit of the truth. @ that firearms were in fact widely owned and used in George Leef ([email protected]) is book review editor of The Freeman. early America. In that effort, Cramer is overwhelmingly successful, and along the way we learn a good deal about guns in our early history. In the colonies, Cramer demonstrates, it was com­ The European Economy Since 1945: mon for members of the militia (which included Coordinated Capitalism and Beyond nearly all white men) to supply their own guns and by Barry Eichengreen ammunition. Furthermore, in the conflicts with the Princeton University Press • 2006 • 504 pages $35.00 French and Indians in the seventeenth and eighteenth Reviewed by Waldemar Ingdahl centuries, the soldiers in the militia demonstrated great proficiency with firearms. The widespread ownership ome topics might prove too and skill in the use of guns during that period are Sdaunting to write about even in utterly inconsistent with Bellesiles's assertion that tomes. Barry Eichengreen, profes­ firearms were rare. sor of economics at the University

Another interesting piece of evidence Cramer wnvfc 0f California, Berkeley, has under- adduces is the fact that Indians owned guns. If the set­ jjlf 1945 taken a difficult task in this book— tlers really had few guns, how did the Indians come to • JUiLii an economic history of the whole have substantial numbers of them? Here we encounter •MMMMMIM ot Europe, a comparison with the one of those enlightening pieces of history. Laws against MMIIiltilliiiH United States, and some considera­ selling firearms to the Indians were in effect in the tions for the future. The result is a clear and concise colonies, but just like modern gun-control laws, they book that shakes up some preconceptions. were unenforceable. Moreover, it appears that the Recovering from World War II was not as colonists actually benefited from Indian ownership of problematic as many think. Eichengreen contradicts guns. The Indians could more easily procure game that Mancur Olson's view that Europe had to start from they would then trade to the settlers. Guns in the hands scratch and free itself from its historical institutions. He of the supposed enemy turned out not to be a disaster argues that it was precisely this historical continuity but rather a mutual benefit. that enabled the recovery; just a few years after the war, The colonists' ability to fight successfully against the Europe's production capacity was back at prewar levels, veteran professional British army during the Revolu­ even considering Germany's devastation. tionary War is again strong evidence that the people It was not a time of technological breakthroughs, weren't strangers to firearms. During the famous British but rather of steady recovery, mobilizing the resources retreat after their sortie to Lexington and Concord, unused during the war and implementing some patriot marksmen inflicted heavy casualties on the red­ innovations from the United States. This was possible coats. If the people had so few guns, how was that pos­ through the political consensus found in the

45 APRIL 2008 Book Reviews corporativist collaboration among government, differences in financial institutions. Europe's banks were industry, and unions, with banks ready to provide the geared toward supporting well-established corporations corporations that had survived the war with concentrated on producing "more of the same," while investments from small-time savers. the reliance of American corporations on venture The lessons learned from the 1930s were that unions capital favored what Eichengreen calls the "intensive had to agree to hold back demands for wage increases growth" of startups and innovations. and that governments needed to eliminate trade The '90s proved to be a mixed success for Europe. barriers. The European Economic Community (EEC) Liberalization and structural change proved difficult, was born because it was clear that Europe had been and rigid labor markets, excessive public spending, falling behind the United States even before the war. and high taxation are still present. But the European The balkanized and closed economies were unable to Union (EU) was able to weed out some of the worst exploit economies of scale and scope, and were slow to policies and succeeded in the difficult integration of develop mass-production methods. The EEC provided Eastern Europe. a regional market appropriate to make best use of the The book's analysis is on target. The structures and new technologies. With the financial assistance and the institutions of the European economies were suited export markets of the United States, this proved to be a to fine-tuning and applying existing technologies. successful strategy. They were tailored for a world with little interna­ But corporativist policies started to founder in the tional competition, not for the close integration and 1970s. The OPEC oil crisis was part of the problem, intense competition following globalization. The EU but the main issue, Eichengreen writes, was that the was designed for a half a dozen countries with postwar generations had forgotten the lessons of the complementary economic structures in order to past. Unions demanded ever-higher wages and militant achieve limited economic goals: expanding heavy strikes pressured corporate profits and investments. industry, liberalizing trade, deregulating product Governments tried to calm the economy by expanding markets. It was not designed to support 27 member the already-extensive welfare state, thereby worsening states with widely different economic structures, the high rate of inflation. political cultures, and visions of the future. Meanwhile, most of Eastern Europe, which had Eichengreen foresees that continuing economic been agricultural, was pushed by the Soviet Union into integration and technological advancement will make rapid industrialization. But that region was poorly Europe adapt to a more dynamic model. While arguing endowed with energy and industrial raw materials, and for some important reforms, he fails to draw the key its industrial output poorly tailored to the needs of conclusion—that Europe was successful in its the downstream users. Without the proper price incremental growth not because of but despite its mechanism of a market economy, managers sought to alliance of big government, big business, and big labor. minimize plan targets while maximizing planned Europe would be wise to follow its own path, but it allocation of resources. Those economies stagnated in would be unwise to think that the European path the 1960s, either trying autarky or reforming to should retain its high degree of corporativism and "market socialism." Both paths proved fruitless. The government economic planning rather than moving socialist systems made it through the '70s because loans toward free markets. W by Western banks delayed their ultimate collapse.

While Europe struggled, the United States asserted Waldemar Ingdahl ([email protected]) is the director of itself. Eichengreen places great importance on the Eudoxa, a liberal think tank in Stockholm, Sweden.

THE FREEMAN: Ideas on Liberty 46 The Pursuit of Happiness How Free Markets Break Down Discrimination

BY DAVID R. HENDERSON

ne of my favorite lines in the classic movie an obvious insight, but apparently it is not. How often The Magnificent Seven comes when a traveling have you heard people denounce businessmen for ruth­ Osalesman and his partner offer to pay the local lessly pursuing profits and, in the next breath, castigat­ undertaker to haul a dead Indian to boot hill. The ing those same businessmen for discriminating against a undertaker refuses. He'd like to oblige, he explains, minority group simply because they're a minority? but the townsfolk are so prejudiced against burying Well, which is it? Are they trying to maximize profits or Indians alongside whites that he can't persuade his are they discriminating? It can't be both. driver to haul the body. One of the salesmen says, "He's prejudiced too, huh?" The undertaker replies, Institutionalized Discrimination "Well, when it comes to a chance of getting his head hink about the most notorious examples of blown off, he's downright bigoted." Tracism, and the odds are high that you will think Experience with economic free­ of a government implementing it and dom illustrates the opposite point: People on the private citizens, out of the profit When it comes to saving their eco­ motive, opposing it. Take South Africa's nomic lives, even otherwise-preju­ London Stock apartheid. Please. The apartheid regime diced people are downright tolerant. Exchange wanted so and the "colour bar" that preceded it The reason is that markets make illustrate both points. From the early people pay for discriminating unless much to make 1920s to the early 1990s, the South they're discriminating in favor of the African government put barriers in the productive. Moreover, governments money that they were way of employers' hiring black people and government officials rarely bear willing to deal with for the plum jobs, especially, early on, a cost for, and often benefit from, in mining. In other words, the govern­ discriminating against unpopular others who had ment officially enforced discrimina­ people, which is why the greatest different religions and tion. Among the strongest opponents horror stories of discrimination are of this discrimination and the strongest about governments. cultural backgrounds. advocates of tolerance were white The insight that markets break employers. They hated that the gov­ down discrimination is not new. Over 200 years ago ernment prevented them from hiring qualified black Voltaire wrote: "Go into the London Stock Exchange people to work in mines and elsewhere. Interestingly . . . and you will see representatives of all nations gath­ also, among the strongest supporters of the colour bar ered there for the service of mankind. There the Jew, and, later, apartheid were white labor unions. the Mohammedan, and the Christian deal with each Indeed, something happened under the colour bar other as if they were of the same religion, and give the in 1923 that is so striking that the story should be told name of infidel only to those who go bankrupt." Voltaire was pointing out that people on the Lon­ David Henderson ([email protected]) is a research fellow don Stock Exchange wanted so much to make money with the Hoover Institution and an economics professor at the Graduate School of Business and Public Policy at the Naval Postgraduate School in that they were willing to deal with others who had dif­ Monterey, California. He is editor of The Concise Encyclopedia of ferent religions and cultural backgrounds. This seems Economics (Liberty Fund).

47 APRIL 2008 David R. Henderson by parents everywhere to their children and talked extreme racists and bigots will often be willing to pay about incessantly in coffeehouses. It was a strike by the price for discriminating. But pay they will. members of the powerful white Mine Workers' Union, Becker's book pointed out that the wage differential who were protesting white mine owners' plans to hire between black and white workers of a given ability and less-expensive black workers. The 12-word banner that experience level is a measure of the remaining discrim­ they proudly carried through the streets read, "Workers ination against black workers; the larger the differential, of the world unite, and fight for a white South Africa." other things equal, the more discrimination black This Karl-Marx-meets-David-Duke slogan is further workers face. This insight has been abused two ways in evidence of the connection between government discrimination lawsuits in the United States. The statis­ power (socialism is the ultimate in government power) tical abuse is to assume that the whole wage differential and racial discrimination. Interestingly, the union between blacks and whites is due to discrimination received support for this strike from its allies in the rather than to other factors that the researcher has failed South African Labour Party (SALP), formed in 1908 to measure. Yet, as virtually every economist who stud­ with the explicit goal of achieving privilege for white ies wage data will admit, you can never account for all workers. The SALP was modeled intentionally on the factors, especially those that you can't observe. You British Labour Party, an avowedly socialist party. can't know someone's earnings simply by knowing that And if you think something like that would never person's age, experience, union affiliation, and educa­ happen in the United States, then consider the origins tion. Many people are the same age as Bill Gates and of the minimum-wage law. The main proponents of are similar in all other respects, but none of them has the minimum wage were northern unions that wanted close to his level of wealth. to harm their lower-wage southern competition, many The second abuse of Becker's insight is an even of whom were black. This goal animated unions as more fundamental breach of justice. Workers who feel recently as the 1950s. At a 1957 hearing on increasing discriminated against sometimes sue their employers, the minimum wage, a northern US. Senator who often seeking compensation. What they fail to recog­ favored the increase stated: "Of course, having on the nize is that these employers, who actually hired blacks market a rather large source of cheap labor depresses and other minorities, are helping to eliminate discrimi­ wages outside of that group, too—the wages of the nation. To the extent that lower wages are due to dis­ white worker who has to compete. And when an crimination, they are caused by those not hiring people employer can substitute a colored worker at a lower in the discriminated-against group. But haven't we all wage—and there are, as you pointed out, these hun­ heard of the minister who blames those present for dreds of thousands looking for decent work—it affects the low turnout? the whole wage structure of an area, doesn't it?" It should be noted, though, that the U.S. economy is Who was the senator? Here's a hint: just four years not free but hampered by many anticompetitive gov­ later he was the President. His name: John F. Kennedy. ernment interventions, such as licensing. Yet competi­ tion is the key to minimizing discrimination. Thus Paying for Discrimination those who oppose bigotry could do no better than to hat markets break down discrimination is such an work to eliminate all such interventions. Timportant finding that the economist who first More fundamentally, though, people should be free showed it in a rigorous model, Gary Becker, earned the to discriminate. Freedom includes freedom of associa­ Nobel Prize, in part, for that work. In his book The Eco­ tion, the freedom to choose whom you work for nomics of Discrimination, Becker pointed out that free and whom you hire. Employees are free to discrim­ markets make discriminators pay for discriminating inate against employers for any reason they wish; because they give up opportunities to work with pro­ employers should have the same freedom. Let's have ductive people. That doesn't mean, he noted, that peo­ markets, not governments, punish those who exercise ple in a free market will never discriminate; the most their prejudices.

THE FREEMAN: Ideas on Liberty 48