September 2003 Vol. 53, No. 8

8 The Individual and Society by Arthur E. Foulkes

0 Slim Pickings on the Job Bush by Gary McGatb

2 Neither Slavery Nor Involuntary Servitude by Aeon J. Skoble

7 Money Talks? by Gene Callahan

!0 Regulatory Roadblocks to Turning Waste to Wealth by Pierre Desrocbers

!5 The Real Population Problem by Jim Per on

18 Government-Reformulated Gas: Bad in More Ways than One

by Michael Heberling

J4 The Loss of a Scholar: Marjorie Grice-Hutchinson by Norman Barry

J7 The Economic Foundation of Freedom by Howard Buffett Andrew Johnson Columns 15 THOUGHTS on FREEDOM—Butwhatabout . . . ? by Donald J. Boudreaux

23 PERIPATETICS—To the Medical Socialists of All Parties by Sheldon Richman

32 OUR ECONOMIC PAST—Andrew Johnson and the Constitution by Burton Folsom, Jr.

47 THE PURSUIT of HAPPINESS—Lessons from the Washington Teachers Union by Charles W. Baird Departments

2 Perspective—Is the Marketplace Efficient? by Sheldon Richman

4 From the President—The Importance of FEE, Then and Now by Richard M. Ebeling

6 The Market Endangers the Arts? It Just Ain't So! by Shikha Dalmia

41 Book Reviews Rethinking the Great Depression: A New View of Its Causes and Consequences by Gene Smiley, reviewed by George C. Leef; The Pity of It All: A History of Jews in Germany, 1743-1933 by Amos Elon, reviewed by Richard M. Ebeling; The Voluntary City: Choice, Community, and Civil Society, edited by David T. Beito, Peter Gordon, and Alexander Tabarrok, reviewed by William L. Anderson; The Collapse of the Common Good by Philip K. Howard, reviewed by Harold B. Jones, Jr. Published by The Foundation for Economic Education IDEAS Irvington-on-Hudson, NY 10533 Phone: (800) 960-4FEE; (914) 591-7230 PERSPECTIVE ON LIBERTY Fax: (914) 591-8910; E-mail: [email protected] FEE Home Page: www.fee.org Is the Marketplace Efficient? President: Richard M. Ebeling It is tempting to defend the free market b Editor: Sheldon Richman claiming it's efficient. But we'd better resis

Managing Editor: Beth A. Hoffman that temptation. It can lead to trouble. Individuals surely strive for efficiency; t< Editor Emeritus Paul L. Poirot the best of his knowledge, each persoi

Book Review Editor attempts to economize resources, time, an< George C. Leef energy in the pursuit of goals, and each nec

Columnists essarily puts higher values before lower ones Charles W. Baird Robert Higgs As Israel Kirzner suggests, if all we wish tt Donald J. Boudreaux Lawrence W. Reed Stephen Davies Russell Roberts claim when we say the market is efficient i: Burton W. Folsom, Jr. Thomas Szasz that it lets individuals coordinate with other; Walter E. Williams in pursuit of their personal aims, then thai Contributing Editors claim is unobjectionable. The problem is thai Doug Bandow Dwight R. Lee many economists, unrealistically assuming Norman Barry Wendy McElroy Peter j. Boettke Tibor R. Machan equilibrium and perfect knowledge, think James Bovard Andrew P. Morriss there's more to the claim. You can see this Thomas J. DiLorenzo Ronald Nash Joseph S. Fulda Edmund A. Opitz when they assert that the market directs Bettina Bien Greaves James L. Payne resources to their best, or highest-valued, John Hospers William H. Peterson Raymond J. Keating Jane S. Shaw use. Daniel B. Klein Richard H. Timberlake Lawrence H. White To a methodological individualist this should be troubling. "Best" to whom? If I Foundation for Economic Education choose between using a quantity of gasoline Board of Trustees, 2003-2004 to run my lawnmower and to drive to the David Humphreys Paige K. Moore Chairman Secretary park, it makes sense to say that my choice Frederick C. Foote Dan Grossman indicates my highest-valued use of the gaso­ Vice Chairman Treasurer line. At any given time, I have a scale of val­ ues that is revealed by what I do. If I drive Henry M. Bonner Jane M. Orient, M.D. to the park I demonstrate that, at the Lloyd Buchanan Tom G. Palmer Walter LeCroy Andrea Millen Rich moment of choosing, I prefer that to a Roy Marden Sally von Behren mown lawn. Kris A. Mauren Guillermo M. Yeatts But we can't use this kind of analysis with more than one person. What's a higher- Ideas on Liberty (formerly The Freeman: Ideas on Liberty) is pub­ lished by The Foundation for Economic Education, Inc., Irvington- valued use of the gasoline: my driving to the on-Hudson, NY 10533. FEE, established in 1946 by Leonard E. park or your mowing your lawn? There's no Read, is a non-political, educational champion of private property, the free market, and limited government. FEE is classified as a 26 USC answer to that question because more than 501(c)(3) tax-exempt organization. one value scale is in the picture and no way Copyright © 2003 by The Foundation for Economic Education. Permission is granted to reprint any article in this issue, provided exists to rank the two activities. If that's true credit is given and two copies of the reprinted material are sent to for two people, it's no less true for 285 mil­ FEE. The costs of Foundation projects and services are met through lion people. There is no social value scale to donations, which are invited in any amount. Donors of $39.00 or consult. The idea that there is such a scale more receive a subscription to Ideas on Liberty. For delivery outside the United States: $54.00 to Canada; $64.00 to all other countries. lies at the heart of collectivism. Student subscriptions are $10.00 for the nine-month academic year; The price system won't get us out of this $5.00 per semester. Additional copies of this issue of Ideas on Liberty are $4.00 each. difficulty. If you outbid me for the gasoline, Bound volumes of The Freeman and Ideas on Liberty are available requiring me to forgo the park and enabling from The Foundation for calendar years 1972 to 2001. The magazine is available in microform from University Microfilms, 300 N. Zeeb you to mow, we cannot say that you value Rd„ Ann Arbor, MI 48106. the mowing more than I value the recreation. Why not? Because there is no unit with

2 yhich to measure value, or utility, and thus A town in Denmark is a textbook model LO basis for comparing such things between at turning industrial waste into valuable individuals. What we can say is that I prefer resources—and government planners had vhatever else I plan to buy with the money nothing to do with it. Pierre Desrochers has o time in the park, and you prefer a mown the details. awn to whatever else you could have spent There's a population problem after all. he money on. (We could both discover But it's not the one the environmental lobby ve're mistaken.) But those are separate has warned of for the last 30 years. Jim wrra-personal value comparisons and so do Peron spells it out. tot violate methodological individualism. Thanks to government, we have reformu­ We can also say that rising prices for lated gasoline. Michael Heberling wants to •esources tend to encourage individuals to know how many more gifts like this we can postpone or cancel their (personal) low- stand. priority projects, which frees the resources Students of the Austrian, or subjectivist, tor other individuals' (personal) high-priority approach to economics know that a precur­ projects. That may be mistaken for a shift to sor to that approach was developed by the socially "higher valued" uses, but it isn't the School of Salamanca in late-sixteenth and same thing. early-seventeenth-century Spain. Norman (For more, see Roy Cordato, "Free Mar­ Barry reports on the passing of an eminent kets and 'Highest Valued Use,'" Ideas on scholar of the School of Salamanca. Liberty, May 2000, online at www.fee.org/ As the success of America demonstrates, vnews.php?nid=4623.) private property, though much disparaged, is indispensable to freedom. The late con­ gressman Howard Buffett knew this well, as he shows in a classic reprint from 1956. So much bad public policy comes out of Here's what our columns cover this the belief that the needs of the individual and month: President Richard Ebeling demon­ the needs of the community clash. Nonsense, strates that FEE is needed more than writes Arthur Foulkes. ever. Donald Boudreaux discourses on It's tough being unemployed, but that's no free trade. Burton Folsom documents Presi­ reason to portray oneself as a victim and dent Andrew Johnson's respect for the capitalism as the victimizer. Gary McGath Constitution. Charles Baird draws lessons explains why. from the Washington, D.C., teachers- The war in Iraq brought calls for a union scandal. And Shikha Dalmia, after resumption of the military draft. Aeon mulling over the claim that culture needs Skoble demonstrates why that would be a taxpayer subsidies, remonstrates, "It Just big mistake. Ain't So!" It's a popular notion—and there are cliches Coming under scrutiny in our book- to prove it—that those on the money side of a review department are volumes on the Great transaction are superior to those on the goods Depression, the Jews in Germany, cities, and and services side. Gene Callahan exposes the the "common good." faulty economics in that thinking. —SHELDON RICHMAN

3 From the? Pr^sid^rrt IDEAS by Richard M. Ebeling ON LIBERTY SEPTEMBER 2003 The Importance of FEE, Then and Now

hen Leonard Read established the rienced economic liberty, is taking over Foundation for Economic Educa­ Young men who have become accustomec tion in 1946, the United States had to being regimented and restricted are com just passed through 12 years of ing into positions of responsibility in busi W ness. The job of economic education must bt Franklin Roosevelt's New Deal intervention­ ist policies, including four years of wartime undertaken now while those who appreciate controls. Read was deeply concerned that the value of liberty are still in a position tc the American people were losing their under­ support it." standing of and appreciation for individual Today, almost 60 years later and more liberty, free markets, the rule of law, and than a decade after the end of the Soviet constitutionally limited government. The Union and the Cold War, far too many oi institutions of the American Republic were our fellow Americans still lack that under­ under severe attack. standing and appreciation of the principles In the Foundation's prospectus, Leonard of the free society. Men in public office who Read wrote: "Coercion is being rapidly sub­ know better still lack the courage to say and stituted for voluntary enterprise. Collec­ defend what they know to be true and right. tivism is displacing individualism." He Economic ignorance still dominates discus­ warned of the lack of intellectual honesty of sions surrounding the role and policies of too many in public life and in the business government in society. world. They too often went along with But worst of all, Americans have gotten "what they suppose to be popular rather used to a life of regimentation and restric­ than what their personal, best judgment dic­ tion, to the point that they do not even tates. This self-betrayal results in little wis­ clearly understand just how far the United dom being applied to public affairs." States has moved away from its heritage of In addition, there was a serious "lack of freedom. Look around you, at the clothes understanding of individualism, the volun­ you are wearing, the furniture in the room in tary economy and economic liberty." There which you are sitting, at the appliances and were far too few who were able to argue log­ fixtures in your home, at your forms of ically and persuasively against the vast array transportation, and all the objects in your of government regulatory, redistributive, place of work. Not one of these things has and protectionist policies. been produced, manufactured, marketed, A grave concern, Read stated, was that and sold without dozens if not hundreds of "A new generation, one that has never expe- regulations, restrictions, and requirements imposed and enforced by the government. Richard Ebeling ([email protected]) is the presi­ dent of FEE. His latest book is Austrian Economics Reflect a moment about your health care, and the Political Economy of Freedom (Elgar). your retirement options, or your children's

4 iducation. They are all dictated, controlled, standards throughout the system of higher tnd monitored by the government. Under learning in the United States. he bogeyman of "national security" each of As a result, the battle comes down to is, with every passing year, has a smaller either "us" or "them" in controlling what md smaller corner of personal privacy on goes on at colleges and universities around lis property as the government bestows on the country through either legislation and tself greater and greater powers to surveil, spending or judicial decision-making. nvade, and intrude into our homes and If colleges and universities were cut loose workplaces. from government cash and controls, politics To pay for all these "benefits" that gov­ would be taken out of the entire controversy ernment so generously provides we are taxed over affirmative action. Institutions of higher in various direct and indirect ways that education would become private institutions approach 50 percent of total income. of learning. And as such, each could decide the bases on which they designed their Now More than Ever admissions standards. Some might have race components, while others might have blind Never was the task for which FEE was scholastic-merit standards for choosing founded more needed than today. Never freshmen. were so many of our fellow citizens lacking Each of us as private citizens could make in economic understanding. And rarely has our own choices, through voluntary contri­ there been so much confusion about the real butions and endowment funding, about alternatives to the present social and politi­ which schools with what policies we consid­ cal problems and dilemmas of our society. ered more deserving of our financial support. Leonard Read always emphasized that as Rather than one or two branches of gov­ important as it is to point out carefully and ernment imposing a single standard of thoroughly the dangers and negative conse­ "fairness," "justice," or "merit" on all of us quences of interventionist and welfare statist through legislative, judicial, and spending policies, it is far more important to explain actions, each individual could decide these how freedom would work, if only it were sometimes difficult issues for himself. given a chance. The crucial task is never to Competing for private dollars, these col­ forget to "accentuate the positive." leges and universities would have to per­ For example, in all the critical evaluations suade people of the rationales for, as well as that have been made of the Supreme Court's demonstrate the benefits of, one set of affirmative action decision last June, hardly admissions rules and guidelines versus some anyone has suggested that the best solution other. The social process of freely interacting would be to get government out of the educa­ individuals would determine the standards, tion business completely. All state and most rather than the political process of power, private colleges and universities are funded by pull, and influence through which some various levels of government, either directly impose their vision of the good on all. or through subsidized or guaranteed loans, The answer is really very simple. It's what grants, and scholarships. Since "he who pays Leonard Read summed up in the title of one the piper calls the tune," those with the ideo­ of his books: Anything That's Peaceful. The logical and political power to influence gov­ only ones who won't find it that simple are ernment policy can impose a wide variety of those who desire to coerce others for their "politically correct" fads and fashions. They own ends. Our task, together, is to convince can more or less dictate admission proce­ our fellow men that freedom is always better dures, curriculum content, and faculty hiring than force. •

Ideas on Liberty • September 2003 5 IDEAS ON LIBERTY SEPTEMBER 2003

The Market Endangers the Arts? 1991 essay he wrote for the Atlanti Monthly, "Can Poetry Matter?" In it he bril liantly reflected on why American poets who have been liberated from the grind o dull day jobs by public universities, when they get paid just to practice and teach thei: It Just Ain't So! art, have descended into banality anc become irrelevant to the broader intellectua here a man sits often determines life of the country. "Like subsidized farming where he stands. Dana Gioia, who that grows food no one wants, a poetr) W now sits as the head of the National industry has been created to serve the inter Endowment for the Arts (NEA), is living est of the producers and not the consumers,' proof of this dictum. In the course of defend­ he wrote. ing a bigger NEA budget, Gioia told an Yet now Gioia maintains, "If you put the approving Frank Rich of the New York marketplace entirely in charge of the arts, Times last June: "If you put the marketplace you see them very endangered." entirely in charge of the arts, you see them Apart from the substance, what's most very endangered." This statement would be disturbing about this remark is its flavor, its unremarkable from someone chosen by bureaucratic hubris. Nobody "puts" the George Bush to head the NEA. The Bush marketplace in charge of anything. It administration after all embraces the neo- emerges from the free choices of individuals conservative agenda, which is suspicious of a engaged in voluntary and mutually beneficial completely unfettered cultural marketplace. exchange. And that's what bothers bureau­ The view that the marketplace debases high crats—that there should be an ordering prin­ culture by catering to the lowest common ciple that does not emanate from the nib of denominator may have become passe among their pen. the academic left where it was spawned by Nor does the marketplace endanger the the Frankfurt School half a century ago. Yet arts. There may have been some plausibility it retains a permanent allure for neoconser- to the notion that the market's quest for a vatism. mass audience obliterates high culture when But Gioia is no neoconservative. the airways—thanks to government restric­ A former business executive and an inter­ tions—were dominated by three networks nationally acclaimed poet, Gioia was once whose exceedingly high capital and opera­ the literary editor of Inquiry, the now- tional costs required huge economies of defunct magazine of the Cato Institute, scale. But there is no plausibility to this the­ which readers of this publication will sis any longer. know has been fighting admirably to abolish One does not need an extra pair of eyes to the NEA (and the whole federally funded notice the dizzying diversity in cultural mar­ alphabet soup of special interests). And at a kets these days. Thanks to the constant cre­ 1995 festival of Derriere Guard—a group of ation of newer, and cheaper, artistic tech­ artists who reject post-modern rejection of nologies, there is almost no art form or genre artistic technique—Gioia's poem "Money," that the market cannot—indeed, does not— celebrating the effect of "the long green,/ sustain. Looking for classical music compo­ cash, stash" on the arts, was set to music and sitions by Aho, Pousseur, or Sclesi? No performed. problem. In the unlikely event that your sub­ But most ironically, Gioia's claim to fame urban music store does not have them, many (and consequently his current job) rests on a Internet stores certainly will. And at the

6 same place you are also likely to find "Rap­ powerful interest groups first, a luxury the pers Delight" by The Sugarhill Gang, Pun­ NEA does not have, the market also exerts jabi Bhangra music by Sukhbir, and klezmer salutary "control" over artists. music by the Klezmer Conservatory Band. But there is another more subtle—and To be sure, by spawning such diversity the more profound—way in which the market market thwarts the dominance of any partic­ keeps the arts healthy and vibrant: It does ular art form. And if one equates health with not require artists to court a mass audience. dominance, as critics of the marketplace do, It does, however, require them to court an then the American art scene does appear to audience broad enough to sustain their art. be terminally ill. But if the health of an art Some regard this as an onerous burden, an form is measured not by the sheer number of unnecessary distraction, for artists. But in its followers but by the quality of its connec­ fact it is a necessary precondition of good tion with those followers, then one could art. emphatically say that the marketplace nur­ Contact with a larger world outside the tures the arts far better than the NEA. narrow circle of fellow artists and embattled bureaucrats keeps artists grounded and real. No Coercion It enables them to keep their fingers on the pulse of humanity and speak to its concerns. For starters, unlike the NEA, the market­ Without this nexus with the audience, art place does not politicize the arts by coer- tends to wither and decay, as is the case with cively extracting money from the general modern American poetry. taxpayer to indulge the taste of a cultural No one has made this point with greater elite. Because members of the paying public clarity and delicacy than Gioia himself. can be sure that the market will direct their Although he may rail now like a born- money to the artists of their choice, they again Adorno (the founder of the Frank­ would not have to worry that bureaucrats furt School) that "our commercialized, once spent $1,500 on a poem whose entire entertainment-oriented television-based cul­ content was: lighght. (That's no jokke.) ture has cheapened and trivialized public dis­ The fundamental problem with the NEA course," it was not too long ago that he was is that it must fulfill two irreconcilable func­ pleading for more "vulgar vitality" in tions: It must liberate artists from the dic­ poetry. Indeed, a la Adam Smith, he mar­ tates of the public while holding them veled at how Hollywood, inhabited by the accountable to it. But as the controversy basest of people with the basest of motives, over NEA-funded artists' besmirching pic­ still succeeded in producing genuine art tures of the Madonna with pachyderm emis­ while university sophisticates churned out sions and submerging crucifixes in urine elo­ empty pap. "Somehow that market—and quently demonstrate, it does neither well. the kind of dynamic relationship it [Holly­ The marketplace, by contrast, is much bet­ wood] created with a real audience—created ter at drawing a balance between license and art," he noted. licentiousness: By freeing artists from Marketplace endangering the arts? Will bureaucratic babysitters, the market gives Dana Adam Smith please tell Dana Adorno them room to explore the outside contours that it just ain't so? of their art. Yet to the extent that the audi­ —SHIKHA DALMIA ence is free to withdraw its support from an [email protected] artist without having to explain itself to Editorial Writer, Detroit News

7 IDEAS ON LIBERTY SEPTEMBER 2003

The Individual and Society by Arthur E. Foulkes

ver lunch recently a philosophical ety exists to serve individuals—not the other friend of mine reflected, "U.S. history way around. is the story of a struggle between the This reasoning casts an entirely different Oindividual and society as a whole." A light on the relationship between individuals few days later another friend, equally philo­ and society. But this reasoning is not new. sophical, said something similar: "It always Individuals have long understood that they comes down to a conflict between the indi­ can satisfy their expanding wants only vidual and the community." through exchange and association with oth­ I have often heard this. The individual and ers. The tremendous bounty of such cooper­ the community have conflicting needs and ation, famously explained by David Ricardo wants. This is simply the truth. nearly 200 years ago, makes social interac­ Or is it? tion the individual's greatest tool for achiev­ "Society" is essentially the regularities, ing his goals. customs, and ground rules of interhuman Of course, individuals are expected to behavior. These practices (and their obey certain rules when dealing with others. acceptance among people) are tremen­ Murder, theft, fraud, and intimidation are dously important to how humans act and contrary to cooperation. But, as Frederic interact with each other. But is there Bastiat noted 150 years ago, individuals really such a thing as a "society" whose would resist and punish these behaviors goals conflict with those of individuals? "even if specific laws against them were I don't think so. lacking," meaning, therefore, that such resis­ Society does not exist independently of tance does not owe its origin to a "social individual human beings. As Ludwig von contract," but rather flows from "a general Mises noted, "The individual lives and acts law of humanity."2 It is wrong to interpret within society. But society is nothing but the these "general laws" as being somehow in combination of individuals for cooperative conflict with the wants of individuals. On effort."1 Indeed, he continues, "The funda­ the contrary, these laws assist in attaining mental facts that brought about . . . society those wants. . . . are the facts that work performed under Why then all the talk of an eternal conflict the division of labor is more productive than between the individual and society? I believe isolated work and man's reason is capable of it is because the "common good" is such an recognizing this truth." In other words, soci- effective political card to play. A multitude of government schemes are justified in the Arthur Foulkes ([email protected]) is a free­ name of the common good—even if they lance writer in Indiana. benefit only a small minority. Schemes rang-

8 ing from "livable" neighborhoods, sustain­ building is a sort of sickly yellow color. able ("smart") growth, Food and Drug "Livability," indeed. Administration regulations, government The beauty of voluntary exchange and the schools, and the Corporation for Public free market is that it allows consumers to Broadcasting have all been justified in the peacefully allocate resources according to name of the "common good," society, or the their own preferences. That's what Mises "general welfare."3 Resistance therefore is called the "sovereignty of the consumers." effectively attributed to "selfishness" or The millions of dollars wasted on our town's "stubborn individualism." "revitalization project" would have other­ What such government schemes have in wise gone to consumers' needs. But common is mistrust of individuals' choices autonomous individuals, not government in a free-exchange environment. They seek planners, would have determined those to impose "a new vision" designed to save other needs. For the planners, that is always us from the chaos of the unregulated mar­ the problem. ketplace.4 Bastiat nicely summed up the attitude of I do not have to look far to see the fruits the planners when he wrote, of such collectivist genius. A few years ago our town's local department of redevelop­ While mankind tends toward evil, the ment decided to spend 6.1 million tax dol­ legislators yearn for good; while mankind lars to build a mixed business/residential advances toward darkness, the legislators building downtown. The building's commer­ aspire for enlightenment; while mankind cial and residential units would be rented at is drawn toward vice, the legislators are approximately "market rates," but neverthe­ attracted toward virtue. Since they have less, the redevelopment bureaucrats never decided that this is the true state of expected the project to make money. "We affairs, they then demand the use of force know for sure [the project] has to be subsi­ in order to substitute their own inclina­ dized for about the first 12 years," the direc­ tions for those of the human race.5 • tor of the redevelopment commission told me in an interview. The 12-year price tag 1. Ludwig von Mises, Human Action, 4th rev. ed. (Irving­ was expected to be several million dollars on ton-on-Hudson, N.Y.: Foundation for Economic Education 1996 [1963]), p. 143. top of the construction costs. 2. Frederic Bastiat, Economic Harmonies, trans. W. Hayden Boyers (Irvington-on-Hudson, New York: Foundation for Eco­ nomic Education, 1996 [1850]), p. 2. 3. The Clinton administration proposed spending $1.7 bil­ lion on schemes aimed at promoting "livability"—meaning Not a Rousing Success planned communities with "mixed-use downtowns," "green spaces," and more, all for the "common good." See "Livable That was four years ago. The five-story Communities for The 21st Century: Remarks as Prepared for Delivery by Vice President Al Gore, Livability Announcement," building now stands in the heart of our January 11, 1999, at www.smartgrowth.org/library/gore_ downtown just a couple of blocks from my speechlll99.html. For more on "sustainability" see Environ­ mental Protection Agency-—Region 10, "Smart Growth," office. It houses a small pizza parlor, an www.epa.gov/rlOearth/sustainability/smartprin.htm. independent bookshop, and some residential 4. Gore. 5. Frederic Bastiat, The Law (Irvington-on-Hudson, N.Y.: renters. And to make things even better, the Foundation for Economic Education 1998 [1850]), pp. 32-33.

9 ONIDEA LIBERTS Y SEPTEMBER 2003

Slim Pickings on the Job Bush by Gary McGath

n Atlas Shrugged, Hank Rearden's scarce. Many claim that it's those over 50 brother, Philip, whines, "It's a moral who are being targeted, or married people. A imperative, universally conceded in our post on a job-networking list declared, day and age, that every man is entitled to "Sounds to me like the employment world is a job." Hank answers, "Pick it off the bush for the young and unmarried. All others where you think it grows." In today's weak need not apply." market, many job-seekers agree with Philip. At the same time, we read in the news that There is even a political group calling itself graduates will be having a tough time of it the "A Job Is a Right Campaign." They this year. They feel that they're caught in a believe that there ought to be a job bush, trap because they can't get a job without probably named George, from which they experience and can't get experience without should be able to pick jobs at will. a job. I've seen classified ads that require Like many other people, I've been having more years of experience in a specialty than a difficult time finding steady income have passed since it was created. This sug­ recently, and this has led me to follow job gests that it's the people with age and expe­ discussion lists on the Internet. Most people rience who have a lock on jobs. approach the situation with determination, Any given employer will have preferences. frustrated though they may be. A substantial Some want young people who are full of and noisy number, however, react to the sit­ energy and willing to put in long hours. Some uation with a victim's mindset, believing that want single employees because their health- they're entitled to work that provides the insurance costs are lower. Some want the income and satisfaction they've enjoyed in experience and stability of older, married the past. Not finding such work, they blame employees. Preferences vary from employer malicious employers and look for govern­ to employer, and tendencies vary from indus­ mental solutions to their problem—a "war try to industry. Construction companies on joblessness," as one poster put it. understandably favor young, strong, male When people are out of work, they find it employees for their sites. Domestic services easy to convince themselves that they are may favor older women, whom people feel being oppressed. After all, in a fair-minded more comfortable letting into their homes. world wouldn't someone see their obvious Every group meets disfavor some of the value and quickly hire them? This displace­ time, but being unable to find work can seem ment of blame isn't limited to the traditional like the result of the whole world's com­ victimized minorities; any group can be built bined malice. Let's imagine a typical job- up into a persecuted target when jobs are seeker; call her Jane Engineer, age 52. Her Gary McGath ([email protected]) is a freelance company laid her off eight months ago, and writer and a former editor of the Thomas Paine she hasn't found a job since. She's applied Review. for lots of positions that more or less

10 matched her abilities; she's talked with net­ forgot that being "unemployed" is actually a working groups; she's combed the library job that requires its own set of skills, which and the Internet for ideas. She's had some are quite different from those at her last pay­ interviews and has come close once or twice, ing position. She has to be a researcher. This but hasn't gotten a job offer. is a difficult task, since the Internet has cre­ She's starting to think that companies ated a vast change in research techniques won't give her an engineering position over the past ten years. She has to be a sales­ because she's a woman. Or perhaps it's person, selling her own skills to potential because she's over 50. If she's dark-skinned, buyers. She has to compete with other peo­ she may think all the jobs are going to ple who are exercising their own research whites; if she's light-skinned, she may think and sales skills. Sometimes, unfortunately, affirmative action has closed the door on people who would be excellent employees her. Maybe the businesses are hiring only once hired aren't so good at finding employ­ from within and are advertising just to taunt ers and selling their services. the unemployed. Regardless, it's obvious she No researcher is ever guaranteed to find isn't being given a chance for reasons that the necessary information, and no salesper­ have nothing to do with her merit. son is ever guaranteed a sale. It isn't research Her next thought is that the companies if you can just look something up and be which won't hire her are depriving her of her certain that you'll find what you want, due. Someone should be giving her a job. and it isn't selling if the customer is com­ After all, her engineering degree cost her pelled to buy from you. Would the "A Job Is parents a lot of money and her a lot of time a Right Campaign" people want to go shop­ and work. Since then, she's given her best ping on a car lot run by the "A Sale Is a efforts to several companies. Isn't she enti­ Right Campaign." tled to something in return? Some people would like a society in which researching jobs and selling one's The "War on Joblessness" ability was unnecessary. In their vision a wise authority would assign the right job to She starts thinking of the companies that each person. Would everyone get a fulfill­ should be hiring her as adversaries. They're ing, satisfying job in such a society? If so, withholding something that is rightfully hers. who would sweep the floors and clean the It becomes harder to continue the search, sewers? The Soviet Union gave us one since it's work that she really shouldn't have answer to this question: people would take to do. The government should be fighting a the jobs they were given. Aldous Huxley's "war on joblessness" on her behalf. It Brave New World gives us another: people should be passing laws to keep employers would be conditioned from conception to from taking anything into account except find their assigned task fulfilling and satisfy­ her qualifications. ing. But as long as people are free, working She starts to doubt whether it's worth­ to find the jobs they want must be part of while to learn new skills. What's the use if their lives. employers have already decided against her; Adversity brings out the worst in some and why should she have to, when her right people and the best in others. Some respond to a job is being denied? Her resentment to a difficult job market by improving their starts showing when she makes networking marketability in imaginative ways. Others contacts or gets the occasional call from an respond by proclaiming their entitlement employer, and interviews become rarer. and demanding that the job bush blossom Finally, perhaps, she gives up, moving in for them. Neither group is guaranteed vic­ with the kids and rationing out her savings tory, but the ones who fully accept the till Social Security starts. responsibility of trying are much more likely In going down this road, Jane Engineer to succeed. • IDEAS ON LIBERTY SEPTEMBER 2003 Neither Slavery Nor Involuntary Servitude

by Aeon J. Skoble

he title of this essay refers to two things this with dozens of officers and hundreds of that are prohibited by the Thirteenth cadets. That's not a scientific sample, but all Amendment to the U.S. Constitution. the ones I spoke to said it was their percep­ The first is no longer even controver­ tion that the dominant view favored an all- Tsial, yet the second is being suggested right volunteer force.) now by several prominent academics and, Interestingly, though, the proponents of more frighteningly, members of Congress. conscription would happily sacrifice morale Despite the successes of the all-volunteer and combat efficiency to accomplish their military currently employed by the United social goals. One argument that comes up States, we are hearing calls for a return to regularly is that expressed by Northwestern mandatory military service, also known as University sociology professor Charles conscription or the draft. This is a bad idea Moskos: that America's upper classes are whose time has not come. not adequately represented in military ser­ Actually, it will not do any good to argue vice.2 This is taken to mean, first, that the that conscription "should be" unconstitu­ "ruling elites" who make the decisions about tional based on the Thirteenth Amendment, military action are less sensitive to its human because the Supreme Court doesn't interpret costs, and therefore more likely to commit the amendment that way.1 Nevertheless, the military to unjustified actions that only conscription is bad policy for a number of advance a parochial agenda. (Oddly, independent reasons, not the least of which Moskos uses the example of Agamemnon's is its incompatibility with the principle of willingness to sacrifice his daughter Iphige- liberty. The military itself, having tried it nia to insure success against the Trojans. He both ways, strongly prefers an all-volunteer claims this is an edifying example of political force. It allows for a far greater level of pro­ leaders' willingness to accept personal sacri­ fessionalism and efficiency than the con­ fice for the sake of their ends, but it's not at script army. Also, morale is far better when all clear that the decade-long Trojan War all involved feel strongly that they are was a worthwhile endeavor.) engaged in a noble and chosen pursuit than The theory seems to be that unless I'm when they are forced to participate in an willing personally to commit to undertaking activity they would not choose. (As a profes­ the risk of doing X, it is not worth doing. sor for three years at the U.S. Military Acad­ While that has some intuitive appeal, there emy at West Point, I had occasion to discuss are many counterexamples; for instance, I Aeon Skoble ([email protected]) is a philoso­ am unwilling to work an oil rig or fly a phy professor at Bridgewater State College in plane. That's because I lack professional Massachusetts. competence in these things, just as I lack

12 It's hard to see why the right remedy for the economic coercion of some is the physical coercion of others, but addressing this argument requires further response, namely debunking the notion that volunteer soldiers are coerced in the first place.

professional competence in loading artillery must be metaphorical. What Rangel seems shells. There are many inherently dangerous to have in mind is this: jobs are scarce, so for professions, such as police work and fire- many people the military is their only fighting, which are praiseworthy occupa­ option. If they have no other choice, they are tions that some may be unwilling to do. coerced. Should there be conscription for police offi­ One fundamental flaw in this argument is cers or oil drillers to ensure that the risks of the notion that when one option appears those professions are equally shared by the more attractive than others it is tantamount "elite"? Indeed, the fact that an occupation to coercion. It is in some cases: in the classic is worthwhile yet risky is why those who "your money or your life" scenario, you would not take such a risk ought to be have an option—pay the robber or be respectful of the choices made by those who killed—but this is an instance of coercion would. In a free society, people ought to be because the robber is creating and delimiting able to choose whether to undertake a risky the set of alternatives open to you. In other profession or not. cases, this is not so. If there are two employ­ But respect for people's choices is precisely ers in a town and one pays vastly more than what vanishes in this argument. A second the other, that doesn't mean that people who implication of Moskos's observation is that choose the higher-paying job are coerced. If the "lower classes" are forced to shoulder an there are two stores in town and one offers undue proportion of the burden. This is the far lower prices, the people who shop there theme echoed in recent remarks by U.S. Rep. are not coerced. Charles Rangel, who said that people do not Coercion requires more than limited "really" volunteer—they join because they options. It requires that the set of options have no other economic opportunities.3 has been imposed by another for his own Hence, it's not really an all-volunteer mili­ ends. So if joining the Army seems to Smith tary, because the enlisted soldiers are "eco­ like a good opportunity for training and nomically coerced" into joining. It's hard to experience because there aren't other attrac­ see why the right remedy for the economic tive jobs in town, that's a good thing, not a coercion of some is the physical coercion of bad thing, for Smith. To deny this you'd others, but addressing this argument have to think either that the military is requires further response, namely, debunk­ intrinsically evil—but Moskos and Rangel ing the notion that volunteer soldiers are do not claim this—or that the benighted coerced in the first place. souls of the "lower classes" have no free will, or at least lack the capacity to choose No Coercion the best option. Coming from ostensible champions of the downtrodden, this is a It's clear that no one is literally coerced highly unflattering characterization. Isn't it into joining—that would be conscription. possible that these young men and women And since Moskos and Rangel are calling for considered the pros and cons of enlistment a return to conscription, then it follows that and, finding it a worthy endeavor, actually we do not currently have it. So the argument chose their course? 13 Ideas on Liberty • September 2003

The empirical premise, that they had no average, for black recruits slightly higher.4 other option, isn't literally true either. There To close the (small) gap, would it really be are other ways to make a living besides worth denying opportunities to some young joining the army. So the argument that people while depriving others of their lib­ they were "economically coerced" turns out erty, reducing fighting effectiveness and to be quite mistaken, both factually and morale? philosophically. Moskos and other sociologists worry that But let's say for the sake of argument that the all-volunteer force is creating a "warrior they had no choice. Why would that be a caste" that is out of touch with the values of good argument for conscription? The pres­ the rest of the country. One suspects that it ence of all those conscripts would mean even is the academic caste more than the warrior fewer job opportunities for the would-be caste that has these different values. But enlistee. It won't help to argue that he more important, as long as the military is could take the job vacated by the conscript, subordinate to civilian power, who cares since that might have been a job requiring what its values are? There's no evidence of specialized training or skills that, according mad Strangelovian generals running amok. to the hypothesis, the would-be enlistee American military policy, for better or would lack. So the software firm loses a worse, remains the province of the civilian programmer to the army, which gets an government. The continuity of service unwilling and resentful soldier, while the among those who have chosen to spend their fellow who wanted to be a soldier goes on lives in the military produces greater effi­ unemployment. ciency. And of course, many of the recruits Moskos is concerned about will do their two or four years and then enter the civilian job Lacking Logic force. The complete illogic of conscription is But wouldn't conscription foster greater thus made evident: people who would respect across the board for service? If any­ choose to be doing a particular job are thing, physically compelling an unwilling denied the opportunity to do so in order that person to participate in an activity he would the state can compel someone who is unwill­ not have otherwise chosen would have the ing to do it. But according to Moskos and opposite effect, fostering resentment. Surely Rangel, this is justified by the greater social a better way to generate respect is to show goals of making the military more represen­ respect for the choices made by those who tative. But even the New York Times recog­ serve. • nizes that the military does demographically 1. Butler v. Berry, 240 U.S. 328 (1916) and Arver v. United represent working-class America reasonably States, 245 U.S. 366 (1918). closely. The military is 63 percent white; 2. For example, see David M. Halbfinger and Steven A. Holmes, "Makeup of the Military Now Mirrors a Working- civilian population is 70 percent white. Class America," New York Times, March 30, 2003. Median household incomes for white 3. See Steven A. Holmes, "Is This Really an All-Volunteer Army?" New York Times, April 6, 2003. recruits is slightly lower than the national 4. See Halbfinger and Holmes, and ibid.

14 Thoughts on Freedom by Donald J. Boudreaux IDEAS ON LIBERTY SEPTEMBER 2003

Butwhatabout... ?

y Virginia license plate, adorning nate and often devastating experience. I truly both bumpers of my Japanese car, pity workers who, through no fault of their reads FRE TRDE. I always men­ own, find themselves unemployed. Then I tion this to audiences so they know ask, "But what about the worker who loses exactly where I stand on the question of how his job to protectionism? How do you justify free consumers should be to spend their high tariffs and import restrictions to him?" incomes on foreigners' goods and services. You see, it's a common mistake of free-trade I am proudly, completely, confidently, and skeptics to overlook the fact that protection­ unconditionally a free trader. I find none of ism inevitably causes some workers to lose the many "butwhatabouts" to be effective jobs. arguments against free trade. When government imposes a tariff or What, you ask, is a butwhatabout? A but­ import restraint on, say, Americans who whatabout is the most common response of seek to purchase foreign steel, one object of a free-trade skeptic, issued in the form of a this policy is to protect jobs in the U.S. steel supposedly killer question—as in "But what industry. And, indeed, by making it more about the trade deficit?" or "But what about costly for American consumers to buy for­ the fact that many foreign workers are paid eign steel, government artificially props up a mere fraction of what Americans earn?" demand for American steel and thus keeps Butwhatabouts are bountiful and varied. some workers employed in steel plants who But the most frequent butwhatabout is this: would otherwise lose their jobs. "But what about the worker who loses his But by artificially reducing American pur­ job to foreign competition? How do you jus­ chases of foreign steel, protectionism also tify free trade to him?" The suggestion is reduces the number of dollars that foreign that free trade is inappropriate for real- steel producers receive. With fewer dollars to world policy if its advocates cannot satisfac­ spend, foreigners must reduce the amount of torily justify their case to workers rendered goods and services that they purchase from unemployed by foreign trade. American producers—say, from U.S. lumber Because I encounter this particular but­ suppliers and software firms. Also, because whatabout so often, I know that it's one Americans are forced by protectionism to whose answer matters and hence one that pay more for steel, they must spend less on should be rebutted with care. other goods and services, many of which are I begin my answer by expressing sincere produced domestically. recognition that losing a job is an unfortu- Employment in these domestic industries falls. Some American workers who would Donald Boudreaux ([email protected]) is chair­ have kept their jobs in the absence of the man of the economics department of George steel tariffs are, through no fault of their Mason University and former president of FEE. own, thrown into unemployment. So it is no

15 Ideas on Liberty • September 2003 argument against free trade to point out that more highly paid than jobs maintained by it eliminates the jobs of some domestic protectionism. workers. Preventing free trade—protection­ Protectionism protects jobs that are com­ ism—has the same effect. paratively inefficient; it eliminates jobs While no essential differences distinguish that are comparatively efficient. This is workers who lose jobs as a consequence of hardly a means of fostering a strong domes­ free trade from workers who lose jobs as a tic economy. consequence of protectionism (hence making invalid the argument that free trade is cruel Consumers Eliminate Jobs or otherwise suspect because it causes some particular job losses), there are at least two But an even more fundamental response to differences that distinguish the jobs elimi­ the butwhatabout-the-unemployed-worker nated by free trade from those eliminated by question is pertinent—namely, that free protectionism. These differences are worker trade is not unique in causing some jobs to productivity and wages. disappear while causing others to arise. Any Workers in protected industries are less substantial change in consumer spending or productive than workers in industries that savings will eliminate some jobs and create survive without protection. The reasons are others. two. First, shielding a firm from competition For example, if changing tastes prompt weakens its incentives to increase efficiency. consumers to spend more time working Second and more important, firms that enjoy out in gyms and less time bowling, some a comparative advantage over foreign com­ bowling-alley employees will lose their jobs. petitors do not need protection from Some might remain painfully unemployed imports. So the industries and firms that seek for a long time. Butwhatabout them? Do protection typically are those that do not those of us who support consumer freedom enjoy a comparative advantage in producing have the burden of persuading unemployed the things they will produce behind the tariff bowling-alley workers that such freedom is wall. These firms are among the country's desirable? Does the fact that nearly all least-efficient producers. changes in consumer spending will destroy Being among the country's least-efficient some particular jobs mean that government producers means that the per-worker output should consider freezing consumer spending of protected firms is generally lower than in place now and forever? the per-worker output of firms that are effi­ Of course not. cient enough to survive market competition Whenever government intervention is without protection. Therefore, competitive proposed, it is imperative to avoid being wages in protected industries generally are misled by superficial facts. No fact about lower than competitive wages earned by voluntary exchange is more superficial than equally skilled domestic workers whose the particular piece of geography in which a jobs depend on free trade. In short, jobs seller happens to be situated—no ifs, ands, made possible by free trade generally are or butwhatabouts. •

16 ONIDEA LIBERTS Y SEPTEMBER 2003

Money Talks? by Gene Callahan

hen discussing business dealings, chickens a moment later? Indeed, if the phrase "Money talks!" often exchanges took place when the goods were comes up. A similar aphorism is, valued equally, why wouldn't the parties W "He who pays the piper calls the trade back and forth forever? tune." The idea behind such sayings is that a Clearly, if Joe trades one of his pigs for person who is paying money is the superior three of Mary's chickens, he must value of the person receiving the money. The payer three chickens more than he does one of his gets to determine the nature of the relation­ pigs, or he wouldn't bother exchanging. Sim­ ship, while the payee can either conform or ilarly, Mary must value a pig more than she trade somewhere else. does three of her chickens. In other words, On its surface, this seems to be a "capital­ exchanges take place only when the parties ist" way of looking at things. After all, what don't value the goods exchanged equally. could be more market-oriented than the Each party values the goods he receives more payer's getting what he wants for his than the goods he gives up. money? When we apply this insight to an I believe that such a view is fundamen­ exchange involving money, we can begin to tally flawed. It obscures the most impor­ see the problem with the idea that "money tant aspect of market exchanges, and talks." It is true that the laborer must value foments resentment against the market the wage he receives more than the time and where it needn't arise. effort he gives up to earn it, or he wouldn't To understand why, we must return to the bother working. But it is equally true that roots of the marginalist revolution that the employer must value the labor he swept economics 130 years ago. In 1871 the receives more than the money he gives up to Austrian economist Carl Menger pointed buy that labor, or he wouldn't bother hiring. out in Principles of Economics that parties Both parties are giving up something they to exchange cannot value the traded goods value less in order to receive something they equally. After all, Menger asked, if they do value more. Or, as we might put it more col­ so, why wouldn't they immediately trade the loquially, no one is doing anybody else a goods back? If Joe values a pig as equal to favor. three chickens when he trades his pig for The person offering money for labor is three of Mary's chickens, why wouldn't he hoping to gain something, every bit as much take the pig back in exchange for the three as the one who offers labor for money. Nei­ ther is the other's benefactor, and neither Gene Callahan ([email protected]) is the author has an intrinsically superior position in the of Economics for Real People (Mises Institute). transaction.

17 Ideas on Liberty • September 2003

The factory worker might find himself it. With Michelangelo, the independent artist desperate for a job so that he doesn't lose his had fully arrived. As Cowen says, "Cus­ house. But the factory owner might find tomers paid fantastic fees for the privilege of himself desperate for workers so that he hiring Italy's most famous artist."1 Even doesn't lose his factory. In fact, in modern Pope Julius II, "one of the most powerful economies almost everyone both offers men of the sixteenth century," could not goods and services for money, and money force Michelangelo to compromise his artis­ for goods and services. tic standards. When the Pope did not supply I worked for a time at Stew Leonard's in the building materials Michelangelo Norwalk, Connecticut, a business that expected for a commission, Michelangelo gained renown as "the world's largest dairy walked out on him and returned to Florence. store." Stew's successful operation was stud­ "It was the Pope who made concessions to ied by businessmen from as far away as Michelangelo to ensure his return to the pro­ Japan. His motto was, "The customer is ject," Cowen writes.2 always right." A customer could return only Cowen points out that such behavior the bone from a large roast, claim that the "does not contradict the economist's notion roast didn't taste right, and receive a refund. of 'consumer sovereignty,' properly inter­ Stew always believed that he would get more preted; rather, the artist himself is also a business from the customer in the long run consumer bidding for his own time. If the by fulfilling a bogus refund request than by artist prefers to satisfy his own tastes rather turning the customer down. If someone's than to receive more money from buyers, goal is to maximize his monetary profits, that also represents satisfaction of a market that's not a bad way to do business. demand—the artist's."3 On the other hand, a businessman could The idea that the person offering money in also choose to operate like the Soup Nazi on an exchange is superior to the person offer­ "Seinfeld." That character knew he had the ing other goods is a vestige of an antiquated, best soups in Manhattan. He also felt he was status-based way of viewing social relation­ an artist when it came to creating soups. If a ships. During the Middle Ages, as Princeton customer didn't feel like playing by his historian Theodore Rabb says, "one's social rules—for instance, if the customer asked standing relative to others was determined, about the ingredients in a soup—he would at birth, by a web of rights and obligations throw the customer out of the store. There is that depended on land and its products."4 nothing "irrational" or "non-economic" In feudal society it was usually the landed about such behavior. The Soup Nazi had nobility who employed others. The employed decided he would sacrifice some potential were regarded as their social inferiors. As a monetary gain in exchange for an increase in result, the role of a person hiring another for his artistic freedom. money was usually seen as socially superior to the role of the person hired. Renaissance Advance However, in certain cases the person receiving money might have had a higher George Mason University economist Tyler status than the person paying him. The con­ Cowen, in his book In Praise of Commercial tinuing effect of such a status-based view is Culture, notes that just such a decision apparent when we consider professions marked a great advance in artistic freedom where, unlike at Stew Leonard's, "the cus­ during the Renaissance. Throughout the tomer is often wrong." We might include Middle Ages artists had been subservient to college professors, lawyers, doctors, and their patrons, executing works in whatever skilled tradesmen in such a list. All of those manner the patron wanted them. But during professions had a status above that of an the Renaissance, artists began to have their "ordinary" laborer or peasant. To this day, own ideas about what work they were will­ none of those professions treat the customer ing to do and just how they would perform in the same fashion as, for example, a typi-

18 Money Talks? cal supermarket or restaurant does. Doctors damaging to the case for the market econ­ give their customers (patients) orders about omy. It fuels Marxist claims of exploitation how to conduct their lives and make them sit and breeds resentment among people who for 45 minutes in a waiting room. College find themselves considered "inferiors" professors do not ask students what they because they exchange their labor for want to learn, but tell them what they must money. learn. Unlike at most stores, where the It is true that in the market economy employees must park in special areas far "money talks." But so do labor, oil paint­ from the entrance, saving the best spots for ings, heads of cattle, and every other good the customers, professors typically get the offered for exchange. AH offers are attempts best parking spots at college campuses. The to persuade another to trade. We all create difficulty of getting a skilled carpenter or the "economic pie," and we are only "enti­ plumber to show up for appointments is leg­ tled" to those portions of it that we have endary. These examples demonstrate that it made ourselves or that we have persuaded is not the mere fact of being paid that makes others to voluntarily exchange with us. Once the difference, but is instead the status we recognize that, we'll see that we're all in attached to an economic role. this together. •

1. Tyler Cowen, In Praise of Commercial Culture (Cam­ Claims of Exploitation bridge, Mass.: Harvard University Press, 1998), p. 93. 2. Ibid., p. 94. The lingering belief that the person offer­ 3. Ibid., p. 90. ing money in an exchange is somehow supe­ 4. Theodore K. Rabb, Origins of the Modern West: Essays and Sources in Renaissance and Early Modern European His­ rior to the person offering other goods is tory (New York: McGraw-Hill, Inc., 1993), p. 163.

You are cordially invited to join us for our monthly Evenings at FEE 30 South Broadway Irvington-on-Hudson, New York Saturday, October 11, 2003, 8 p.m. Fred L. Smith, Jr. "Protecting the Planet as if Man Mattered"

red L. Smith, Jr., is the founder and president of the Competitive Enterprise Insti­ Ftute (CEI), a public-interest group dedicated to free enterprise and limited govern­ ment, and active in a wide range of economic and environmental policy issues. Based in Washington, D.C., CEI works to educate the American people on market-based alternatives to regulation ranging from antitrust, energy, and environmental protec­ tion to property rights and economic liberty. and Friday, November 14, 2003, 8 p.m. Richard M. Ebeling, President of FEE, "What It Means to Be an American: Let Freedom Reign" A wine-and-cheese reception follows each event. RSVP: [email protected], or call (914) 591-7230

19 DEAS ON LIBERTY SEPTEMBER 2003

Regulatory Roadblocks to Turning Waste to Wealth

by Pierre Desrochers

he small industrial town of Kalund- trict heating system serving 3,500 homes, borg, located 75 miles from Copen­ and the Novo Nordisk plant. Sludge from hagen, shouldn't be on the radar screen the fish farm and pharmaceutical processes of most visitors to Denmark. It has became fertilizer for nearby farms. Surplus Tnonetheless become something of a Mecca yeast from the biotechnology plant's produc­ for "sustainable development" theorists the tion of insulin was shipped to farmers for pig world over. food. The fly ash from the power plant was Kalundborg's main attraction, apart from sent to a cement company, while gypsum its twelfth-century cathedral, is a network of produced by the power plant's desulfuriza- recycling linkages that have developed over tion process went to the Gyproc gypsum- the last three decades between four large wallboard plant. The amounts of avoided industrial plants, the municipality, and a few wastes were significant, including 200,000 smaller businesses. This "Industrial Symbio­ tons of fly ash and 130,000 tons of carbon sis," as it is now known, originally com­ dioxide, while Asnses saved up to 30,000 prised five core partners: an Asnass power tons of coal a year. While most of these station (Denmark's largest), a Statoil refinery linkages are still functional, a few were (Denmark's largest), a Gyproc plasterboard abandoned and new ones have since been factory, Novo Nordisk's largest pharmaceu­ created.1 (See diagram.) tical and industrial-enzymes plant (which produces, among other things, 40 percent of A Spontaneous Phenomenon the world's supply of insulin), and the City of Kalundborg. By all accounts the Kalundborg industrial Beginning in the 1970s a series of deals symbiosis was not designed by consultants between these otherwise independent entities or financed by Danish government officials, gave rise to various recycling linkages. For but rather was the result of several distinct example, a few years ago, the Asnses station bilateral deals between company employees supplied residual steam from its coal-fired seeking, on the one hand, to reduce waste- power plant to the Statoil refinery in treatment and disposal costs, and, on the exchange for refinery gas that was formerly other, to gain access to cheaper materials flared as waste. The power plant burned the and energy while generating income from refinery gas to generate electricity and steam, production residue. Indeed, it was only in and sent its excess steam to a fish farm, a dis- the late 1980s that the various participants in the symbiosis first recognized the environ­ Pierre Desrochers ([email protected]) is a pro­ mental implications of the partnerships and fessor of geography at the University of Toronto. exchanges that had evolved since the early

20 ^ CRUDE OILy. Kemira STATOIL REFINERY HDS (Sulfuric acid production)

\ Hydro- Desulfunzer

Steam CITY OF KALUNDBORG Water to Boilers Gypsum from Germany &Spain

Aalborg Portland A/S

— — — Proposed

Core ParS ci part Kalundborg Industrial Symbiosis - 1995 Drawn by D. B. Holmes based on information from various sources, including L.K. Evans, N. Gertler, and Y. Christensen

Source: www.indigodev.com/Kal.html

1970s. There remains to date no higher level not evolve with any academic knowledge of of organization managing this interaction. scientific environmental network theories, Jorgen Christensen, a spokesperson for but as good and economical management Novo Nordisk, was explicit on this point practice. All projects required investments when asked to describe how people in and resulted in revenues or savings for the Kalundborg had "designed" their recycling parties involved."2 linkages: "We didn't design the whole thing. The story of the Kalundborg industrial It wasn't designed at all. It happened over symbiosis is interesting on at least two time." counts. First, it illustrates how localized Henning Grann, a Statoil employee, re­ inter-industry recycling linkages have spon­ inforced this view a few years later: "The taneously developed, most of all because symbiosis project is originally not the result they made good business sense.3 Second, it of a careful environmental planning process. shows how modern environmental regula­ It is rather the result of a gradual develop­ tions, hailed by many as the main rea­ ment of co-operation between four neighbor­ son why the environment has improved ing industries and the Kalundborg municipal­ recently, have actually turned out to be quite ity." Erling Pedersen, CEO of the Industrial unproductive. Development Council in the Kalundborg region, concurred with this evaluation when Why Kalundborg Would Have Never he wrote in 1999 that the industrial symbio­ Emerged in America sis "was not a planned network, but a series of projects initially quite independent from Traditionally, dangerous pollution prob­ one another. There was no original joint lems in English-speaking countries were han­ management, but rather bilateral agreements dled through the common-law doctrines of between independent partners." Most inter­ negligence, trespass, nuisance, and strict esting is his statement that "the network did liability. Liability was thus imposed when-

21 Ideas on Liberty • September 2003 ever harm resulting from a pollutant could more than 90 days. In the Danish case, the be demonstrated with scientific evidence. possibility of a longer storage period made Such a system mandated no specific conduct, the project economically viable. but allowed private parties both to recover The flexibility of Denmark's approach to monetary damages for harm caused and an environmental matters, coupled with the injunction against offenders who did not or Danish Environment Ministry's encourage­ could not reduce emissions to a nonharmful ment regarding the use of all waste streams level.4 on a case-by-case basis, allows firms to focus In the last three decades, however, this on finding creative ways to become more legal approach to industrial pollution has environmentally benign instead of fighting given way to a regulatory system that sets the regulator. As a result, they can use and enforces specific standards of conduct byproducts as inputs rather than "virgin" (typically dubbed "command and control"). materials that are often virtually identical in Despite somewhat catchy names, such as the chemical composition. Resource Conservation and Recovery Act, There have probably always been two modern American environmental regula­ views of industrial byproducts. One consid­ tions that deal with industrial waste have ers residuals to be health and environmental been built on the view that byproducts are a hazards, urging people to take every step to nuisance to be destroyed rather than poten­ protect both humans and the natural envi­ tially useful resources. The result is that ronment against them. The obvious solution many environmental statutes typically to pollution problems then lies in reducing define pollution prevention in a way that production and in destroying waste. The excludes recycling and reclamation, while second approach considers residuals as instituting pervasive biases against techno­ potential resources from which marketable logical innovation. The result, not surpris­ products can eventually be derived. ingly, is that creating wealth out of indus­ Past experience and current regulatory trial waste is now much more difficult than problems suggest that the second approach it was in the past. is both more sensible and economical. Kalundborg provides an interesting lesson Perhaps, then, the development of an insti­ in this respect. As many commentators have tutional framework that requires firms to pointed out, the flexibility of the Danish reg­ prevent pollution, but leaves them free ulatory framework made possible events to develop new and profitable uses for that would have been prohibited in America. byproducts, is the real road to sustainable For example, the flue gas that Statoil pipes to development. • Gyproc and the liquid sulfur that Statoil sells to Kemira probably would not have been 1. For a concise and updated introduction to the Kalundborg Industrial Symbiosis, see www.symbiosis.dk/. approved in the United States because both 2. For the sources of these various quotes, see Pierre substances would be classified as "hazardous Desrochers, "Cities and Industrial Symbiosis: Some Historical Perspectives and Policy Implications," Journal of Industrial waste." Furthermore, the new resources cre­ Ecology, Fall 2001, pp.'29-44. ated from these byproducts would also have 3. Since Kalundborg first began to draw interest on these issues, similar industrial symbiosis has been "discovered" in, been treated as hazardous under the so- among other places, Austria, Germany, Finland, and various called "mixture and derive from" rule, American and European petrochemical complexes. My research suggests that similar cases were probably very common which classifies as "waste" new products throughout history. See my "Cities and Industrial Symbiosis" that incorporate industrial waste. Also, the and "Regional Development and Inter-Industry Recycling Link­ ages: Some Historical Perspective," Entreprcneurship and movement of sulfur from Statoil to Kemira Regional Development, January 2002, pp. 49-65, for a more and of scrubber-ash gypsum from Asnass detailed discussion of these other cases. 4. For a brief introduction to the topic and further refer­ to Gyproc would have violated a 90-day- ences, see Pierre Desrochers, "Industrial Ecology and the Redis­ storage rule, which, as its name implies, pre­ covery of Inter-Firm Recycling Linkages: Some Historical Per­ spective and Policy Implications," Industrial and Corporate vents the accumulation of such material for Change, November 2002, pp. 1031-57.

22 Peripatetics by Sheldon Richman IDEAS ON LIBERTY SEPTEMBER 2003

To the Medical Socialists of All Parties

ritish Prime Minister Tony Blair's was saving his money. And, as if by an invis­ Labour Party created a small furor in ible hand, he also saved electricity and coal, Great Britain recently when its although it was no part of his intention. National Policy Forum issued a paper Things don't work quite so smoothly with Bsuggesting changes that might be made in things like the National Health Service. For the National Health Service (NHS) if the a reason that mystifies British officials, party holds power. The paper, "Improving Britons don't exercise the responsibility my Health and Social Care," covers a lot of father demonstrated when using medical ground, but the item that seems to have got­ services. It hasn't occurred to the officials ten the most attention is the part about the that the services are underpriced—at responsibilities of patients. approximately zero. Well, if people won't "When it comes to the health service behave responsibly on their own initiative, patients will be able to expect greater responsibility might have to be imposed on rights—increased choice, faster service, them. higher standards of care," the report states. The report continues: "It may be the case "But they must also recognise the duty they that this could mean formalising the rela­ owe in return." It goes on: "The concept of tionship between doctor and patient, reminding patients about the limits of the between the NHS and those in the commu­ National Health Service and about their nities it serves. There may be other options responsibility in using its resources sensibly, but this is one way forward that would is one we want to take forward." underline our vision of a society where our This sounds ominous already. All duty, collectively, is to provide for all and resources are limited—otherwise they are our duty, individually, is to show responsi­ not resources. The idea that people have a bility to all." responsibility to use resources "sensibly" Again, ominous. Formalizing their rela­ may sound unobjectionable. In a regime of tionship is something doctors and patients liberty, that's not a problem. People take are capable of doing if they wish—as long as responsibility for their own resources freedom of contract is respected and the because they pay the full price of their patient is paying his own way. Neither of actions. When I was a boy my father went these conditions holds when the government around the house turning lights off in vacant taxes the patients and employs the doctors. rooms, booming, "Who left all these lights What can be done then? on?" (This acorn did not fall far from the "Not only could this new agreement tree.) Was he a conservationist? In a way: he [responsibility in return for "rights"] set out clearly the standard of care the patient can Sheldon Richman ([email protected]) is editor of expect to receive," the report states, "but it Ideas on Liberty. would also remind the patient of the recip-

23 Ideas on Liberty • September 2003 rocal nature of their relationship with their ple's behavior can invite illness. But unless doctor. . . . Agreements could be drawn up the society is free they don't pay the full to help people cut down or quit smoking, to costs of their actions. Freedom teaches lose weight, to take more exercise or to eat a responsibility. more nutritious diet. The agreement . . . A Conservative party leader, Dr. Liam could . . . bind the patient into honouring Fox, who serves as shadow health secretary, their duty to the health service, putting the said: "This is yet further interference by the relationship onto a statutory footing." government in how health professionals The authors hasten to add that the agree­ should treat their patients." He also missed ment would not be "legally binding. [Rather the point. it] could take the form of a joint statement of No one quoted by the Guardian said any­ 'mutual intent.' The idea being not to thing like what the U.S. Supreme Court said exclude patients from care but to remind in the 1941 Wickard v. Filburn case: "It is them of the need to use the health service— hardly lack of due process for the Govern­ a free yet finite service—responsibly." (Empha­ ment to regulate that which it subsidizes." In sis added.) Just the same, that term "statu­ other words, if the government is going to tory footing" would make me nervous. provide a service, it will automatically have What would happen if an overweight patient the power to attach conditions. It's only a did not follow his doctor's orders to slim question of when. down or if a smoker refused to quit? Today Since medical services are not found in the Labour moguls say those recalcitrant nature but rather are products of human patients would not be denied medical ser­ effort, there can be no right to them, morally vices. But what about tomorrow, when or existentially. The "right to medical care" patients haven't shown the proper sense of is merely a rhetorical cover for the power of responsibility and the NHS budget is government to control those services. Gov­ strained? ernment can tax everyone to provide "free" services, but the laws of human action will still operate, and no one should be surprised Missing the Point when the state demands certain behavior in According to the Guardian newspaper in return. This is sure to happen as the "free" England, this proposal is not going over well services are overconsumed to where people with everyone. Claire Rayner, president of have to wait a year or more for heart the Patients' Association, condemned it as surgery. "oppressive and obscene ... a nasty middle We on this side of the Atlantic should not class document." "She said the implication of feel superior when observing what's going the plan was to blame people for their own on in Britain, for we are heading down the poor health and suggest that they would have same path. Who among major policymakers to pay more for healthcare because they had and pundits stands for a real free market in brought their illness on themselves." medical care and retrenchment by the gov­ The newspaper also quotes Geof Rayner ernment? I am reminded of F. A. Hayek's (possibly related to Claire Rayner), chair­ dedication in The Road to Serfdom: "To the man of the UK Public Health Association, socialists of all parties." What passes for who said, "We've got to get away from indi­ free-market medical thinking in establish­ vidualising poor health. You don't explain ment circles is merely government manipula­ the rise of diabetes by individual lifestyle tion of nominally private providers—in choices." other words, fascism. Let's not forget that This is not entirely correct, of course. Peo­ fascism was just a form of socialism. •

24 IDEAS ON LIBERTY SEPTEMBER 2003

The Real Population Problem

by Jim Peron

ccording to one department of the UNPD, the figure for 2003 is 6.3 billion, 1.2 United Nations, some 400 million billion below 1969 projections. people have vanished. This wasn't a Using its medium projection, the UN also spate of alien abductions. Instead the estimates that by 2050 some 75 percent of AUN's Population Division (UNPD) lowered the least-developed countries in the world its projected world population figure for will have birth rates below replacement lev­ 2050 by 403 million. This revision is from els. In these regions the total numbers of the projection of just two years ago. The births per woman have been cut in half in agency now concedes that the 2050 world the last 50 years. More important, much of population will fall below 9 billion. that drop was in the last ten years. The UN has been making such projections For some years we "population optimists" for about 50 years. Generally, the projec­ have been arguing with the environmental tions seem to err on the high side—hence the pessimists that the overpopulation problem need for reductions. The UN now says the was illusionary. There was a population population in 2050 will be 8.9 billion. But problem, but not the one for which everyone this is its "medium variation" projection, was planning: children and working-age which has always been a tad high. The individuals, as a percentage of the popula­ "low" projection usually misses the mark as tion, would be dropping steadily as the well, with the real number being somewhere world's population aged faster than at any in between. If the agency's record remains time in history. The cause of this is easy to consistent, the actual figure will be between understand: the number of infants born is 8 billion and 8.5 billion. decreasing every year, while life spans con­ This is significantly below previous projec­ tinue to grow because human existence has tions, which were grabbed onto by various improved so much. Thus higher percentages environmental groups to promote their of the population are elderly. agenda. The U.S. Department of State in The most recent UN numbers verify the 1969 said the world would have a popula­ case of the optimists once again. The average tion of 7.5 billion by 2000. This reflected life expectancy in the world is now at 64.6 UN projections of the day. According to the years. But by 2050 the UN estimates it will rise to 74.3 years.1 During that same period the average number of children born per Jim Peron ([email protected]) is the executive woman will decline from 2.83 to 2.02. Pop­ director of the Institute for Liberal Studies 2 (www.liberalvalues.org.nz) in Auckland, New ulation stability requires a rate of 2.1. Zealand, and the editor of The Liberal Tide: From Currently some 63 nations have birth Tyranny to Liberty. rates low enough to lose population.3 By

25 Ideas on Liberty • September 2003

Many welfare policies were created during the baby boom and are built on the premise that workers will always exceed beneficiaries. But today's demographics make it clear that these schemes can't work much longer.

2015 the UN estimates that 82 nations will Welfare State Problems fall below replacement level. And by 2050 it estimates that 156 nations will be below What is even more troublesome is that replacement, with another ten on the edge. these trends are most pronounced in the wel­ Only 23 countries will have fertility rates fare states. Sweden will see its elderly (60- over 2.5. plus) increase from the current 22 percent of The only reason that world population the population to 33 percent, while the per­ will still grow in 2050, in spite of declining centage of children (up to 14) will be just birth rates, is that so many people will be over 15 percent. Just 51 percent of the 2050 living longer. Longer life spans, not high population will be of working age (15-59), birth rates, have been the main reason for and many will not be employed. A minority the world's population explosion over the of the population (subtracting the unem­ last 50 years. But the population explosion ployed) will be trying to support a majority.8 that began in 1950 will flicker out by 2050, In the United Kingdom the percentage of with world population figures going into elderly will increase from 21 percent to 30 decline. percent.9 In Slovenia only 45.6 percent of This huge drop in birth rates, coupled the population will be of working age. The with longer life spans, spells disaster for the rest will either be elderly or children.10 In welfare states of the world, especially for New Zealand the over-60 crowd will almost programs that support the elderly. These double—from 15.7 percent to 29 percent. programs rely on people of working age to Children under 15 will comprise just 16.3 pay in while the elderly collect. But if the percent.11 number of workers declines, while the num­ Add in all the various recipients of gov­ ber of recipients continues to increase, disas­ ernment largess, and a growing majority of ter looms. people will be sustained by a shrinking In 2000 the world had 606 million people minority. The burden on young workers will over the age of 60. By 2050 this figure is esti­ have to increase substantially just to sustain mated to grow to 1.9 billion.4 More incredi­ the current system. Clearly that can't work. ble is the projected increase for those who When we look at the percentage of chil­ live past 80 years. In 2000 there were 69 mil­ dren in each country, it quickly becomes lion such people worldwide; by 2050 this apparent that the problem will get much will increase to 377 million.5 Living to 100 worse. What problems these programs face was once an anomaly. In 2000, just 167,000 in 2050 will be nothing compared to those people worldwide accomplished that feat. By which will arise in the years after. The 2050 it is estimated there will be 3.3 million UNDP projects that the percentage of chil­ people over the age of 100. Projections show dren will drop from 30.1 percent in 2000 to that the United States will have 471,000 cen­ 20.1 percent by 2050.12 This will happen tenarians by 2050, exceeded only by Japan, even though infant mortality has plunged which will have over 1 million.6 Those over dramatically and will continue to do so. The 80 in the United States will total more than 1995-2000 infant-mortality rate worldwide 29 million.7 was 60.9 children per 1,000 live births. The

26 The Real Population Problem

UN projects that by 2050 this will drop to welfare states are, show that the working- 21.5.13 age group will see its numbers shrink by Many welfare policies were created during 0.32 percent per year. In the same countries, the baby boom and are built on the premise however, those over 60 will see their num­ that workers will always exceed beneficia­ bers grow by 2.29 percent per year and those ries. But today's demographics make it clear over 80 will grow by 3.39 percent.15 that these schemes can't work much longer. Political attempts to counteract these While it is true that over a dozen nations trends will consist of short-term fixes. The today have large numbers of children (that problem, however, is long term and increas­ is, future workers), these are almost all in ing, and there is no reason to expect things Africa and none of these nations are welfare to change dramatically. If anything, birth states. By 2050 some 22 nations, most of rates may be overestimated, compounding them welfare states, will have a minority of the problem. workers. These nations include Austria, Only short-sighted political agendas pre­ Czech Republic, Italy, Japan, Greece, Esto­ vent governments from grappling with this nia, Russia, Spain, and Switzerland. Another demographic disaster. But the aversion to 19 will have working-age populations above facing facts will become increasingly difficult 50 percent but below 53 percent, including with each passing year. Private alternatives Finland, France, Germany, and Sweden. will have to be more seriously considered if The UN report notes: "Europe is the the workers of today are to be able to look major area of the world where population after themselves when they grow old. Reality ageing is most advanced. The proportion of can only be faked for so long. • children is projected to decline from 17 per 1. United Nations Population Division, "World Population cent in 2000 to 15 per cent in 2050, while Prospects: The 2002 Revision, Annex Tables," www.un.org/esa/ the proportion of older persons will increase population/publications/wpp2002/wpp2002annextables.PDF, p. 41. from 20 per cent in 2000 to 35 per cent in 2. Ibid., p. 36. 2050. By then, there will be 2.4 older 3. Calculations such as this, unless otherwise stated, are made from the data provided in ibid, and are gleaned from persons for every child and more than one in numerous pages throughout this section. every three persons will be aged 60 years or 4. UN Population Division, "World Population Prospects: The 2002 Revision, Highlights," February 26, 2003, www.un. over. As a result, the median age will rise org/esa/population/publications/wpp2002/WPP2002- from 37.7 years in 2000 to 47.7 in 2050."14 HIGHLIGHTSrevl.PDF, p. 16. 5. Ibid. Like a pyramid scheme, in a welfare state 6. Ibid., p. 17. the number of payers has to grow faster than 7. Ibid. 8. Annex Tables, p. 61. the number of recipients. As long as that 9. Ibid. happens the illusion that the system works 10. Ibid., p. 60. 11. Ibid. can be maintained. But current trends indi­ 12. Ibid., p. 57. cate that the opposite is happening. UN pro­ 13. Ibid., p. 46. 14. Ibid. p. 16. jections for the developed world, where most 15. Highlights, p. 17.

27 IDEAS ON LIBERTY SEPTEMBER 2003 Government-Reformulated Gas: Bad in More Ways than One by Michael Heberling

he amended Clean Air Act (CAA) of tertiary butyl ether (MTBE). Because these 1990 called for cleaner automobile- additives are not pure oxygen, the amount engine combustion and a reduction in needed to meet the required oxygen content tailpipe emissions. To meet these goals, is significant. For example, since MTBE is Tthe Environmental Protection Agency (EPA) only 19 percent oxygen, RFG made with this directed the petroleum industry to modify oxygenate additive must contain at least 11 the composition of gasoline to comply with percent MTBE.2 the "Oxygenated" and "Reformulated" For environmentalists ethanol presents a Gasoline (RFG) Programs. While only those dilemma. On the plus side it is a renewable parts of the country with the most severe energy source. On the minus side it is highly pollution (high ozone or carbon monoxide "volatile." (It evaporates far more rapidly levels) would be required to participate in than gasoline.) In the summer the evapora­ the programs, many city, county, and state tive emissions of ethanol before combustion governments in less-polluted areas volun­ are a major contributor to smog. This serves teered their citizens to participate as well. to negate the advertised benefit of reduced The transition to the new environmentally tailpipe emissions.3 It is therefore not sur­ friendly gasoline began in 1992. These pro­ prising that advocates of ethanol only want grams would eventually affect over 100 mil­ us to look at what happens during and after lion people in 19 states and the District of combustion. To offset this problem, ethanol Columbia. Today, over 30 percent of the needs to be blended with a more expensive, gasoline sold in the United States is RFG.1 lower-volatility gasoline that is not readily The EPA requires the new reformulated available in the market.4 To make the situa­ gasoline to have an oxygen content of just tion worse, the ethanol separates from the over 2 percent to help the gasoline burn gasoline if it is transported by pipeline over cleaner. The two primary oxygenate addi­ any significant distance. Because of this dis­ tives are ethanol (corn alcohol) and methyl tribution problem, ethanol needs to be mixed with non-oxygenated gasoline as Michael Heberling ([email protected]) is pres­ close to the final market as possible.5 ident of the Baker College Center for Graduate Studies in Flint, Michigan. He is also on the board Given all these inherent problems (envi­ of scholars of the Mackinac Center for Public Pol­ ronmental, cost, and logistical), ethanol is icy in Midland, Michigan. extremely fortunate to have very strong sup-

28 port from the "Big Corn" lobby. This is a both by location and season, the logistics of coalition of Midwest politicians, big agricul­ fuel distribution have become a nightmare ture, and such agri-business firms as Archer for the petroleum industry. Daniels Midland. Ethanol is exempt from Unfortunately for the consumer, multiple federal excise taxes. flavors of gas are not interchangeable. If one MTBE is derived from natural gas. It has part of the country is running low on "rocky been used since the late 1970s in low con­ road" gas, you cannot divert surplus "butter centrations as an octane booster. This coin­ pecan." Thus it should not be surprising cided with the phase-out of lead in gasoline. that since the implementation of the RGP Compared to ethanol, MTBE is far less there have been many shortages (with expensive and it can be more easily added accompanying price spikes) in certain parts during the refining process. For these rea­ of the country. sons, MTBE is used in over 87 percent of the As if on cue, the media responded with a reformulated gasolines. The oxygenated- barrage of headlines charging Big Oil with gasoline mandate increased MTBE produc­ "price gouging" and "obscene profits." tion from 83,000 barrels per day in 1990 to Grandstanding politicians got airtime to 269,000 barrels per day by 1997.6 "call for investigations." However, nothing While the RFG program is advertised as ever came of these investigations, and the being "great for the environment," the ben­ news media dropped the subject because the efits for the consumer are hard to find. Since villain was not Big Oil but Big Government the oxygenate additives can cost up to twice and its "environmental gas" mandate. As as much as gasoline, reformulated gasoline Jerry Taylor of the Cato Institute put it dur­ can cost up to 10 cents more per gallon than ing testimony before Congress, "This con- the non-oxygenated gasoline.7 Unfortu­ gressionally mandated balkanization of the nately, it gets worse. Both major oxygenated gasoline market has seriously hampered the additives have a lower energy content than flexibility that refiners would otherwise have regular gasoline, MTBE roughly 20 percent to react to spot shortages."9 less, ethanol 30 percent less.8 This results in "Environmentally-friendly" MTBE has a 2-3 percent loss in fuel efficiency. Transla­ another problem. Since MTBE is extremely tion: Consumers pay more to get fewer miles soluble in water, it moves farther and more per gallon than before. rapidly through both groundwater and sur­ face water than gasoline. A study by the Ver­ Vanilla Gasoline mont Agency of Natural Resources (ANR) found that MTBE migrated nearly ten times Before the reformulated-gas mandates the distance of the non-MTBE gasoline con­ started to kick in, the logistics of fuel distri­ taminants.10 bution were relatively simple. The product In tests conducted by the U.S. Geological was homogeneous; all gas was "vanilla." Survey, MTBE has been detected in approx­ When one area of the country was experi­ imately 20 percent of the ground water encing a higher demand, it was easy to redi­ where RFG is sold. This compares to a 2 per­ rect more gas from another area to meet it. cent detection rate in non-RFG areas.11 With RFG, in addition to "vanilla" we now It is increasingly being found in municipal have "rocky road" gas, "butter pecan" gas, drinking-water wells and reservoirs. Even in and "pistachio almond" gas. While some extremely small amounts MTBE makes parts of the country will require RFG all drinking water unusable. MTBE causes the year long, others will only need a special gas water to smell and taste like turpentine. For in the summer to combat high ozone levels. some reason, humans are hypersensitive to Still other areas will only need a special even small traces of MTBE. We are able gas in the winter to address high carbon- detect MTBE-tainted water at ten times monoxide levels. As a result of the require­ lower concentrations than water containing ment for multiple types of gasoline that vary just gasoline.12 As a result of this low thresh-

29 Ideas on Liberty • September 2003 old, it only takes a spoonful of MTBE to tainted water. North Carolina banned completely contaminate enough water to fill MTBE after it was classified as a probable an Olympic-sized swimming pool.13 human carcinogen.19 At its annual meeting To make matters worse, the cleanup of in 1994 the American Medical Association MTBE-contaminated water is more difficult passed a resolution calling for a moratorium and costly than water contaminated with on the use of oxygenated fuel based on the just conventional gasoline. Much of the risks posed by MTBE.20 MTBE contamination remains "beyond the In addition to Alaska and North Carolina, reach of even the most sophisticated cleanup at least 12 other states (Arizona, California, technologies."14 Instead of degrading over Colorado, Connecticut, Iowa, Maine, time, MTBE has a tendency to accumulate. Michigan, Minnesota, Nebraska, New So as long as we have a mandate for refor­ York, South Dakota, and Washington) have mulated gasoline with MTBE, water pollu­ taken steps independent of the federal gov­ tion will only get worse. ernment to limit, phase-out, or ban MTBE. Most MTBE-contaminated ground water As the biggest champion of reformulated has been traced to leaking underground stor­ gas, the EPA continually dismissed the grow­ age tanks. This comes as quite a surprise ing criticism of MTBE. The agency's official since the federal government ordered gas sta­ position was that while MTBE posed some tions to replace their old underground tanks risk, it was no greater than the risk of other with double-walled tanks and pipes in an gasoline components. The EPA responded to effort to prevent environmental damage. The the ground water contamination problem by conversion was to have been completed by simply "providing information, intensifying 1998. But in California a "state study found research, and focusing on the need to mini­ that two-thirds of the upgraded tanks and mize leaks from underground fuel tanks."21 pipes tested in Yolo and Sacramento coun­ For six years the EPA opposed all mea­ ties [were] leaking MTBE."15 sures to limit the use of MTBE. It was not These new upgraded storage tanks cost until 1998 that the agency made MTBE a consumers $2 billion. Even more tragic is the "potential candidate" for regulation under fact that thousands of gasoline stations the Safe Drinking Water Act. Later that year across the country, mostly the "mom and the EPA finally established an independent pop" operations, were forced out of busi­ panel to investigate the problems associated ness.16 They simply could not come up with with the reformulated gas program. Accord­ the $100,000 for "the upgrade."17 ing to observers, the panel's 1999 final report recommended, among other things, MTBE Makes People Sick "that Congress act to remove the current Clean Air Act requirement that 2 percent of In November 1992 about 200 residents RFG, by weight, consist of oxygen," that the of Fairbanks, Alaska, reported having "use of MTBE should be reduced substan­ headaches, dizziness, eye irritation, a burn­ tially (with some members supporting its ing sensation in their noses and throats, dis­ complete phase-out), and that Congress orientation, and nausea. These health prob­ should act to provide clear federal and state lems were linked to the newly introduced authority to regulate and/or eliminate the reformulated gas containing MTBE. So use of MTBE and other gasoline additives many people complained that the governor that threaten drinking water supplies."22 banned its use after only three months.18 Given these damning findings, the EPA As the use of reformulated gas increased was forced to admit that its advocacy of the across the country, so did the incidence of MTBE fuel additive had been a mistake.23 illness. Thousands of people became ill As a result of the government's overzeal- after being exposed to MTBE/gasoline ousness in "helping the environment," peo­ fumes (before combustion), MTBE/gasoline ple pay more per gallon of gas, get fewer exhaust (after combustion), and MTBE- miles per gallon, and get sick. The biggest 30 Government-Reformulated Gas: Bad in More Ways than One

irony, however, is that the environment is I. James E. McCarthy and Mary Tiemann, "MTBE in Gaso­ worse off thanks to this "environmental pro­ line: Clean Air and Drinking Water Issues," National Council for Science and the Environment (98-290), www.ncseonline. gram." So far, the misguided policy has cost org/NLE/CRSreports/Air/air-26.cfm?&CFlD=6942884& consumers untold billions of dollars. Unfor­ CFTOKEN=41159272. 2. Ibid. tunately, the environmental and economic 3. A. Blakeman Early of the American Lung Association, nightmare caused by government gas is not Testimony on Issues Concerning the Use of MTBE in Reformu­ lated Gasoline: An Update, November 1, 2001, House Com­ over. Be prepared to cough up another $30 mittee on Energy and Commerce, Subcommittee on Oversight billion or more to deal with the clean-up and and Investigations, http://energycommerce.house.gOv/l 07/hearings/ 11012001 hearing407/Early694.htm. 24 phase-out costs of MTBE. 4. "Commonly Available Ethanol and MTBE Gasoline Blends Do Little to Reduce Smog," News, National Academies, May 11, 1999, www4.nas.edu/news.nsf/isbn/0309064457? OpenDocument. What Next? 5. McCarthy and Tiemann. 6. "MTBE, Oxygenates, and Motor Gasoline," Energy From the current devastation wrought by Information Administration, www.eia.doe.gov/emeu/steo/pub/ special/mtbe.html. the EPA, stand by for still more government 7. Ben Lieberman, "The Ethanol Mistake: One Bad Man­ command and control of the nation's fuel date Replaced by Another," Competitive Enterprise Institute March 12, 2002, www.cei.org/utils/printer.cfm?AID=2895. supply. With MTBE rapidly falling into dis­ 8. Larry Weitzman, "The Formula," Mountain Democrat favor, that just leaves ethanol. The prospect Online, December 15, 1999, www.mtdemocrat.com/display/inn_ 1999_columnists/Larry %20Weitzman/N1215_W.txt. of having ethanol as the only game in town 9. See Jerry Taylor, "The Effect of Federal Regulations on has Big Corn salivating. In June the Senate Gasoline Prices in the Milwaukee/Chicago Area," Testimony before House Committee on Government Reform Subcommit­ approved an amendment to the energy bill tee on National Economic Growth, Natural Resources, and that would mandate the use of ethanol in Regulatory Affairs, July 7, 2000, www.cato.org/testimonv/ ct-jt070600.html. every state except Alaska and Hawaii by 10. Vermont Agency of Natural Resources (ANR) Study, 2012. This new rule would also ban the use www.anr.state.vt.us/env02/graphics/Waste%20Toxics.doc, p. 2. II. "MTBE/Oxygenates in Gasoline Fact Sheet," Environ­ of MTBE. While the House version also sup­ mental Health and Safety Online, www.ehso.com/news+ ported ethanol, it left the resolution of the MTBE.htm. 12. "The Efficacy of MTBE Use in Connecticut," Connecti­ 25 MTBE problem with the states. cut Academy of Science and Engineering, September 30, 1999, An alternative solution, based on common www.ctcase.org/reports/MTBEsum.html. 13. "MTBE Still Leaking at Gas Stations Despite New sense, calls for a policy that objectively Tanks," Norr^ County Times (AP), March 10, 2002, weighs both environmental and economic www.nctimes.net/news/2002/20020310/54956.html. 14. Vermont ANR Study. trade-offs. With this criterion, a strong case 15. "MTBE Still Leaking." can be made that the EPA should just get out 16. "Testimony of John C. Felmy of the American Petroleum Institute before the Federal Trade Commission," August 2, of fuel micromanagement altogether. As 2001, www.ftc.gov/bc/gasconf/comments/felmyjohn.htm. Michael Centrone observes: "the need for 17. "Thousands of gas stations to miss deadline for fixing leaks," CNN, December 22, 1998, www.cnn.com/US/9812/22/ oxygenated fuels may be unfounded inas­ gas.tanks.02/. much as 75-85% of [the] smog in major 18. Suzanne Zolfo Patton, "What Price. MtBE?" www. emagazine.com/julv-august_1998/0798curr_mtbe.html. cities is from non-automobile sources and 19. Ibid. tailpipe emissions of new cars are 95% 20. "MTBE: Ozone Solution or A New Kind of Pollution?" Everyone's Backyard, Springl995, www.chej.org/SF/MTBE.html. 26 lower that they were in the 1960's." Eric 21. McCarthy and Tiemann. Stork, a former EPA employee, stated that 22. Ibid. 23. "Clinton and EPA Chief Browner Act to Eliminate "reformulated gasoline was a good idea 30 MTBE from Gasoline, and Boost Ethanol Instead," November years ago, but in cars built in 1983 or later, 17, 2002, www.ehso.com/news+MTBE.hrm. 24. "MTBE Still Leaking." 27 the fuel is obsolete and pointless." 25. "Senate Adds Rule to Energy Bill to Double Ethanol in It is time for us to rein in the EPA so that Gasoline," New York Times (AP), June 6, 2003. 26. Michael Centrone, "How the Environmental Protection it can no longer do damage to the environ­ Agency Became a Public Health Risk," National Center for ment, to our health, to the consumer, or to Public Policy Research, National Policy Analysis # 304, August 2000, www.nationalcenter.org/NPA304.html. the business community. • 27. Taylor.

31 Our Economic Past by Burton Folsom, Jr. IDEAS ON LIBERTY SEPTEMBER 2003

Andrew Johnson and the Constitution

efore 1998 "Andrew Johnson" used to date, attacked Johnson vigorously in a pub­ be the answer to the question "Who lic debate for voting against a bill to give was the only U.S. president to be federal aid to Ireland. The severe potato impeached?" But Andrew Johnson, the famine, Henry insisted, called for American Bself-educated tailor, deserves to be remem­ help. Johnson responded that people, not bered more for his ideas, especially his government, had the responsibility of help­ defense of the Constitution in a troubled ing their fellow men in need. Any politician time. could be generous with other people's Johnson was born in poverty in North money, which was forcibly collected in Carolina in 1808 and moved to Greenville, taxes. He then took from his pocket a Tennessee, as a teenager when he heard the receipt for the $50 he had sent to the hun­ town needed a tailor. He established a gry Irish. "How much did you give, sir?" he strong business there and at age 26 won elec­ challenged Henry, who had given nothing. tion to the state legislature, where he spent The audience, according to the Memphis several terms. He strongly supported fellow Appeal, gave Johnson "prolonged and deaf­ Tennessean Andrew Jackson (president ening applause." Such adherence to the 1829-1837), and eventually won election to Constitution, Johnson believed, helped him the U.S. House and Senate. In Congress, narrowly win the governor's chair that Johnson became a constitutional watchdog year. on federal spending and special subsidies to When the Civil War began, Governor favored groups. The protective tariff he Johnson left Tennessee rather than break called "a system of humbug," and he wanted with the union. That loyalty endeared him to entrepreneurs, not the federal government, President Lincoln, who asked the Democrat to build the nation's canals and railroads. Johnson to be his vice-presidential candidate He often tried to get a law passed for across- in the 1864 election. The Lincoln-Johnson the-board pay cuts for federal employees, campaign won, and when Lincoln was assas­ whom he resented because they lived com­ sinated Johnson became president for four fortably in Washington from the tax dollars turbulent years. of hard-working artisans, farmers, and As president, Johnson was not a consistent laborers. devotee of liberty. He believed that blacks Charity, Johnson argued, begins with were not as capable as whites, and he was people, not government. This issue came up reluctant to give blacks full voting rights. when he ran for governor of Tennessee in But when the Thirteenth Amendment (abol­ 1853. Gustavus Henry, the Whig candi- ishing slavery) became law, Johnson, as a Burton Folsom is Kline Professor of History at Hills­ strict constitutionalist, "fully recognized the dale College in Michigan. He is the author of The obligation to protect and defend that class of Myth of the Robber Barons. our people whenever and wherever it shall

32 become necessary, and to the full extent protected in their civil liberties and would compatible with the Constitution of the thereby use their freedom to gain skills and United States." work their way up in society. "The idea on Johnson found himself caught in the mid­ which the slaves were assisted to freedom dle. On one hand were southern racists, who was that on becoming free they would be a passed Black Codes that denied basic civil self-sustaining population." He added that liberties to former slaves. On the other were "any legislation that shall imply that they Radical Republicans who not only wanted are not expected to attain a self-sustaining full voting rights for blacks, but sometimes condition must have a tendency injurious special privileges as well. For example, alike to their character and their prospects." Republicans had set up the Freedmen's Granted, Johnson was overly optimistic Bureau during the war to help freed blacks that his southern brethren would allow get food, clothing, and other necessities of blacks sufficient civil liberties to compete for life. After the war, the Freedmen's Bureau jobs and establish fair contracts. But, as in expanded its efforts to help blacks get land the earlier case of charity to the Irish, he and education as well. In 1866 Congress believed that compassionate people, not a voted to extend the life of the Freedmen's government program, were the solution to Bureau and expand its scope. the problem. They would build the schools and train the newly freed slaves. He was ever Vetoes Bill faithful to the Constitution when he said that establishing schools was a state, not a Johnson, however, vetoed the bill. In a federal, function and that the federal gov­ nutshell, his view was this: Civil liberties for ernment should not favor "one class or color blacks, yes; special legislation, no. "In time of our people more than another." of war," Johnson said, "it was eminently Interestingly, Johnson's vision of self-help proper that we should provide for those who for blacks somewhat paralleled that of black were passing suddenly from a condition of leader Booker T. Washington, who agreed bondage to a state of freedom. But this bill that caring people, not bureaucrats at the proposes to make the Freedmen's Bureau . . . Freedmen's Bureau, needed to take the lead a permanent branch of the public adminis­ in promoting black education. In the spirit tration, with its powers greatly enlarged." of Johnson's veto of the Freedmen's Bureau, These powers "in my opinion are not war­ Washington set up Tuskegee Institute, with ranted by the Constitution." help from whites, as a black-operated col­ Johnson built his case around the provi­ lege. Blacks and whites also worked together sions in the bill that put the government in to set up Fisk College and Meharry Medical the business of establishing schools for College in Nashville. In fact, dozens of pri­ blacks and of taking land from plantation vate black colleges were established in the owners to give to former slaves without due years immediately after emancipation. Black process of law. On the first point, Johnson literacy skyrocketed from 20 percent in 1870 noted that Congress "has never founded to 83 percent in 1930, a period marred by schools for any class of our own people, not forced segregation. That increased literacy even for the orphans of those who have was the tool that blacks used to win their fallen in the defense of the Union, but has struggle to have their rights recognized in the left the care of education to the much more coming decades. competent and efficient control of the States, Andrew Johnson's arguments are still of communities, of private associations, and cogent today. The Constitution does not of individuals." guarantee special privileges for any class of The president hoped that blacks would be citizens. •

33 IDEAS ON LIBERTY SEPTEMBER 2003 The Loss of a Scholar: Marjorie Grice-Hutchinson by Norman Barry

n April 12 the free-market tradition sent in Salamanca. lost an important scholar with the Although Joseph Schumpeter, in his His­ death, in Malaga, Spain, of Marjorie tory of Economic Analysis, paid some atten­ Grice-Hutchinson. She was 93. tion to Salamanca economists, it was Grice- Although English-born she spent much of Hutchinson who subjected them to thorough her life in Spain and made the study of that analysis.1 She was a talented woman: not country's history and intellectual tradition only was she fluent in Spanish, French, and her life's work. Her reconstruction of its lib­ German, but she also had the competence in eral past was unparalleled. Latin essential for an understanding of the Murray Rothbard often said that theoriz­ medieval documents of the Catholic Church, ing about freedom and the market began through which the economics of Salamanca with the School of Salamanca in late- were expressed. Originally a graduate stu­ sixteenth and early seventeenth-century dent of Spanish literature, she became a lec­ Spain. It was then taken up by the French turer in Spanish at Birkbeck College, Lon­ laissez-faire school of Jean Baptiste Say and don University, and came across the School Frederic Bastiat, and reached its apogee with of Salamanca. In the late 1940s she got to the Austrian School beginning in 1871. know F. A. Hayek, who was familiar with Rothbard regarded the more famous British Salamanca in the history of liberal thought. classical tradition of Adam Smith and David He supervised her Ph.D. on the monetary Ricardo (especially) as an unfortunate aber­ theory of the School. ration. Did not their obsession with the We have to be aware of the significance of labor theory of value, neglect of subjective religion in the emergence of classical-liberal utility, and almost complete ignorance of ideas, for many of its main features seem, entrepreneurship lead ultimately to Marxism superficially, to be antithetical to religious and the eclipse of real liberalism in the belief. One obvious example is the prohibi­ tragedy of the twentieth century? As Grice- tion of usury, the charging of interest on Hutchinson pointed out, with brilliant schol­ purely monetary loans, which was a feature, arship, almost all the features of the theory in some form, of almost all creeds. Spain is of the market and the limited state were pre- important here, for Christians, Jews, and Muslims (Moors) lived side by side in the Contributing editor Norman Barry (norman.barry Middle Ages under their respective religious ©buckingham.ac.uk) is professor of social and and legal codes. This lasted until 1492, when political theory at the University of Buckingham in the U.K. He is the author of An Introduction to the Jews were expelled, as eventually were Modern Political Theory (St. Martin's Press) and the Moors. All three codes prohibited usury Business Ethics (Macmillan). in various ways (Jews, for example, were not

34 forbidden from charging monetary interest way of the priests to Gentiles). of Salamanca, who, But as Grice-Hutchinson showed in her when it came to masterly Early Economic Thought in Spain, morality, were cor­

1177-1740, business life went on and the rectly concerned only • f restrictions were overcome by a certain with human conduct amount of casuistry.2 As she said, this in exchange. Indeed, '4 hypocrisy ensured that Spain was the leading as Grice-Hutchinson economy in Europe. Successive Catholic acutely observed, the kings, despite protestations of their virtue School of Salamanca Marjorie Grice-Hutchinson, and adherence to strict canon law, were not was particularly hos­ in a rare online photo. overzealous in its enforcement for this would tile to the cost-of- have meant a considerable loss in revenue. production theory because it allowed pro­ The later scholastics of Salamanca were all ducers and merchants to raise the prices priests (either Jesuit or Dominican), but had of goods above market-clearing levels. The no difficulty accommodating market eco­ market was moral, and entrepreneurship nomics to Catholicism. Their major, but not was both just and essential for human only, contributions were to the theories of progress. value and money (where a subtle overcom­ Her only omission was any discussion of ing of the prohibition of usury was impera­ why the School never discovered the concept tive). These theories were especially impor­ of the margin. Its members felt that there tant because their incorporation of the was a distinction between value in use and theory of money into a general theory of value in exchange—a glass of water is very value was unmatched until the neoclassical useful but it costs virtually nothing, while a synthesis of Carl Menger, Leon Walras, and diamond ring is useless but is worth a for­ William Stanley Jevons in the 1870s. What tune. If only they had understood the margin the men of Salamanca demonstrated was the (the value to a person of the next unit of a relationship of value to price. This was sig­ good, not the entire supply) they would have nificant because at the time Catholic ortho­ realized why that same glass of water is doxy was not prepared to grant legitimacy worth a lot in the desert and the ring noth­ to the whims of the market. There was ing. There is no distinction between value in developed, then, the theory of the "just use and value in exchange. price," which gave a patina of morality to The school's monetary theory was the otherwise "sordid" results of exchange undoubtedly influenced by events. Spain had governed by self-interest. colonized large parts of the New World and transmitted vast amounts of gold and silver Market Price Is Just to the mother country in the sixteenth and seventeenth centuries. The increase in money The School of Salamanca managed to dramatically drove up prices. In a superb show that the market price is the just price, piece of economic history, Grice-Hutchinson an evaluation of goods and services describes the devastating effect this had on untainted by lying, cheating, or theft. Price the Spanish economy. Productivity plum­ was described, not euphemistically, as the meted, capital took flight, treasure was outcome of the "common estimation" of the wasted on pointless wars, and Spain began a people. And here demand was crucial, for as long-term decline.4 Domingo de Soto said, "want is the basis of But Grice-Hutchinson goes beyond his­ price."3 It is true that at the time there were tory. She shows how the School of Sala­ elements of a cost-of-production theory of manca pioneered the quantity theory of value (based on labor inputs) and a lingering money and the purchasing-power theory, belief that certain things were too important and explained credit creation by banks. It to be left to the market. But this was not the demonstrated how foreign exchange oper- 35 Ideas on Liberty • September 2003 ated to expand trade and taught that mone­ donor, she funded an agricultural scientific- tary loans were not usurious. Departing research unit at the University of Malaga. from the medieval tradition, Salamanca One of her many publications was a history demonstrated that ultimately the value of of the (private) English Protestant Ceme­ money was determined by supply and tery in Malaga, which was threatened with demand, and that currency could be bought closure. and sold like any other good. People would We will remember her for her quiet but not buy one that had been debased. formidable scholarship, the diligence of her Marjorie Grice-Hutchinson did not enjoy research, and her unfailing gift for under­ the fame that some in the classical-liberal standing what is important in economic and tradition have lately achieved, but she was social thought. • tremendously respected. She was awarded the Order of Civil Merit by her adopted 1. Marjorie Grice-Hutchinson, The School of Salamanca: country and made a Member of the British Readings in Spanish Monetary Theory (London: Oxford Uni­ versity Press, 1952). Empire by her own. She married a 2. Marjorie Grice-Hutchinson, Early Economic Thought in landowner and farmer, and was prominent Spain, 1177-1740 (London, Allen and Unwin, 1978). 3. The School of Salamanca, p. 83. in the community at Malaga. A generous 4. Early Economic Thought in Spain, ch. 4.

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36 IDEAS ON LIBERTY SEPTEMBER 2003 The Economic Foundation of Freedom

by Howard Buffett

clear understanding of the economic factor. Not so. Other lands are as rich or foundation of freedom and its ramifi­ richer in natural resources. South America cations is required by the person who and Mexico are examples. Astrives to be an effective disciple of Nor has the human situation changed dur­ human liberty. ing this period. People are the same, and the In a material sense, the economic achieve­ earth is the same size and constitution as it ments of American freedom in the last 150 was when Socrates was holding forth in years present the greatest phenomena of all Athens. history. In this relatively short period, our Here, for the first time in human history, freedom has released and channeled human human energy was freed from arbitrary energy of such potential that an entirely new authority. Here for the first time man was and hitherto undreamed-of world has been able to make and carry out business ventures created. individually, or in relationships with others, What explains all this? unrestrained by unjust man-created obsta­ Some people have asserted that Americans cles. In America, men like Edison, Ford, are a superior race, smarter than any previ­ Alexander Bell, and others, were free to ous people. Not so. I have never seen or invent and produce new products without heard any evidence to indicate that Ameri­ being blocked by political authority. cans are an intellectual aristocracy. Perhaps Here in America man was on his own, to it was our fortune to descend from superior make the most of whatever intellect, tools, pioneer stock. I don't know. In any event and resources he could assemble by his own such a superiority, if it existed, cannot begin personal efforts. to explain the fantastic material achieve­ Human energy works efficiently to supply ments of this nation in the last 150 years. human needs and satisfy human desires only Some would have you believe that the nat­ when and where and precisely to the extent ural resources of America were the decisive men know they are free. For the first time in history, that freedom The late Howard Buffett was a U.S. representative was affirmed and spelled out in the Consti­ from Nebraska (1943-1949 and 1951-1953). This tution of the United States. Americans were article, condensed from a lecture at Midland henceforth to be unrestrained by political College in Fremont, Nebraska, is reprinted from considerations. The Freeman: Ideas on Liberty, December 1956. But this elimination of political restraint For more information on Buffett see Joseph R. Stromberg, "Howard Homan Buffett: Old Rightist was but a part of the change from the previ­ Extraordinaire" at www.antiwar.com/stromberg/ ous economic climate. Equally important s042401.html. was that, for the first time in history, men 37 Ideas on Liberty • September 2003 had a government organized on the principle So the first method can be rejected out­ that a basic purpose of government was to right. enable the individual to receive and enjoy The second method of handling economic the full fruits of his own labor. production would provide that someone Heretofore, from the Pharaohs on down other than the person who produces goods to King George III, government in greater or and services shall decide who shall have their lesser degree operated on the theory that possession or use. This method of determin­ people were subjects, that their person, their ing the rights of possession is practiced in current production, and their property every authoritarian society. It allows those belonged to the rulers. The Constitution who hold the coercive power of government rejected that theory in toto. to confiscate the fruits of any producer's This revolutionary concept can best be labor. understood by an examination of the alter­ To accept this theory, you must hold two native ideas concerning production and its strange concepts: (1) that a nonproducer distribution. is better qualified to judge the correct use of The right of a person to the product of his what you have produced than you are; own labor is the foundation of economic lib­ (2) that a nonproducer has a right to seize erty, declares Dr. F. A. Harper, in his schol­ the fruits of your labor. arly essay, Liberty: A Path to Its Recovery. The late Justice Oliver Wendell Holmes He points out that "the question at issue is once declared that someone must exercise how to distinguish between what is mine command of the disposition of goods and and what is thine." services that have been produced, and that There are three ways to handle this he knew of no better way of finding the fit problem: man than the competition of the market place. So it would seem that the second alterna­ 1. Each person may have whatever he can tive, that someone other than the producer grab. shall decide who shall enjoy the fruits of the 2. Some person other than he who pro­ producer's labor, is similar to the first duces the goods and services decides who method. One is a private seizure outside any shall have the right of possession or use. law; the second is a public and legalized 3. Each person may be allowed to keep seizure, but without justice. whatever he produces.

Private Property These three methods cover all the possibil­ ities; there are no others. Thus we come to the third method, When the economic situation is reduced to whereby the producer has the right to the these three clear-cut alternatives, the prob­ products of his own labor. It is the only lem of achieving justice does not seem too economic pattern consistent with economic difficult. liberty. The first method of operation, under Obviously if a person has exclusive rights which each person can have whatever he can to that which he has produced, that right is grab, is obviously unjust and impossible. It ownership. If all persons are to have the would return us to the jungle law that right to the product of their own labor, they "might makes right." Moreover, it would are foreclosed from a claim to the product of soon reduce individual economic effort to another's labor. the absolute minimum required for exis­ If I have a right to the corn grown on my tence. Certainly there is no reason in trying own land, certainly I have no claim on the to produce wealth beyond immediate needs cotton produced on another person's land. if one could expect to be deprived of it at any Otherwise his rights will be violated and no moment. property is safe.

38 The Economic Foundation of Freedom

So far the right of a person to the product That presidential statement touched a crit­ of his own labor would seem to be obvious. ical issue. As he pointed out, public power How then, have we arrived at our present "in the hands of political puppets of an eco­ situation? nomic autocracy" could "provide shackles Today's situation is the result of an alarm­ for the liberties of the people. ..." ing and devious governmental intervention But the reverse is also true. Economic in the economic affairs of the nation for power in the hands of those holding political objectives not contemplated by the men who power can also provide shackles for the lib­ wrote the Constitution. erty of the people. Historically, in America the producer was protected by government in the enjoyment of the fruits of his labors. That protection of his The Power to Control property explains the glorious material It would be salutary if the American peo­ progress already recounted. ple could objectively and effectively ascer­ tain how far this increase of economic power Taxation Without Representation by the government has gone. Then we would know exactly where we are in the trend The last 40 years have seen a gigantic away from the freedom of our ancestors. But expansion of political power over economic for us at this moment it is essential to learn affairs by the federal government. This why the separation of economic power from change is linked by many scholars to the pas­ political power is so important. sage of the income tax law in 1913. This law Students of liberty offer this explanation. revolutionized the taxing system in two Power is the instrumentality of control by ways: men and groups of men over other men. George Sokolsky, noted columnist, says it 1. It gave the government new powers this way: "When human beings become over the economic status of the individual. dependent upon the political power of the This change has curtailed the ability of the state for their livelihood, the independence of individual to achieve economic indepen­ person must disappear. It is the identification dence. of economic power with police power that 2. The part of his production taken from destroys the right of the individual to liberty." the producer cumulatively increases the The transfer of economic power into polit­ power of the federal government proportion­ ical hands takes many forms. In 1932 about ately with the increase in its income. This 2.5 million people received a check from the power is not created; it is simply taken away government every month. Today about 20 from the people by those in government. million receive a government check every month. What is the effect on the freedom of this great segment of our people being more In the 1930s a further sharp step-up in the or less dependent on the political authorities centralization of power took place. Its scope for their daily bread? The question is not can best be understood by quoting from the easy to answer. annual message to Congress by the President Something of its import may be gained on January 3, 1936: from the old rhyme that goes about like this: "In thirty-four months we have built up new instruments of public power. In the hands of a people's government this power is So runs the law and so the law will run wholesome and proper. But in the hands of 'til the race of men be still, political puppets of an economic autocracy That he who eats another's bread such power would provide shackles for the Must do the other's will. liberties of the people. ..."

39 Ideas on Liberty • September 2003

Desire for Security present world to a better one, not a bad principle is to identify the enemy. Any discussion of the status of the eco­ It should not be true, but unfortunately nomic foundation of freedom is incomplete it is, that your immediate enemies remain, without some attention to a historic human as they always have been, your rulers— urge—the desire for security. This intense your government. At all times, it is a wise human desire is reflected in the so-called thing to suspect both their intellectual social legislation politicians have placed on honesty and their intelligence in economic our statute books. matters. Will this legislation fulfill its promises? If Nothing can be lost, everything can be you think so, consider this rarely mentioned gained, by doing so. Make them prove fine print clause. If the government is to themselves in these respects, and be guarantee you what the consequences of your utterly ruthless in your judgment. actions will be in this case, security, then the When they seem most plausible, in your government must take control of your activi­ particular interests, it is not a bad course ties. For with responsibility—even self-arro­ to suspect their economic intelligence the gated responsibility—must go authority. most. They are, in these days, the man­ This means that if politicians are to supply agers of a highly complex world. your security, they must control your work, You have placed them in this manage­ your spending, and your saving. Witness crop ment, and you acquiesce in it. But, unfor­ controls. In that event you have traded the tunately, they give not the slightest indi­ reality of liberty for the promise of security. cation of being any more capable in History elsewhere indicates that government- handling the affairs of masses of men than provided security is a mighty poor mess of rulers have been all through history. . . . pottage in exchange for man's birthright of freedom. There is, I suggest, no valid reason to conclude that modern man or modern Scherman's challenge closes with a plea conditions have changed any of the eternal that citizens make a vigorous and untiring verities concerning power and liberty. effort to understand the economics of the In his book, The Promises Men Live By, world we live in. Without that understand­ Harry Scherman, organizer and long-time ing the citizen has no competence to judge president of the Book-of-the-Month Club, the actions of his rulers, which also means he has set out a course of action that deserves the is unable to vote competently. attention of Americans concerned about the Without intellectual competence the citi­ future of their country. Here is his suggestion: zen is controlled by his emotions. People controlled by their emotions in political mat­ If, as an individual, you really have some ters have always been, and are today, easy concern about the best way to change our prey for tyrants. •

40 Smiley challenges the conventional think­ ing right away: "The Great Depression is BOOKS often said to demonstrate the instability of market economies and the need for govern­ ment oversight and direction. The evidence Rethinking the Great Depression: can no longer support such assumptions. A New View of Its Causes and Government efforts to control and direct the gold standard for national purposes brought Consequences on the depression. Once it began, govern­ by Gene Smiley ment actions . . . caused it to be much longer Ivan R. Dee • 2002 • 169 pages • $24.95 and much more severe." The old belief that the New Deal was needed to "prime the Reviewed by George C. Leef pump" of the faltering free market is about to take a pounding. ecently, I found myself in an e-mail Some common, erroneous notions are argument with a friend who is intelli­ quickly dispatched. For example, many peo­ R gent and well-educated—but not in eco­ ple have been led to believe that the stock- nomics. I had made the point that the best market crash was the crucial event, a crash macroeconomic policy is one of government brought on by the "irrational exuberance" nonintervention, since we will get the opti­ of the 1920s (as Alan Greenspan described a mal use of resources merely by leaving peo­ subsequent boom). Smiley points out that ple free to pursue their self-interest. He the stock market rose hand-in-hand with ris­ replied that he saw a flaw in my argument, ing corporate profitability and that margin namely, that we suffer through periodic lending, often singled out as the culprit, had recessions and depressions. Yes, we do have little or nothing to do with the rise of the them, I replied, but stunned him with the market. "Margin requirements," he writes, argument that all such episodes stem from "were no lower in the late twenties than in bad government policy, not any inherent the early twenties or in previous decades." problem in the market system. He'd never The stock market didn't cause the eco­ heard that before. nomic debacle. Smiley argues that the onus Erroneous economic beliefs are every­ falls on the federal government's monetary where, and one of them is that "markets are policies. The chain of events is complicated, prone to recession." Scholars have been but the book explains in clear, jargon-free mounting an attack against it for many English that when the major European years. The most recent contribution to the nations returned to the gold standard after literature is Gene Smiley's Rethinking the World War I, they did so at exchange rates Great Depression: A New View of Its that prevailed before the war and its infla­ Causes and Consequences. Smiley, a profes­ tion. The resulting economic turbulence led sor of economics at Marquette University, to the adoption of a different system, the has written a readable account of the Great gold exchange standard, which obligated Depression that pins the blame for its origin only the United States and Great Britain to and duration on the blundering of govern­ exchange their currencies for gold. "Inex­ ment officials. orably," Smiley writes, "the gold exchange If the view propounded by Smiley is not standard began leading to deflation and eco­ entirely new—his sources show that the nomic contraction as countries sought to government-as-culprit view has been around strengthen or maintain their monetary gold for decades—his book does a splendid job of reserves." distilling earlier analyses into an account Deflation of the U.S. money supply burst that will leave apologists for federal eco­ the economic balloon. Business activity nomic management looking for places to began to slow and many banks experienced hide. trouble, some failing. The Hoover adminis-

41 Ideas on Liberty • September 2003 tration then stepped in with disastrous med­ The Pity of It All: A History of Jews dling—tax increases, high tariffs, and lec­ in Germany, 1743-1933 tures on big business's civic responsibility to keep purchasing power up by not reducing by Amos Elon wages. The Federal Reserve System, estab­ Metropolitan Books • 2002 • 446 pages lished in 1913 to prevent economic reces­ • $30.00 hardcover; $15.00 paperback sions by giving the nation an "elastic" cur­ rency, failed miserably. The result was that a Reviewed by Richard M. Ebeling bad cold turned into severe pneumonia. Hoover was crushed in the 1932 election, he ideological and then political triumph which put FDR in the White House. Smiley's of liberalism in the eighteenth and nine­ dissection of the many New Deal programs Tteenth centuries ushered in a momentous is devastating. He points out, for example, period in human history. It ended the reign that the National Recovery Administration of absolute monarchs; it freed commerce and merely cartelized businesses, with the biggest industry from the shackles of mercantilist firms dominating the creation of the "codes regulations and controls; it heralded a new of competition" for their own benefit. Also, era of representative government and civil the beginning of the Social Security system in liberties. Freedom of the press and of speech, 1936 hit business, and ultimately workers, religion, and association became the hall­ with new taxes just at the time the economy marks of an epoch that increasingly came to was starting to recover. view individual liberty as the cornerstone of In 1938 the economy suffered a severe a humane, peaceful, and prosperous society. contraction, thanks to more federal interven­ Few groups benefited as much from the tion and bungling: the wave of strikes ascendancy of political and economic liber­ unleashed by organized labor following the alism as the Jews in central and eastern Supreme Court's cave-in on the clearly Europe. Since the Middle Ages they had unconstitutional National Labor Relations been confined to ghettos, often prohibited Act, and the Fed's deflationary policy, from owning and working land, and which, Smiley shows, reduced the money restricted from pursuing a wide variety of supply by 5.7 percent in 1937. professions and trades. Severe limits were The author's conclusion: "What failed in placed on their ability to live and work in the 1930s were governments, in their eager­ capital cities such as Berlin and Vienna. ness to direct economic activity to achieve They were burdened with special taxes, political ends—ends that were often contra­ including marriage and birth taxes. Except dictory." for a small handful of privileged financiers Rethinking the Great Depression is an and merchants who served the special inter­ excellent work for all who wish to correctly ests of kings and princes, most Jews in cen­ understand this terrible chapter in American tral and eastern Europe were poor peddlers history. • and traders who wandered the countryside earning meager livings. George Leef is book-review editor for Ideas on Liberty. Amos Elon's The Pity of It All is a sweep­ ing history of the Jews in Germany from the middle of the eighteenth century to Hitler's rise to power in 1933. Their liberation began with a new awakening of self-improvement through what was called Bildung in German, or the refinement of the individual's charac­ ter through literature, philosophy, the arts, and the sciences. By this method they would rise above the cultural backwardness that prevailed throughout much of the Jewish

42 Books

community at that time, and at the same a varied number of walks of life aroused time they would fully integrate themselves envy, resentment, and fear among other Ger­ into the best of German society. They would mans who were less successful in the market become Germans who happened to be of a and cultural competition of a more open Jewish heritage, rather than outsiders—Jews society. Failure and disappointment, dislike who happened to live in Germany. of change and innovation, the collectivist Elon tells this story of cultural assimila­ sentiments that still surrounded much of tion through the lives of leading Jewish fig­ German culture and thinking, and the need ures, such as Moses Mendelssohn, the great to find scapegoats to explain away unful­ proponent of reform and change within the filled personal ambitions all resulted in a Jewish community, and Heinrich Heine, one growing acceptance of anti-Semitic argu­ of the great poets and essayists in German ments and rationalizations for any supposed literature. He details the lives and ideas of "shortcomings" of non-Jewish Germans. the many of the leading Jewish advocates of But the "Jewish problem" could not be political and social liberty, and the promi­ "solved" in a liberal climate of freedom and nent roles they played in the advancement of open competition. So the rising tide of mili­ constitutionalism and liberal revolution in tarism, state socialism, interventionism, and the 1840s and 1850s. welfare statism in late-nineteenth- and early- The tensions and doubts within the Ger­ twentieth-century Germany was reinforced man Jewish community are also emphasized, and supported by those who wished to close as many Jews struggled with the issue of the doors of the marketplace and the cul­ maintaining their Jewish faith or converting tural arena to their Jewish competitors. The to one of the Christian denominations—a "final solution" to this "problem" was pressure felt by many because of legal and found in the death camps. • political restrictions that continued to Richard Ebeling is the president of FEE. close some doors of advancement, especially in government and the military, to non- Christians. There were also the tensions The Voluntary City: around the issue of what continued to make someone a Jew if he had abandoned Judaism Choice, Community, and Civil Society and chose a secular life and a nonreligious edited by David T. Beito, code of morality. Peter Gordon, and Alexander Tabarrok The elimination of practically all legal, University of Michigan Press • 2002 • 462 civil, and economic restrictions on Jews by pages • $65.00 hardcover; $24.95 paperback the 1860s stimulated a huge burst of creativ­ ity and cultural contribution from them for Reviewed by William L. Anderson the remainder of the nineteenth century and into the early decades of the twentieth ince the late 1960s the typical picture of century. In music, the arts and sciences, the U.S. city is that of a virtual cesspool industry and commerce, literature and jour­ S of crime, poverty, and drug abuse. I nalism, as well as in politics, the Jewish remember a magazine cover of a smog- contribution was of a magnitude far greater enclosed metropolis with the headline, "Our than the number of Jews in Germany, which Sick, Sick Cities." The late Sen. Hubert H. had never exceeded 1 percent of the coun­ Humphrey of Minnesota regularly gave try's population. Liberalism's freeing of speeches in which he called for a "Marshall the political chains binding them resulted Plan to rebuild our cities," and his theme has in the German Jewish Prometheus ascending resonated with the public and the political to unimagined heights of achievement, classes ever since. redounding to the benefit of the greater Ger­ While libertarians often focus on the sta­ man society and the world as a whole. tist excesses of Congress, many cities in this Jewish successes and contributions to such country have gone beyond even the most 43 Ideas on Liberty • September 2003 coercive policies that have been dreamed up which most needy individuals simply fell by the U.S. House and Senate. From banning through the cracks. David Beito and David all privately owned handguns to seizing pri­ G. Green effectively destroy that false notion vate property for questionable "eminent in their essays on mutual-aid societies that domain" purposes to forbidding home reli­ dotted the urban and rural landscapes of gious gatherings (in violation of zoning ordi­ America, Great Britain, and Australia. nances), many cities have become places Beito points out that numerous fraternal where government chokes freedom. Further­ societies existed, like Woodmen of the more, many cities find huge portions of their World, the Independent Order of Odd Fel­ municipal budgets being financed by tax dol­ lows, the Sons of Italy, and the Polish lars from Washington. National Alliance, which provided financial Thus one might think that cities are not help to members and their families in need. the place to find free markets, private prop­ That they were mutual-aid societies also erty, and voluntary transactions. That is not implied reciprocity: those who received the case, however, as The Voluntary City aid also could be counted on later to help aptly demonstrates time and again. In 15 others. excellent essays, various writers tackle issues Green writes about the friendly societies in which problems faced by individuals in a of Britain and Australia that covered literally community have been solved through volun­ millions of people, providing various kinds tary private cooperation. In other words, the of medical care and other welfare benefits. standard "market failure" arguments that Like the fraternal societies of the United many economists of both right and left use States, these organizations found their to justify government intervention simply efforts crowded out in the twentieth century are not true, to put it mildly. by the expanding state welfare apparatus, For example, Bruce Benson, who has which handed out money without responsi­ become well-known for his studies of law, bilities attached. justice, and the police, points out that the The Voluntary City is must reading for state does not have to create courts for a those who champion not only private enter­ society to be able to dispense justice. Benson prise, but also a free society. From private notes that in medieval Europe nearly 1,000 arbitration to private police to communities years ago the law merchant, which is a pri­ that operate essentially under private law, vate system of international law, was already these essays demonstrate that a voluntary thriving and still is in existence today. Many society not only works, but prospers. • firms and individuals, he points out, prefer William Anderson is a professor of economics at to use private arbitration services to resolve Frostburg State University. disputes rather than depend on the slow, inefficient, and unpredictable state courts. Benson addresses the assertion that private courts succeed only because the The Collapse of the Common Good government court apparatus stands behind by Philip K. Howard them to enforce their rulings. Such a claim Ballantine • 2002 • 272 pages is "demonstrably false." Historically, he • $14.00 paperback writes, merchants who refused to abide by arbitration rulings often found themselves Reviewed by Harold B. Jones, Jr. subject to boycotts by other merchants, a tool that effectively disciplined the wayward ooks by aspiring politicians talk about business owners. what is wrong with the world so that One of the enduring myths of American B their authors can offer to set things right. society is that before the establishment of the One title in this genre is Al Gore's Earth in welfare state in the first half of the twentieth Balance. Another is Philip K. Howard's The century, it was a "dog-eat-dog" world in Collapse of the Common Good. 44 Books

Howard is definitely a man with political Howard, this proves that we find freedom in ambitions. A New York lawyer who has led someone else's authority. Mrs. Farina, local initiatives, he is now ready for bigger though, did not find the freedom to change things. A few days after a U.S. News and the place by looking to someone else's World Report article described Howard's authority. She did it by selecting a purpose success in attracting the support of promi­ and beginning to move in the right direction. nent politicians, George McGovern and She defied the bureaucracy, broke the rules, Alan Simpson published a letter in the Wall and accepted responsibility. Her story is Street Journal announcing that they had about the power of an individual. joined Howard in "a bipartisan coalition, Howard consistently misses this kind of Common Good." thing. All his illustrations support the case Beware of bipartisan coalitions. The only for individual freedom and responsibility, things about which old political enemies ever but his conclusions incline toward the agree are the expansion of government and enhancement of federal authority. After rail­ the reduction of individual freedom. This ing against the inefficiency, incompetence, seems to be fine with Howard. He wrote his and demoralizing effects of bureaucracy, he book, he says, because he believes that "peo­ suggests bureaucratic solutions. With regard ple with responsibility . . . should have the to the discrimination cases that now clog the authority to make decisions just because it courts, he says, "the right to bring individual seems right." He abhors the view that claims should be entrusted to an unbiased "assumes justice is only about fairness to the third party, such as the government." How particular parties." What we need, he says, is the government to do this without creating is a system of law that allows those in a bureaucracy for that purpose? How can authority to make their choices with an eye we imagine that the individuals of whom to "the common good." this bureaucracy is composed will be with­ "Common good" is his favorite expres­ out bias? sion. He does not see the nonsense in talking There is only one way in which Howard's about a "common good" that is different catalog of modern ills can be used to lend from the well-being of the individuals of weight to his arguments. F. A. Hayek said whom the commonality is composed. And that by 1933 socialism and bureaucracy had what can "justice" mean if not fairness to carried Germany to the point at which it had particular parties? to be governed dictatorially. Hitler was able But Howard does not think much of par­ to assume authority because many believed ticular individuals: "Without pressure, most he was the only man powerful enough to get people won't move." His collectivist think­ things done. Perhaps bureaucracy and the ing is further evidenced in this quotation expanding welfare state are bringing the from Chester Barnard: "Ability is not some­ United States to a place similar to Germany's thing that is possessed by an individual inde­ in 1933. If so, our one hope lies in the thing pendent of his environment." Howard does that seems furthest from Howard's mind: a not see that the question of individual ability reduction in the size and power of govern­ turns on the fact that some people apply ment. ideas and energy to the raw materials of the Howard is a brilliant and entertaining environment to create useful things, while writer. As a list of the things that have gone others either try and fail or don't try at all. wrong with America, this book is worthy. His heroine is Carmen Farina, principal of But as an expression of political philosophy, P.S. 6 in upper Manhattan. She took a fail­ it is feeble and its policy recommendations ing school and created a beehive of student could hardly be worse. • success, parental involvement, and educa­ Harold Jones is a professor at Mercer University tional initiative. "You can do things here," and author of Personal Character and National said a third-grade teacher. According to Destiny (Paragon House, 2002).

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Lessons from the Washington Teachers Union

he Washington Teachers Union (WTU) checks, and with the help of Bullock's chauf­ is the exclusive bargaining agent for feur, Leroy Holmes, laundered WTU money District of Columbia government through to their own personal accounts. At school teachers. Teachers represented this writing only Holmes has been charged Tby WTU must, as a condition of continued with a crime; he pleaded guilty to at least employment, pay union dues whether they one count of money laundering. Additional want WTU representation or not. Its web­ criminal charges are expected. The FBI con­ site, www.wtulocal6.org, boldly proclaims fiscated much of the loot—including furs, its motto, "Building Better Schools: It's ball gowns, art, furniture, china, crystal, sil­ Union Work." ver, jewelry, and electronic equipment— Last December a sickening story of embez­ from the homes of the alleged perpetrators zlement, money laundering, fraud, and ille­ and some relatives. gal campaign contributions over a six-year Hemphill had been well-connected in D.C. period became public. The extent of the politics and with politicians such as former scandal is still unfolding as the FBI, IRS, U.S. mayor Marion Barry for many years. She Department of Labor, and D.C. inspector was co-chairman of Mayor Anthony general carry on their investigations. The Williams's re-election campaign in 2002. alleged perpetrators of what is now esti­ WTU money helped him win. Baxter was mated to be a $5 million plundering of the director of the D.C. government's Office of union treasury for personal gain are former Labor Relations and Collective Bargaining WTU president Barbara A. Bullock, former under both Barry and Williams. Baxter's treasurer James O. Baxter III, and Gwen­ brother, Curtis Lewis, who was the union's dolyn M. Hemphill, Bullock's special assis­ lawyer, hosted fund raisers for Williams and tant. allegedly paid for them with a WTU credit The extraordinary details of the scandal card. Campaign contributions were made are explained in depth by Patrick J. Reilly in from the WTU treasury to the Democratic the March issue of the Capital Research Cen­ National Committee and to the senatorial ter's Labor Watch (www.capitalresearch.org). campaign of Hillary Clinton in 2002. The In brief, it is alleged that Bullock, Baxter, DNC and Clinton returned the money when and Hemphill charged personal expenditures the scandal became public. on WTU credit cards, forged signatures on This systematic looting of the WTU trea­ WTU checks, changed names of payees on sury was uncovered only because of a blun­ der by the alleged perpetrators. The treasury was so depleted that the union could not pay Charles Baird ([email protected]) is a professor of economics and the director of the its 2002 per capita dues to its parent, the Smith Center for Private Enterprise Studies at Cal­ American Federation of Teachers (AFT). ifornia State University at Hayward. Bullock needed $700,000 to turn over to the

47 Ideas on Liberty • September 2003

AFT in order for WTU representatives to be recently proposed revising the LM-2 report­ seated at the AFT's annual convention in ing requirements that already exist for 2002. She allegedly "solved" this problem unions, but her proposals do not go far with a one-month increase of the dues that enough. As I said in my last column, at the D.C. teachers were forced to pay, from $16 very least DOL should require that unions to $160. The extra $144 per teacher would get and publicize an annual independent have raised enough money to pay the AFT audit of their books. assessment. However, several teachers were More important lessons concern the very outraged at the unexpected, and unautho­ nature of compulsory unionism itself. Union rized increase, and complained to the AFT, members are not diligent because they have which then began to make inquiries and ulti­ no effective control over union officers. If mately hired an independent firm to under­ each teacher were free to choose whether to take a forensic accounting investigation of join and support a union or not, union lead­ the WTU. In addition several teachers filed ers would have to pursue teacher interests civil suits against the union. rather than their own interests, because The AFT constitution requires its member members would have the ultimate power of unions to have their books audited at least exit. With that power members would natu­ every two years. There had been no audit of rally be diligent. the WTU since 1995. The AFT at least For state and local government employees should learn to enforce the provisions of its to have that freedom, 34 states and the Dis­ own constitution. More important, union trict of Columbia would have to repeal their rank and file should learn that their union laws that provide for exclusive representa­ leaders cannot always be trusted. They must tion (selecting a union by majority vote exert more diligence and control over their rather than individual choice) and union own locals. Before the scandal broke, the security (compulsory dues payments). In the WTU had not held a membership meeting in private sector the National Labor Relations five years because the required quorum of Act would have similarly to be repealed. 100 teachers could not be assembled. The Union officials and the politicians in their WTU represents 5,000 teachers. thrall will dismiss such reforms as too radi­ cal to be taken seriously. I suspect most of Reporting Requirements the electorate would agree with them. But that is the real outrage. Individual freedom As long as teachers are forced to fund the of association is guaranteed by the First union against their will, policymakers Amendment to the Constitution. It ought to should tighten up the legal reporting require­ be widely accepted as a mainstream idea. ments imposed on unions and should see to That it isn't is perhaps the worst legacy of it that those requirements are enforced. The Franklin Roosevelt's New Deal, made possi­ Security and Exchange Commission (SEC) ble by a complicit Supreme Court, whose imposes tight reporting and independent fallacies have ever since been promulgated audit requirements on public corporations. by the government-school monopoly. Build­ In like manner, the Department of Labor ing better schools isn't union work. It is the (DOL) should impose and enforce similar work of competition and entrepreneurship rules on unions. The Secretary of Labor has in an open education market. •

48