The Freeman 1992

THEFREE IDEAS ON LIBERTY

252 Corporations at Stake CONTENTS Douglas J. Den Uyl JULY Contemporary "stakeholder" theory undermines private contractual responsibility. 1992 255 The Woman Who Discovered Private Property VOL. 42 William Holtz How a primitive Albanian widow helped Rose Wilder Lane to understand the NO.7 implications of personal freedom. 258 Mud' Farming and Political Extortion Richard B. Coffman Wasting resources by distorting economic decisions. 260 Capitalism: An Olympic Wmner David R. Henderson While economic liberty doesn't guarantee gold medals, it does allow each person maximum personal and entrepreneurial freedom. 262 Civil Disobedience: A Threat to Our Society Under Law Morris 1. Leibman Order is the sine qua non of the constitutional system if there is to be any possibility for long-term justice. 266 Czecho-Slovakia Rejoins the West Sean Gabb "Radical problems need radical solutions." 270 The Bill ofRights and Moral Philosophy Tibor R. Machan Recalling the basic ethical and political ideals captured in the first ten amendments. 273 The Rifle by the Door Donald G. Smith For capitalism to succeed, there must be a remnant of free-thinking, free-acting individuals who prize freedom above all else. 274 Memories ofa Recession Past Malcolm A. Kline Reflections on the addictive nature of unemployment benefits. 276 Unemployment and Liberty Benjamin Zycher Sources of unemployment in a free market. 277 The "Fair Trade" Myth Shyam J. Kamath We must resist calls for "fair" trade, ifwe wish to maintain and enhance our standard of living. 279 Student Activity Fees Thomas C. Klein Central planning on college campuses. 280 Do Seat Belt Laws Work? John Semmens Challenging the presumed benefits of increased auto safety regulations. 282 Book Reviews The Fair Trade Fraud by James Bovard; The Impossible H. L. Mencken, edited by Marion Elizabeth Rodgers; Forbidden Grounds: The Case Against Employment Discrimination Laws by Richard Epstein; The Litigation Explosion by Walter Olson. THEFREEMAN IDEAS ON L1BER1Y PERSPECTIVE

Published by Strength Springs The Foundation for Economic Education Irvington-on-Hudson, NY 10533 from Strong Ideas

President: Hans E Sennholz The Foundation for Economic Education is a Editor: John W. Robbins "home" for the friends of freedom everywhere. Senior Editor: Beth A. Hoffman FEE's spirit is uplifting, reassuring, and con­ Contributing Editors: Bettina Bien Greaves Mark W. Hendrickson tagious, inspiring the creation of numerous similar Edmund A. Opitz organizations at home and abroad. F. A. Harper Editor Emeritus: Paul L. Poirot founded The Institute for Humane Studies; Ken­ Copy Editor: Deane M. Brasfield neth Ryker created the Freedom Education Center in Cedar Hill, Texas; and Ralph Smeed, the Cen­ The Freeman is the monthly publication of ter for Market Alternatives in Boise, Idaho. In Lon­ The Foundation for Economic Education, don, Antony Fisher founded the Institute for Eco­ Inc., Irvington-on-Hudson, NY 10533. FEE, nomic Affairs; in Buenos Aires, Alberto Benegas established in 1946 by Leonard E. Read, is a nonpolitical educational champion of private Lynch established the Centro de Estudios sobre la property, the free market, and limited govern­ Libertad; and in Guatemala City, Manuel F. Ayau ment. FEE is classified as a 26 USC 501 (c) built the magnificent Universidad Francisco Mar­ (3) tax-exempt organization. Other officers of FEE's Board of Trustees are: Gregg C. roquin. FEE's dedication to the ideals of liberty MacDonald, chairman; W.A. Speakman III, has been and continues to be an inspiration that of­ vice-chairman; Paul L. Poirot, secretary; fers great hope for the future and new courage and Don L. Foote, treasurer. confidence. The costs of Foundation projects and services We honor Leonard Read who created this home are met through donations. Donations are in­ for the friends offreedom. He knew that freedom vited in any amount. A subscription to The Freeman is available to any interested person means the pursuit of our own goals, provided we in the United States for the asking. Addition­ do not deprive others of their freedom to pursue al single copies $1.00; 10 or more, 50 cents theirs. His goal was peace in all social relations. each. For foreign delivery, a donation of $20.00 a year is required to cover direct mail­ FEE now is 46 years old. Although it is the old­ ing costs. est institution oflearning dedicated to the study of freedom in all its ramifications, it is as vibrant with Copyright © 1992 by The Foundation for Economic Education, Inc. Printed in the life and energy today as it was atits inception. Now, U.S.A. Permission is granted to reprint as in the past, it heeds the words of George Wash­ any article in this issue except "The Woman ington: "Let us raise a standard to which the wise Who Discovered Private Property" and "The Bill of Rights and Moral Philosophy," and honest can repair. The rest is in the hands of provided appropriate credit is given and two God." copies of the reprinted material are sent to -HANS F. SENNHOLZ The Foundation. President Bound volumes of The Freeman are available from The Foundation for calendar years 1971 to date. Earlier volumes as well as current is­ Will More Government Improve sues are available on microfilm from Univer­ Health Care? sity Microfilms, 300 North Zeeb Road, Ann Arbor, MI 48106. We are about to do something, anything about The Freeman considers unsolicited editorial health care supply. submissions, but they must be accompanied The impetus comes from the charge that we by a stamped, self-addressed envelope. Our spend more on health care but compare unfavor­ author's guide is available on request. ably with other countries in terms of life expectan­ Phone: (914) 591-7230 cy, infant mortality, and efforts to lower various dis­ FAX: (914) 591-8910 ease rates. This supposedly shows that our health Cover art: A Minuteman preparing for battle. care supply is both more costly and defective. © Dover Books.

250 PERSPECTIVE

But the cause may lie on the demand, not All this points out a real problem with health the supply side. Maybe we spend more on health insurance. Insurance is supposed to protect peo­ care because we have higher demands due to ple from events not their fault. When it pays for a factors such as high crime rates, drug use, and discretionary service, it is no longer insurance but lifestyles. welfare, and when some choose it - need it or Further, it is possible we spend more on health not - this raises both health and insurance costs. simply because we are richer. If we demand pro­ ***** portionately more health care as incomes rise, our Ifthe price of bread is $2 in one country and $1 higher costs might be due to our preferences, not in another, you might conclude that bread is supply-side inadequacy. "cheaper" in the second country. Would you conclude that because we spend But then suppose you discovered you had to more on recreation than some other country wait for three hours to get the $1 bread, as Rus­ that our recreation industry is bad and needs sians do. Is the $1 bread still "cheaper"? reform? Similarly, the statistic that Canadian per capita Simple connections between spending and health care costs are only 75 percent of the V.S.'s health are tenuous and worthy of better analysis is used to conclude the Canadian system is "cheap­ before we charge off and change the system or er" and we should adopt it. throw more money at it. The evidence suggests But think of the waiting lines for many medical that this will make matters worse. services in Canada: 24 weeks for coronary bypass, ***** 16 weeks for tubal ligation, 14 weeks for tonsillec­ tomy, 16 weeks for hysterectomy, 33 weeks for sep­ Instead of wringing our hands over the 35 mil­ tal surgery, and so on. lion who do not have health insurance, we should As a result, many sick Canadians come to the look at getting rid of the ways the government has V.S. for treatment and others die waiting. raised the cost ofinsurance and priced some out of Do you still think health care is "cheaper" in the market. Canada? A major cause ofhigh insurance premiums is the mandated benefits required by most states. For ex­ ***** ample, in Washington State, most health insurance When you have an industry that is full ofsupply­ policies must cover alcohol and drug abuse and the side rigidities, monopoly, and bureaucracy, most of services of chiropractors, occupational therapists, which are due to government regulation, throwing physical therapists, speech therapists, podiatrists, more money at it will simply raise prices and re­ and optometrists.... duce output. Health costs shot up after Medicare This is how special interest groups get their ser­ and Medicaid, and the rise in real output slowed or vices included in health benefits, thus helping their declined. business and spreading the cost to everyone. As Nobel laureate Milton Friedman recently Why not include economists, too? observed: "The V.S. medical system has become For $100 I would be gladto give you advice that in large part a socialist enterprise. Why should we might improve your economic health. And you be any better at socialism than the Soviets?" would be more inclined to buy my services, even if -JOHN T. WENDERS, from a useless, if insurance (other people) paid 80 to 100 column in the Moscow (Idaho)/ percent. Pullman (Washington) Daily News

251 252 THEFREEMAN IDEAS ON LIBERTY

Corporations at Stake by Douglas J. Den Uyl

n recent years the term "stakeholder" has "Primary stakeholders" are those groups need­ been introduced into the language of business ed for the corporation's "survival" (e.g., con­ I ethics. Itis meant to sound like, and to replace, sumers, labor, and management). But this distinc­ the traditional term "stockholder" in dealing with tion only indicates which groups are being given questions ofcorporate responsibility. Corporations favored status. There is no nonarbitrary way to dis­ now are said to be primarily obligated to their criminate between primary and other sorts of stakeholders, rather than to their stockholders. stakeholders, since under the right circumstances Originally corporate managers were seen as pri­ any stakeholder group could threaten a corpora­ marily accountable to stockholders. Indeed, they tion's survival. were thought of as the stockholders' fiduciaries. Replacing "stockholder" with "stakeholder" The "Stakeholder" undermines this fiduciary relationship. Thus, the and the Marketplace last vestige of private contractual responsibility is also undermined, making obligation a public affair The central difference between the stockholder open to "public" control. theory and the stakeholder theory does not, how­ According to an article by Anthony F. Buono ever, rest on realizing that there will be fewer and Lawrence T. Nichols in a popular business stockholders than "stakeholders." It is rather that ethics text, a corporate stakeholder is "any identi­ the stockholder theory is oriented toward markets, fiable group or individual who can affect or is while the stakeholder theory is not. affected by organizational performance in terms As Buono and Nichols put it, the stockholder of its products, policies, and work processes."l By approach "assumes that the interactions between this rather vague definition, everyone is a stake­ business organizations and the different groups holder of virtually every corporation. Thus, once affected by their operations (employees, con­ the proponents of the "stakeholder" terminology sumers, suppliers) are most effectively structured have made it difficult to think of corporations as as marketplace activities."2 In one sentence we private institutions, they try to draw a distinction have the crux of what is at issue here-the private between primary stakeholders and others. enterprise system versus its socialisticalternatives. Professor Den Uyl teaches philosophy at Bellarmine For if what is central to the "old" stockholder con­ College, Louisville, Kentucky. cept is that business relations should proceed 253 along market lines, then the "new" concept plans become accountable." But if that is so, nothing is to replace the market with something else. being justified, and there is no reason to abandon And why should we abandon the market in advocacy of the market-any more than there favor of the stakeholder theory? Buono and would be to abandon the rights of the accused in Nichols offer four reasons: the face ofa lynch mob just because someone pre­ dicted what the mob might do. 1. The stockholder model has failed to deal ade­ The third reason assumes that the stockholder quately with contemporary societal problems and model focuses less on business competitiveness the true complexities of economic transactions and survival than does the stakeholder model. This and interactions. is obviously false. Ifbusinesses are having trouble 2. It is in the long-term interest of business to being competitive, it probably isn't because they take a broader view of its responsibilities. If busi­ have failed to consider the groups with whom they ness does not become accountable for its actions interact. It may, however, be that they are not par­ on its own, growing stakeholder pressures will ticularly adept at nonmarket strategies, at courting ensure government-imposed accountability. groups who have the ear of regulators, or in 3. Understanding and satisfying the needs of appeasing others who oppose the market. (And if stakeholders is important to the well-being of the a business were good at such things, it is by no firm.... In today's highly competitive economic means clear why we should want it to be!) Indeed, and social environment, no important stakeholder competitive disadvantages may result from having can be ignored. to cater to groups orforces that contribute nothing 4. The stakeholder model is in keeping with our to successful market activity. notions of fairness. Employees, consumers, com­ The fourth reason is the only one appealing to munities, etc., are not just instruments for enrich­ ethics. But it depends on the acceptance of "our ing stockholders.3 notions of fairness." Even if we accept what is How good are these reasons? The first is either implied about fairness in this fourth reason, it false or begs the question. could just as well be used to claim that businesses It is false if it claims that businesses don't pay cannot be used as instruments for some stakehold­ attention to their social environment, because er's conception of the social good. Businesses, in businesses won't survive if they ignore what is other words, could be said to have rights to prop­ going on around them. It is also false if it claims erty and privacy independent of any demands that the stockholder view presented itself as a made by stakeholders. complete the,ory of the economic or social rela­ In any case, businesses don't turn employees, tions ofthe firm. The stockholder model was about consumers, and communities into "instruments" establishing primary management responsibility any more than shoppers turn a businessman into and using market processes to allocate resources. an "instrument" when they buy his product. Mutu­ It wasn't designed to list all the interest groups a ally beneficial trade hardly qualifies as "instru­ firm might confront or impact. mentalizing" conduct, unless one has concluded The first reason begs the question if it implies that market transactions are inherently such. But that the stockholder view does not easily accom­ if that were so, we would be back to the problem modate nonmarket alternatives or broad public of begging the question. obligations. Of course it doesn't, but whether it Moreover, the stockholder theory doesn't say should is precisely what is at issue. that the managers' only conceivable obligations The second reason is equivalent to a threat. If are to stockholders, but rather that their primary businesses don't behave, "growing stakeholder obligation is to them because the stockholders, in pressures" will lead the governmentto impose effect, have hired the managers to serve their "accountability." A business's property rights and interests. Such a relationship is tangible and direct. privacy are to be sacrificed to bullying interest Contrast that with the amorphous set of obliga­ groups. tions to anyone and everyone the stakeholder the­ The second reason also can be read as a predic­ ory is likely to generate. The stakeholdertheory, as tion of what will happen "if business does not a consequence, will issue in actions according to 254 THE FREEMAN • JULY 1992 the views of those who are the most vocal or polit­ grounds in stakeholder theory for the corporation ically savvy. to pay more attention to the stakeholders as stock­ In short, there are no compelling reasons to holders than any other group the stakeholders adopt the stakeholderview and plenty ofgood rea­ may claim to represent. sons not to. The issue, then, is not semantic, nor is it that the term "stakeholder" carries with it tacit implica­ No Commitment, No Stake tions. We have seen that the implications, once appreciated, are all out front. The issue is that this In the end it must be noted that most groups new use oflanguage is being pushed by those with considered to be "stakeholders" have no stake in an anti-market message. corporations at all. With the possible exception of Business people are especially vulnerable to employees, stakeholder groups have no interest in such verbal manipulations and may therefore fail the well-being of any particular corporation. True, to see all the implications ofthe substitution. In an they may have an interest in how corporations age of competition from a widening variety of affect them, but to have a stake in something is to sources, expanding markets, and increased diver­ care about its prospects, as one might when invest­ sity in employment populations, businesses may ing in a firm. Whether the "good" the stakeholder feel they are being hit from all sides. It is easy, group wants is provided by this orthat corporation therefore, to insert a term like "stakeholder" into (or the state) doesn't matter to them; whether the the business vocabulary because it seems to cap­ "bad" it complains of is alleviated by this or that ture the feeling of having to concern oneself with corporation (or the state) also doesn't matter. multiple points of impact. Yet we shouldn't let the Whether a given corporation is succeeding in the feeling cloud our judgment. Those speaking loud­ market is of no concern to these groups because est about obligations to stakeholders are not inno­ they have made no commitment to it. Their per­ cent purveyors oflinguistic aid. For when the term spective is strictly societal. "corporate stakeholder" is correctly used, the only To actually have a stake by investing in a corpo­ true stakeholders are stockholders. D ration would be an act of private enterprise and interest-something stakeholding, by defi­ 1. Anthony F. Buono and Lawrence T. Nichols, "Stockholder and private Stakeholder Interpretations of Business' Social Role," in Business nition, opposes. For it would contradict the spirit Ethics, edited by W. Michael Hoffman and Jennifer Mills Moore of stakeholding to invest in a corporation even as (New York: McGraw-Hill, 1990), p. 171. 2. Ibid. a vehicle for protest, since there would be no 3. Ibid., pp.174-75.

IDEAS Capital Accumulation Benefits Everyone ON man who criticizes the conduct ofbusiness affairs and pretends to know bet­ LIBERTY ter methods for the provision of the consumers is just an idle babbler. If he A thinks that his own designs are better, why does he not try them himself? There are in this country always capitalists in search ofa profitable investment oftheir funds who are ready to provide the capital required for any reasonable innovation. The public is always eager to buy what is better or cheaper or better and cheaper. What counts in the market is not fantastic reveries, but doing. It was not talking that made the "tycoons" rich, but service to the customers .... Undercapitalism the acquisitiveness ofthe individual businessman benefits not only himself but also all other people. There is a reciprocal relation between his acquiring wealth by serving the consumers and accumulating capital and the improvement ofthe standard of living of the wage-earners who form the majority of the consumers. The masses are in their capacity both as wage-earners and as consumers interested in the flowering ofbusiness. This is what the old liberals had in mind when they declared that in the market economy there prevails a harmony of the true interests of all groups of the population. - LUDWIG VON MISES "The Economic Foundations of Freedom" 255 TheWoman Who Discovered Private Property by William Holtz

he final European Communist regime to Lane carried with her an essentially unexam­ collapse of its own weight was in Albania, ined baggage of parlor-socialist ideas, common T a country, someone has said, that served to among writers and intellectuals of the time and demonstrate how much government could be attached to the historical spectacle ofthe develop­ packed into a tiny space. Sadly enough, the inter­ ing Soviet Union. Herexperience in Europe and in nal repression necessary to maintain this regime the Caucasus would lead her to question these had enslaved once more a people who had been ideas; her experience in her own country in the struggling for centuries for freedom from external 1930s would lead her to rebel against them; and domination-by the Ottoman Turks, the Serbs, The Discovery ofFreedom would be a distillation the Montenegrins, the Greeks, and finally the Ital­ of her thought and experience. ians. The most backward of European nations In the mountains of Albania, Lane had one of even before its seizure by Hoxha's partisans at the her earliest practical encounters with the implica­ end ofWorld War II, since then Albania had fallen tions ofpersonal freedom. There she met a woman ever farther behind the modern world as its histor­ who, in contravention of all tradition and teaching ically grounded xenophobia was reinforced by a in her society, had discovered private property. reactionary Stalinism that cut it off even from its By chapter six of The Peaks ofShala, Lane had nominal compatriots in the Communist bloc. Now brought herself and her readers deep into the Albania is again open to Americans, although mountains ofnorthern Albania, where in scattered these must still travel in supervised tour groups. and isolated villages she found a primitive yet One of the first Americans to travel exten­ noble tribal society, generous and courteous to sively in pre-Communist Albania and to take an guests but locked in blood feuds with neighboring intelligent interest in its problems was Rose tribes under the Law of Lec, which dated from Wilder Lane (1886-1968), whose The Peaks of Alexander the Great. She estimated that, except Shala (1923) documents her visit to some of that for their rifles, they were essentially living in the country's remotest mountain regions. Lane was eighth century. The tribal leaders were much also the author of a classic handbook of libertar­ interested in her reports from the outside world, ian thought, The Discovery of Freedom (1943). which she tried to interpret for them as best she The two are not directly connected, although could. But in one village Lane found a problem The Discovery ofFreedom was in a way the cul­ beyond her powers of explanation, as the village mination of a process of discovery that began elders asked how they might settle a woman's when she went to Europe in the 1920s as a free­ revolutionary claim to the fruits of her own labor. lance writer. All she wanted, this woman said, was justice.

Professor Holtz, who teaches in the Department of English, University of Missouri-Columbia, is writing a She told us with a calm precision; none ofher biography ofRose Wilder Lane. people's rhetorical flourishes. Even through the 256 THE FREEMAN • JULY 1992

barrier oflanguage I could see that she was stat­ feet; it was like a picture by Jan Steen changed ing her case as a lawyer might who was not into the wildest of futurist canvases. I expected addressing a jury. them to fly at one another's throats, after the She had been married five years; she was words that they hurled at each other like spears. twenty-one years old. She had two children­ I expected them to strike the woman, so violent­ boys. While she was married her husband had 1y did they thrust their faces close to hers, built a house. It was a large house; two rooms. clenching quivering fists on the hilts of the She had help~d her husband build that house. knives in their sashes. She stamped her foot, her With her own hands she had laid the slate on the lips curled back like a dog's from her fine, roof. She liked that house. She had lived in it gleaming teeth, and she stood her ground, flash­ four years. Now her husband had been killed by ing back at them words that seemed poisoned the Serbs and she wanted to keep that house. by the venom in her eyes. "My house!" she She wanted to live in it alone, with her two repeated, and, "I want my house!" children.... As the argument died down for a moment, Lane Her husband's brother, head of the family asked for an explanation from one of the elders. now, had taken it. He was living in it with his "Who can say what the avalanche wants?" replied wife and children and brothers and cousins the chief contemptuously. and-I forget exactly; seventeen of them in all. The family, which comprised all the village at "She would break our village into pieces. She the foot of the slope on which we stood, had has no respect for wisdom or custom. She says decided that the house should be used for them. that a house is her house; she is a widow with But she would not do it. She wanted that house two sons, and she demands the house in which all for herself; she said again that it was her she lived with her husband. She wishes to take a house. Until she got that house nothing would house from the tribe and keep it for herself. content her or keep her silent. Have the mountains seen such a thing since a hundred hundred years before the Turks came? "I Want My House!" She is gogoli [insane]." "I helped to build that house," said the wom­ "But where do you suppose she got the idea?" an. "With my own hands I laid the roof upon it. Lane asked her interpreter. "Heaven knows," he It is my house. 1will not give up my house." replied. "Who can tell what women will think of?" "My pen spilled ink on my excited hands as 1 Later that evening, the woman brought her tried to capture their words in shorthand," Lane appeal to a gathering of the tribal elders. wrote. "I was seeing, actually seeing with my own "Undoubtedly we were among the most courteous eyes, the invention of private property!" people in the world," Lane wrote, "but the next moment that idea was completely upset, for out of Then the oldest man ... obviously the chiefof the darkness walked that rebel woman who chiefs-appealed to me. believes in private property." "In your country, what would you do with such a woman?" And I perceived that 1 was She came quite calmly into the circle of the obliged to explain to this circle ofeager listeners firelight, her beautiful hands low on her thighs, a system of social and economic life of which below the wide, silver-shining marriage belt, the they had never dreamed, of which they knew as blue beads twinkling at the ends of the long little as we know of the year 2900. black braids of her hair, her chin up, and a light ofbattle in her eyes.... Rose Wilder Lane tried to explain not merely "When am 1going to get my house?" said the the ownership of houses, but of land, and ofprop­ woman. She stood there superb, holding that erty held for rents and investment, as well as the question like a bone above a mob of starving notion of hired labor and taxes paid to govern­ dogs, and they rose at it. ment. And failed, as she could see when another 1have never seen such pandemonium. Three chief rose to make a passionate speech that con­ chiefs spoke atonce, snarling; they were ontheir vinced everyone but the complaining woman: THE WOMAN WHO DISCOVERED PRIVATE PROPERTY 257

"Such things can never be. Even a child knows that it would be foolish to own a house in which he did not live. Of what use is a house, except to live in? As it is, each man has the house in which he lives, and there are houses for all, and they belong to the tribe that built them. Itis impossible that a man can own a house. Itis not the nature of men to own houses, and we will never do it, for the nature of man is always the same. It is the same today as it was before the Romans came, and it will always be the same. And no man will ever own a house." "Glory to your lips!" they said to him. "It is so." The woman, who had been sitting quietly lis­ tening to this, now rose and very quietly, without saying farewell, slipped out of the firelight, and ina moment, by the sound ofthe closing door, I knew she had left the house. But there was something about my last glimpse of her back that makes me believe she is still clamoring for her house, and will be until long after her baby sons are grown and married. Unless she gets it Rose Wilder Lane, taken at about the time she first visited Albania. sooner. dom and personal responsibility was only an occa­ What Lane had encountered in this Albanian sional glimmer in a dark chr.onicle ofsubmission to village was, ofcourse, a primitive communism, the authority. Its most promising flowering had been kind with a small c. The big C variety she would in the founding of the American republic, but its encounter soon enough, as her travels took her to essence lay in the assertion of the individual Georgia, Armenia, and Azerbaijan during the human will. Which might happen anywhere, even time that these ancient nations were being in the medieval setting of an Albanian village in absorbed into the growing Soviet Union. There 1921, in the heart of a woman who had discovered she encountered the well-intentioned, blundering private property. Soviet bureaucrats disrupting centuries-old agri­ Lane retained her love for Albania, living there cultural practices with confiscations, allocations, for a year in 1926-27 even as she saw it sinking and taxes on production that reduced some peas­ under Italian influence. She informally adopted ants to a despairing certainty of starvation. What the 12-year-old boy who was her guide and inter­ was claimed as progress was really regress, she preter on the first mountain trip. She supported concluded; and she returned to the United States him through his studies at Cambridge and stood as with her socialist opinions badly tarnished. godmother to his family after he married, even When in the 1930s she made a similar tour ofthe though she was never able to return to visit them. farms of her own Midwest and observed the New When this young man was interned, first by the Deal farm programs in place, she found a familiar Italians during World War II and then by the Com­ insertion of the hand of government between the munists after, she was able to provide clandestine worker and the produce of his labor. The result support to his family, some of whom have now was a train of thought that finally produced made their way to the United States. Among those The Discovery of Freedom, the subtitle of which Albanians who remain behind, working to build a told the real story: Man's Struggle Against free society in place ofthe most recent tyranny, are Authority. doubtless the descendants of that rebellious wom­ In the long course of history, she argued, the an who had insisted on the right to keep what she insight into the absolute validity of personal free- had worked to build. D 258 Mud Farming and Political Extortion by Richard B. Coffman

illiam Faulkner's comic novel, The not a typical entrepreneur, but is an oddity who Reivers, contains an amusing episode survives and profits only because ofa very unusual W that raises interesting questions about set of property rights. entrepreneurs and exploitation. The story is set in Consider how the story would change if the the rural South in the early days of the century, rights to the road were owned by a government when roads were primitive dirt tracks and automo­ that used· the full police powers of the state to biles still a novelty. During an epic cross-country enforce its rights and protect its property. Clearly, car trip, Faulkner's heroes run afoul of a "mud plowing up the public roads would be illegal. If farmer." By night he plows up a muddy stretch of someone tried mud farming, both he and the road road. By day he waits at the roadside with his would be placed under surveillance,· and he'd be mules to tow cars through the mud for an exorbi­ prosecuted if apprehended. There would be very tant fee. Faulkner's heroes make a valiant effort to little mud farming. This, ofcourse, is the usual case push and shove their car through the mud hole, but in the United States, where governments own and in the end it defeats them, and they escape only by protect the public roads. hiring the mud farmer to tow them out. Now consider the opposite, where the farmer From a social point of view, mud farming is owns the road as private property. He would find clearly an undesirable line of business. The mud mud farming a very expensive way to force travel­ farmer uses up valuable resources (mule time and ers to pay for using his road. A toll gate would be a his own time) to manufacture a road hazard, and cheaper way to collect revenue. And rather than then uses ,up more of the same resources to tow creating road hazards, the owner probably would cars through the mud. This is a very wasteful activ­ find it in his interest to improve the road so more ity. It is also highly profitable. people would use it. That is what happened in the This seems to contradict the "invisible hand" early United States, when toll roads were common. argument of Adam Smith. Back in 1776, Smith Faulkner's mud farmer operates in a situation argued that the invisible hand of competition where property rights are vague and poorly would force private profit-seekers to work for enforced. The road in the story appears to be a the general interest. Firms would survive under public right-of-way, which means anyone has a market competition only if they made products right to travel on it. But it really belongs to no one, consumers wanted, and made them cheaply and and government isn't vigilant about protecting efficiently. But consumers certainly don't want travelers'rights. mud holes. Is it realistic of Faulkner to contend Of course, if a farmer tried to treat the road as that the profit motive encourages their produc­ his private property and set up a toll gate, he soon tion? Which is the better model: Smith's theory of would be stopped by the police. Plowing the right­ the entrepreneur as unwitting benefactor of the of-way is also illegal, but if the farmer sneaks out public, or Faulkner's theory of the entrepreneur at night and plows the road, he isn't likely to get as exploiter? caught. Thus mud farming arises as a means for an Upon closer analysis, Faulkner's mud farmer is entrepreneur to charge travelers for using proper­ Professor Coffman teaches in the Department of Eco­ ty he doesn't own, but can partly appropriate for nomics, University ofIdaho. his own benefit. 259

The Importance ofProperty Rights Professor McChesney says the practice is also common at the Federal level. For example, beer The lesson to be drawn from Faulkner's story is brewers worry about Congressional power to raise that clear, well-defined, enforceable property Federal beer taxes, so they routinely invite key rights are important. The "invisible hand" fumbles members of tax committees to make paid appear­ when property rights are vague or unenforceable. ances at trade association meetings. Brewers feel Poorly designed property rights can encourage this "protection" money has helped keep the beer entrepreneurs to undertake wasteful economic tax at the same level since the Korean War. activities. For example, entrepreneurs in the old Of course, politicians sometimes have to show West wastefully hunted the buffalo almost to their muscle to make their threats credible. Sever­ extinction because it was a common property al years ago, Congress ordered the Federal Trade resource, belonging to everyone and to no one. On Commission to impose costly warranty regula­ the other hand, cattle that today graze the same tions on used-car dealers. After the dealers raised range are private property and thus are carefully their campaign contributions to hundreds of managed by ranchers. members of Congress, Congress ordered the FTC Some "entrepreneurs" will find crime an to rescind the regulations. attractive economic activity when property rights Tax reform time is bonus time for members of are costly to enforce and protect. Protection rack­ Congressional tax committees. Campaign contri­ ets are similar to Faulkner's mud farming. A butions more than double when tax reform is in criminal puts together a team of toughs whose the air. Everyone knows that they can be hit with manner and appearance advertise their capacity new taxes when the whole system is on the table. for violence. The team burns out a few small busi­ Those who have not bought friends on the tax nesses or roughs up some owners. Having estab­ committees may feel especially vulnerable. Politi­ lished a credible threat, the gang leader then sells cians aren't shy about bringing the facts of life to "protection" to those who know they might be the attention of private parties. They aggressively the next victims. solicit contributions as soon as tax reform is on the Protection rackets are most successful in poor, horizon. During the tax reform of 1985-86, lobby­ urban areas where business owners cannot count ists reported that politicians made the greatest on the police to protect and enforce their property demands ever seen in a nonelection year. rights. In contrast, anyone trying to set up a protec­ Just like mud farming, political extortion wastes tion racket in a wealthy suburb would probably resources. Politicians use up time and energy cre­ find the law coming down on him like a ton of ating legislative hazards and threats, much as mud bricks. Secure property rights in the wealthy sub­ farmers waste resources creating road hazards. In urb discourage people from entering the socially addition, and probably more important, political wasteful business of protection. extortion wastes resources by distorting private Activities similar to protection rackets also economic decisions. Entrepreneurs take risks, occur in political systems. Ideally a nation's consti­ make investments, invent new goods and new pro­ tution would protect property rights. In practice, duction techniques, all to make money. These use­ though, modern governments have tremendous ful activities create new wealth and income and power to violate private property by imposing reg­ raise the standard of living. But, McChesney ulations and taxes. Unscrupulous politicians can points out, the threat ofpolitical extortion reduces use this power to extort money from groups and incentives to create new wealth and income. The individuals by threatening to tax or regulate them. entrepreneur will take fewer risks and undertake Emory University law professor Fred S. fewer investments and new projects if sly politi­ McChesney says such extortion has become a reg­ cians are lurking nearby, ready to expropriate his ular feature of the American political landscape.* gains. The result is a large hidden cost of political In California the practice is so entrenched that it extortion-the cost of wasted economic opportu­ has its own vocabulary. The terms "milker bills" nities. D and "juice bills" are used to describe bills intro­ duced for the hidden purpose of milking or * Fred S. McChesney, "Regulation, Taxes, and Political Extor­ tion," in Roger E. Meiners and Bruce Yandle, editors~ Regulation squeezing private parties for payments. and the Reagan Era (New York: Holmes & Meier, 1989), pp. 223-41. 260

Capitalism: An Olympic Winner by David R. Henderson

he sports pages tell us that America lost the pIes. Then look at the big picture. Literally. Mil­ Winter Olympics. In a literal sense, that's lions ofpeople worldwide, who couldn't afford the T true. But to the extent that an economic time ormoney to attend the Olympics, enjoyed the system proves itself at an Olympics, it was Ameri­ Games on television. ca's capitalistic system of economic freedom, that Buttelevision is a product ofcapitalism, ofa sys­ triumphed. tem in which people are relatively free to pool The point was made implicitly in the exhibition investors' funds and to take risks with them. That's skating on the last Saturday of the Olympics. Vik­ how television stations, TV sets, and commercial tor Petrenko, the gold medalist for men's skating satellites were developed. And although it's obvi­ from Odessa in Ukraine, put on one of the most ous now that televising winter sports is profitable, joyous performances of the evening. He per­ that's mainly because about 30 years ago, Roone formed, besides some breathtaking triple axles, a Arledge of ABC had the courage to risk his mixture of the twist and other modern dances, all employer's funds to make it work. to the tune of Chubby Checker's "Let's Twist Few of these investors and entrepreneurs were Tonight." selflessly creating for the greater good ofmankind. So what does this have to do with economics? Or, if they were, it wasn't their main goal. Their Look at the economic system under which the desire was to make money, and some of them twist and the song were produced. It was capital­ earned lots of it. ism. But that's not a flaw of capitalism. It's one of Only by being free to create and to sell the capitalism's principal virtues. It means that if we products of his creativity was Chubby Checker desire something, we can depend on people who able to make his song and his dance popular. The want to make money to provide it. There are a lot tools and the means of expression that Petrenko of people like that-I am one, proudly, and so, I chose were the fruits of economic freedom. hope, are you. Because there are so many ofus, an Now you might say that these are trivial exam- economic system that depends on us is pretty reli­ able. David R. Henderson is a senior research fellow at the So if capitalism is so great, why did the United Hoover Institution in Stanford, California. He was for­ merly a senior economist with President Reagan ~ Coun­ States, which still has a fair amount of economic cil ofEconomic Advisers. freedom, win so few medals? Why did the Unified 261

Viktor Petrenko, who recently announced plans to move to the U.S., is lookingforward to buying a house and.continuing his career here.

Team, made up of athletes from five former Soviet Americans who own their own homes or rent republics, win so many? And why were 20 of two-bedroom apartments, and who have cars Germany's 24 individual medals won by athletes that don't break down. from what was recently socialist East Germany? Thus, for many citizens of these socialist coun­ The apparent American failure actually results tries, the only way to get ahead was sports. The from one of our country's strengths. Economic government could guarantee them a private apart­ freedom doesn't guarantee gold medals. Itguaran­ ment, food, and, for some ofthe best athletes, a car tees that each person is free to pursue whatever inferior to a Yugo. In return, the government got career orleisure activity interests him. Because we them to work almost every day, year after year, on have so many choices, many Americans who could their "sport." Many athletes still in the former be champion athletes spend their lives doing other Soviet Union probably would trade everything things. they have for a green card that allows them to live, Members ofthe Unified Team and the former work, and make money in America. East Germans did so well because their govern­ I admit my disappointment that America didn't ments, by enforcing socialism, precluded other win more medals. But one ofmy joys watching the options. In the former Soviet Union, people still Winter Olympics and anticipating the summer cannot choose many careers or start many kinds games in Barcelona is seeing capitalism work in all of businesses. They look in awe at average its glory. 0 262

Civil Disobedience: A Threat to Our Society UnderLaw by Morris I. Leibman

This article, which originally appeared in Never in the history of mankind have so many The Freeman in December 1964, is an adaptation lived so freely, so rightfully, so humanely. This ofMr. Leibmans address before the American Bar open democratic republic is man's highest achieve­ Association Meeting, Criminal Law Section, in the ment-not only for what it has already accom­ summer ofthat year. As we again face challenges to plished, but more importantly because it affords our society and its rule oflaw, his ideas merit acare­ the greatest opportunity for orderly change and ful re-examination. the realization ofman's self-renewing aspirations. Our goals, as set forth in the Declaration, have oodrow Wilson once said: "A nation been buttressed by a Constitution, a system of which does not remember what it was checks and balances, a mechanism judicial, legisla­ W yesterday, does not know what it is tive, and executive which permits the continuation today, nor what it is trying to do. We are trying to of Western civilization's spirited dialogue. This do a futile thing if we do not know where we came unhampered dialogue makes possible the oppor­ from or what we have been about." tunity to continuously approximate, through our In seeking to improve tomorrow, it is our duty legislative and judicial system, our moral and spir­ to remember where we have been and reflect on itual goals. where we are. The long history of man is one of pain and suf­ We live in that instant of time when it can be fering, blood and tears, to create these parameters said that never before have the people in this for progress. This noble and unique experiment of country enjoyed so many material goods, howev­ ours over a hundred years ago, lived through the er "imperfect" their distribution. Never before cruelty of a massive civil war to test whether such have we had as much mechanical, electronic, and a unique system could endure. It did. It has. It will. scientific equipment with which to subdue the Let us always remember that the law society is the natural obstacles of the universe. But the multi­ pinnacle ofman's struggle to date-the foundation plication of consumer wealth is subordinate to for his future hope. our greatest accomplishment-the fashioning of There is an obligation to that law society. Itwas the law society [one that operates under the rule stated by Abraham Lincoln in these passionate of law]. words: "Let every American, every lover ofliber­ ty, every well-wisher to his posterity swear by the Morris 1. Leibman (1911-1992), was a partner in the law blood of the Revolution never to violate in the firm Sidley and Austin. He was awarded the Presidential Medal ofFreedom in 1981 by President Ronald Reagan. least particular the laws of the country.... Let 263 every man remember that to violate the law is to the Middle East, and in Africa. We cannotsanction trample on the blood of his father, and to tear the terror in our cities. Retaliation is not justified by charter of his own and his children's liberty. Let bitterness orpast disillusionment. No individual or reverence for the laws be breathed by every group at any time, for any reason, has a right to American mother to the lisping babe that prattles exact self-determined retribution. All too often, on her lap; let it be taught in schools, in seminar­ retaliation injures the innocent at random and pro­ ies, and in colleges; let it be written in primers, . vokes counterretaliation against those equally spelling books, and in almanacs; let it be preached innocent. from the pulpit, proclaimed in legislative halls Our imperfections do not justify tearing down and enforced in courts ofjustice. And in short, let the structures which have given us our progress. it become the political religion of the nation; and The only solution is the free and open law society. let the old and the young, the rich and the poor, In times when man's progress seems painfully slow the grave and the gay of all sexes and tongues and on anyone issue, we might also consider how well colors and conditions, sacrifice unceasingly upon we are doing on all issues compared to most areas its altars." of the world over most of the world's history. No society whether free or tyrannical can give In this frame of reference let us identify certain its citizens the "right" to break the law. There can current forces whose aim is to destroy the law be no law to which obedience is optional, no com­ society. mand to which the state attaches an "if you Ethnological warfare, the inciting of dissension please." and conflicts between nationalities and races, has What has happened to us? Why is it necessary, been a widely exploited revolutionary tactic. Com­ at this moment, in this forum to repeatwhat should munists were long instructed to change passive be axiomatic and accepted? Many, many words attitudes to "activist" attitudes, to intensify the more eloquent than mine have examined from struggle at all levels at all times. Communists have every angle the genesis, the roots, the grievances, had their imitators, who mimic, under many "the­ the despair, the bitterness, the emotion, the frus­ ories" and many labels, doctrines which reject law tration that have resulted in the tragedies of these and order. The Nazis, the Malcolm X's, the Ku days. Klux Klanners have repeatedly and directly chal­ lenged our principles and insisted on taking "law" Responsible Citizenship in their own hands. The jungle lawlessness of the frontier demon­ Now what is the responsibility of a citizen-the strated to the pioneers that law was essential to the majestic title bestowed on those of us who create establishment of civilization. It was not the and share in the values of the law society? Let destruction of the buffalo, or the rise of fences, or there be no question of where we stand on human fast-draw gunmen that tamed the wilderness. It rights and our rejection of discrimination. Surely was the installation ofAmerican juridical proceed­ the continuing social task for the morally sensitive ings that enabled our people to weld together the citizen is to impart reality to the yet unachieved disparate territories destined to become an organ­ ideal offull and equal participation by all and in all ic nation. our values and opportunities. Yet we must remember that there are no easy Semantic Traps solutions for man's inhumanity to man. Justice Frankfurter once said: "Only those lacking respon­ I am also deeply troubled by certain concepts sible humility will have a confident solution to which have sought acceptability: the idea of problems as intractable as the frictions attributable "Freedom Now" and the idea of"Righteous Civil to differences of color, race, or religion." Disobedience." In my opinion both terms are Let's not forget there is nothing new in violence. semantic traps and only add heat to the problems Violence has throughout mankind's history been of freedom and justice for all. It is a further too often a way of life. Whole continents have semantic trap to divide the discourse on civil dis­ been involved in riot, rebellion, and revolution. obedience into a stereotype of liberalism vs. con­ Human rights problems exist in India, in Asia, in servatism. 264 THE FREEMAN • JULY 1992

"... No individual orgroup at any time, for any reason, has a right to exact self-determined retribution. All too often retaliation injures the innocent at random andprovokes counterretaliation against those equally innocent."

"Freedom Now" is an illusion. The desire for nonviolent? In my opinion this idea has no place in self-expression can be satisfied only in an atmo­ our law society. sphere of freedom, and freedom is not absolute. It Parenthetically, I would suggest that you exists only within the necessary restraining mea­ experts in criminal law consider whether there can sures of society. be "civil" disobedience where there is a specific I wish it were possible to have heaven on earth. intent to disobey the law. Such a specific state of I wish it were possible to have the ideals of justice mind is ordinarily treated as the essence of crimi­ and freedom in all their perfect form at this nality, hence not "civil." Therefore, it seems to me moment. The cry for immediacy is the cry for that there is an inherent contradiction in the impossibility. It is a cry without memory or per­ concept of premeditated, "righteous" civil dis­ spective. Immediacy is impossible in a society of obedience. human beings. What is possible is to continue Yet I prefer to base the case on broader patiently to build the structures that permit the grounds. The concept of righteous civil disobe­ development of better justice. dience, I think, is incompatible with the concept Let us also beware of pat phrases such as "jus­ of the American legal system. This is particular­ tice delayed is justice denied." Justice delayed is ly axiomatic where this society provides more no excuse for antijustice or the destruction of the than any other for orderly change; where every law system. The fact that particular reforms have minority-including the minority of one-has not been completely achieved does not justify been protected by a system of law which pro­ rejecting legal means-the only hope for lasting vides for orderly process for development and achievement. change. I cannot accept the right to disobey The demand for equality cannot be converted where, as here, the law is not static and where, if into a fight for superiority. We must be for equality it is claimed to be oppressive or coercive, many under the rule of law. We are for freedom under effective channels for change are constantly law, not freedom against the law. available. Our courts do not have to apologize Let us also avoid unreal questions such as for their continued dedication to the liberty of whether justice is more important than order or all men. Our legislatures have regularly met the vice versa. Order is the sine qua non of the consti­ changing times and changing needs of the soci­ tutional system if there is to be any possibility for ety with consideration for the unalienable rights long-term justice based on public consensus. of all. Even the Federal and state constitutions have been amended. Our law has not only been Flouting the Law a guardian offreedom, but the affirmative agent for freedom. What about the concept of "righteous civil dis­ While the idea ofcivil disobedience may evoke obedience"? I take it that all men now accept the sympathy where the claim is made that the cause fact that there can be no justification for violent is just, once we accept such a doubtful doctrine disobedience under our constitutional system. Is we legitimatize it for othercauses which we might the concept validated when the disobedience is reject. We must be even more careful in the sym- CIVIL DISOBEDIENCE: A THREAT TO OUR SOCIETY UNDER LAW 265

pathetic case because, in effect, that sets the stan­ mative processes. We must insist that men use dard of conduct which then becomes acceptable their minds and not their biceps. But, while the for cases not as appealing or for groups not as emphasis must be on the three R's of reason, responsible. Thus, we substitute pressure for per­ responsibility, and respect, we cannot accept self­ suasion and squander the carefully nurtured val­ righteousness, complacency, and noninvolve­ ue of self-restraint and jeopardize the system of ment. We reject hypocritical tokenism. We have law. an affirmative and daily duty to eliminate dis­ The plain fact ofhuman nature is that the orga­ crimination and provide opportunity-full nized disobedience of masses stirs up the primi­ opportunity and meaningful equal justice for all tive. This has been true of a soccer crowd and a our people. lynch mob. Psychologically and psychiatrically it In an era of social, political, and scientific rev­ is very clear that no man-no matter how well­ olutions-and at a time of accelerating and com­ intentioned-ean keep group passions in control. plex change-we of the law must particularly renew our understanding and improve our artic­ Disobedience Breeds Disrespect ulation of the basic issue of freedom under law and the continuing need to strive for equality and Civil disobedience is an ad hoc device at best, meaningful liberty and justice for all. and ad hoc measures in a law society are danger­ Freedom is not some easy gift of nature. The ous. Civil disobedience under these circumstances plant of liberty has not grown in profusion in the is at best deplorable and at worst destructive. wilderness of human history. Liberty under law is Specific disobedience breeds disrespect and a fragile flower. It must be nurtured anew by each promotes general disobedience. Our grievances generation of responsible citizenry. Let but a year must be settled in the courts and not in the of neglect be sanctioned, even celebrated, and the streets. Muscle is no substitute for morality. Civil jungle of force threatens to recapture the untend­ disobedience is negative, where we require affir- edgarden. D

IDEAS ON The Flight from Values LIBERTY trong, cohesive societies are based on even stronger belief systems sustained by the people as they make their daily fundamental political, Seconomic, and culturalchoices. Over the ages, people creating strongciv­ ilizations made such choices not because they felt they could be "proven" cor- rect (science barely existed), but because they believed their choices were right and arose naturally from their common beliefsystem. Today, however, we seem to have abandoned the idea that a common belief system is necessary at all-a result, in part, ofa general decline in faith, and the moral strength derived from it. Instead, we like to think that all values are equal or "relevant"-that just about anything goes. This attitude has arisen not from any deeply honest con- frontation with past or present values but from a flight from values altogether. -WILLIAM D. GAIRDNER The Trouble with Canada 266

Czecho-Slovakia Rejoins the West by Sean Gabb

had dinner recently with a friend in Prague. Czecho-Slovakia was firmly part of the West. Before 1989, he had been a dissident econo­ Then in March 1939, it ceased to exist. The I mist. His open contempt for socialism had Munich Conference offive months earlier had giv­ denied him a university post, and earned him con­ en a great slice of its western region to Germany. tinual police harassment. Today, he is a senior Now the Germans annexed what remained of the official in the Federal Ministry ofFinance. People Czech lands, and for the next six years ruled them address him as "Pan Doktor" and listen to him as conquered provinces. Slovakia retained a for­ with respect. Prosperity, though, has not altered mal independence, but was in fact a German satel­ his opinions. He remains as committed now to lite. The social damage was incredible. First, hun­ free markets as in 1977, when as a graduate stu­ dreds of thousands of Jews, Gypsies, and others dent he first read F. A. Hayek and Milton Fried­ were deported to concentration camps and mur­ man. Asked about the pace of economic reform dered. Then, following the Allied victory, millions in his country, he replied, "Radical problems of the indigenous German community were need radical solutions." These words express a expelled, with heavy loss oflife. When reconstitut­ majority of public opinion and the policy of ed in 1945, the country was scarred almost beyond almost every governing body in the Czech and recognition. Slovak Federal Republic. It had little time for recovery. In 1948, the Communists took power in a political coup. They An Unhappy History turned the country into a grim, Stalinist tyranny. The media were put under a close censorship. All The history of Czecho-Slovakia between 1938 opposition, real or imagined, was liquidated. The and 1989 was bitterly unhappy. Before then, it was whole economy was nationalized. The effects ofall the 11th richest country in the world. The Czech this hardly need telling: While the prisons filled lands contained the greatest concentration of and the toll of broken lives mounted, Czecho­ industrial plants on the whole Eurasian land mass Slovakia's place in the world economic order east of the Ruhr Valley. Slovakia possessed a steadily fell until it was the poorest country in thriving peasant agriculture. The country was the Central Europe. only democracy in the region. It stood out sharply from all its neighbors by importing rather than TheRe~orationofLilieny exporting refugees. Its cities were exciting, poly­ glot communities of merchants and artists. Franz The long nightmare came to an end with the Kafka and Karel Capek were among its leading revolution of November 1989. The new federal writers. Leos Janacek was its leading composer. and state authorities immediately set about restor­ Mr. Gabb is a seniorpolicy adviser to the Slovakian gov­ ing freedom under the rule of law. Political free­ ernment. dom was restored almost overnight. This was an 267 achievement so great and sudden that the most Currency Convertibility and sober local account might be disbelieved. Let me Trade Liberalization therefore quote from a U.S. State Department report: On January 1,1991, the Foreign Exchange Act established internal convertibility of the crown. Czechoslovakia made impressive progress in This allows corporate and natural persons regis­ restoring human rights in 1990.... Legislation tered as economic entities to buy unlimited providing for the rights offree speech, assembly, amounts of hard currency from the central bank. association and press was adopted, and the citi­ They can use this to pay for the import of goods zenry embraced these rights to create an active, and services, orto pay royalties, interest on foreign pluralistic political life. Political offenses were loans, and dividends. eliminated from the criminal code, and legal Although these entities are required to offer all provisions strengthening the right of due pro­ hard currency they earn to the central bank at the cess for criminal defendants were approved. A official exchange rate, this has not proved onerous. sweeping presidential amnesty freed over A strict control ofthe money supply unique among 20,000 persons, including all known political the former Soviet satellites has produced a very prisoners. Arbitrary arrests, searches, and inter­ close convergence ofthe official and black market rogations, which had been commonplace during exchange rates. Quite often, foreign visitors to the Communist regime, were eliminated in Czecho-Slovakia will find as good a rate of practice, and safeguards were adopted to pre­ exchange in the banks as on the streets. Indeed, vent arbitrary interference with privacy, home, whatever it may be in theory, the crown is emerg­ family, and correspondence. (Country Reports ing as one of the hardest currencies in Europe: on Human Rights Practices for 1990 [Washing­ Since my arrival here from London in November ton: U.S. Government Printing Office, 1991], 1991, it has appreciated against the pound. And, p.1123) while the law restricts private individuals to chang­ Economic freedom, however, will and must ing no more than 3,000 crowns per year into hard take much longer to restore. The task is colossal. currency, this is seldom enforced. My own country, Great Britain, made heroic Unti11991, all foreign trade with Czecho­ efforts in the 1980s to reverse a generation of Slovakia was the monopoly of a few state-owned economic decline. Butthese efforts were made in companies. These cared nothing about profit. a country that was still mostly capitalist, with a Contracts were made on the basis of personal functioning price system and developed capital corruption or the espionage requirements of a markets. The Czech and Slovak Federal Repub­ Warsaw Pact member state. All trade in motor lic began its own transformation with none of cars went through Motokov, in textiles through these advantages. Economic assets were owned Centrolex, in heavy machinery through Skodaex­ by the state to an extent rare even in the former port, in electronic equipment through Kovo, in Soviet bloc, and there existed no meaningful arms through Omnipol, in chemical products structure of relative prices by which to chart any through Chemapol and Petrimex. economic course or measure any economic per­ These companies were not abolished, but their formance. monopoly was lifted, and they must now compete "Radical problems need radical solutions." with private trading companies. On the whole, These words are not just a catchy slogan. The fed­ this has been to their benefit. Kovo has taken eral and state.authorities have begun the most especially well to the new commercial imperative, ambitious scheme ofmarket reform ever attempt­ even expanding and diversifying its activities. ed. Its purpose is to convert the Czecho-Slovak The result has been to open the country to economy within three years from one based on normal international trade, private company with central planning to one based on an almost com­ private company. pletely free play of market forces. I describe this This has not meant the establishment of free scheme under the following headings: currency trade. Tariffs are as high as 70 percent. Also, for a convertibility, trade liberalization, restitution, small range of goods, a license is required before small privatization, and large privatization. foreign trade can begin. But Czecho-Slovakia is 268 THE FREEMAN • JULY 1992 actively seeking to join the European Community, sold, at an estimated value of $350 million. There either as a full or associate member, and its tariffs is still a long way to go before the state has divested will sooner or later need to be lowered. As for the itself of every small business. restricted goods, most ofthese have military appli­ Until November 1991, there was often ambigu­ cations, and the rules are no different in principle ity as to whether a business should be put to auc­ from those long applied in mostWestern countries. tion or withheld for restitution. There remains the problem of "old structure personnel"-middle Restitution and senior management under the old regime­ who deliberately obstruct the auctions. But the One of the main problems at the start of the process can only be delayed, not prevented. reform process was the complete absence of pri­ Under the Large Privatization Act of 1991, the vate enterprise. Unlike in neighboring Poland and 3,000 or so largest companies in Czecho-Slovakia Hungary, everything had been owned by the state. are to be privatized by a method of their own A company law was passed to allow the setting up choosing. Some have chosen sale by auction. Oth­ of private businesses, and a start was made on ers have chosen sale to a foreign inv.estor. The making the necessary accompanying changes to most notable examples of this have been the sale the civil law and the taxation system. Butfar better of the Skoda auto company to Volkswagen, and than waiting while the new companies founded in the sale of the state airline to Air France. Most, 1991 grew large was to transfer existing state ven­ however, have chosen "coupon privatization," a tures into private hands. method first used in British Columbia, and sug­ So far, the most successful of these transfers has gested to the federal government by Jan Svejnar of been restitution. This allows the owners-or their the University of Pittsburgh. legal assignees or heirs-ofproperty stolen by the In principle, the method is quite simple. The Communists since 1948 to seek its return. The last participating companies are to transform them­ date for filing claims was October 31,1991. selves into joint-stock companies owned by the There were some problems with this form of state. Shares are then to be distributed free to transfer. First, proving ownership was often diffi­ those citizens who have registered as interested cult after up to 40 years of interrupted possession. and who have bought books of investment Second, where houses or very small businesses coupons. The estimated value of these companies were concerned, there was the position of current is around $10 billion. There is a registration fee of possessors to take into account. Third, the restitu­ about $35. tion law excluded Germans who had been expro­ The practice is more difficult. Coupon privatiza­ priated between 1945 and 1948. This led to prob­ tion is to happen in two stages, during which it will lems between Prague and Bonn, and at a time be possible to exchange investment coupons for when a new treaty of friendship was being pre­ shares in companies. The first began in March pared between the two countries. 1992. Each stage of privatization contains several Even so, restitution worked. Property worth rounds in which shares are offered. Each round about a billion dollars has been put into private contains four phases. hands. Those who at first doubted its wisdom, like Inthe first, the companies announce thevalue­ Tomas Jezek, Minister of Privatization in the expressed in investment coupons-oftheshares to Czech Republic, have been converted. He com­ be offered in the round. In the second, the holders ments, "Ihave changed my former attitude toward of investment coupons order shares in the compa­ restitution." nies of their choice. In the third, these.orders are processed. In the fourth, the results of the round Privatization, Large and Small are announced. There are three possible results. Under the Small PrIvatization Act of 1990, pro­ First, there is no excess of demand or supply. All vision was made for the sale and leasing of small the shares offered will be bought at the stated price. businesses-such as shops, restaurants, hotels, That will be the end of the round. Second, there is workshops, and so forth-at public auction. By the a lack of demand. All those who have ordered end of 1991, more than 21,000 units in the Czech shares will be satisfied, and the excess will be lands and more than 8,000 in Slovakia had been reserved for the next round, in which they will be CZECHO-SLOVAKIA REJOINS THE WEST 269 offered at a lower price. Third, there is an excess of had to be undone. But its effects in a low-wage, demand. No shares are sold. Instead, coupons are low-productivity economy were very sharp. Con­ returned to their holders and the shares are offered sider: The average male worker in Czecho­ in the next round at a higher price. Slovakia earns 3,480 crowns per month (30 crowns Coupon privatization is a kind of lottery, in equal approximately one dollar). After income tax which there will be winners and losers. Most obvi­ and otherdeductions, he takes home 2,800 crowns. ously, it will be possible for more astute investors Let's assume that his wife brings in another 1,500 -or those with inside information-to guess that crowns, and then deduct 400 for rent and otherser­ certain shares will be under-subscribed in a given vices. This leaves 3,900 crowns per month to feed round. They will then be able to wait until a later and clothe a family of two adults and usually two round and buy what they want at a lower price. children. This is 130 crowns per day. This will certainly cause resentment among less Now, a pound of beef costs 40 crowns, coffee is sophisticated or lucky investors, and may lead to 38 crowns per pound, and a large loaf of bread is wrangles over corruption. 25 crowns. Soap, toothpaste, and other toiletries There are more practical objections, put forward cost English prices, which are rather higher than by the advocates ofwholesale privatization by auc­ American. A good pair of boots can cost 2,000 tion. They claim that the coupon method will delay crowns. Things like refrigerators, washing ma­ foreign investment, since books of coupons are chines, television sets, and other consumer available only to Czech and Slovak citizens, and it durables can easily cost a year's disposable will do little to break up the monopolies and cartels income, and often more. that currently dominate the economy. Then there is unemployment. This has so far It must also be said that coupon privatization is remained low in the Czech lands. But toward the being tried in a country with an obsolete telecom­ end of 1990, it stood around 5 percent in Slovakia. munications network and a complete lack offinan­ Fifteen months later, it was 12.3 percent and rising cial experience. A similar scheme would cause fast. This part of the country had been turned by problems in any Western country; and the advo­ Stalin into a vast armaments factory. With the col­ cates of privatization by auction are rubbing their lapse of the Soviet empire, its market vanished. It hands with glee, waiting for its failure and their is impossible to say how much of the now redun­ own moment of triumph when their alternative dant heavy industry is worth privatizing-how scheme is extended from small privatization to much of it can be converted to civilian production large. Only time can tell how the scheme will work and made to earn a profit. in practice. The uneven suffering of the Czech and Slovak Nevertheless, registration went very well, with republics has led to a constitutional wrangle that more than half the adult population buying books may grow large enough to threaten the continued of investment coupons; and the first stage is, as I existence of the federal state. It can only be hoped write, proceeding without obvious mishap. It may that prosperity will return before any serious polit­ be that, as in so much else of their economic ical and economic damage can result. reform program, the Czech and Slovak peoples And Czecho-Slovakia deserves to be prosper­ are so determined to put Communism behind ous. Without significant help from the West­ them that even a flawed plan will be made to work. especially without any lowering of trade barriers by the European Community-it is fast throwing Problems ofEconomic Reform off the disastrous legacy of the half century that preceded 1989. It transformed itself at once into a Not everything, of course, has gone smoothly. constitutional democracy. It is transforming its All major economic changes involve losses for economy with wonderful rapidity from one domi­ some person or group. In January 1991, most nated by central planning to one based on markets prices were decontrolled. During the next few and individual initiative. months, there was an average increase of 50 I came to Czecho-Slovakia worried about what percent, and some prices rose by more than 200 I might find. Four months later, I feel honored to percent. This was a fundamental requirement of be living through one of the most inspiring the reform program. Forty years ofprice distortion rebirths of modern history. D 270

The Bill ofRights and Moral Philosophy

by Tibor R. Machan

·merica's.political foundations were laid well. Few of them champion individual rights. more than 200 years ago. The Declara­ Even fewer scholars in other branches ofthe liber­ A tion of Independence simply but clearly al arts, what with their relativism, determinism, . stated that each ofus has basic rights to life, liberty, and amoralism (the famous value-free stance of and the pursuit of happiness. The framers of the many social scientists) respect the idea. While lip Constitution then made the pointin more detail by service is still given to human rights-by Amnesty adding the Bill of Rights, so as to single out some International and other "human rights watch" rights as deserving special mention without belit­ agencies-the precise meaning of such rights has tling others not listed. become obscure. Whereas the meaning of the The central thesis of these documents is the right to liberty had been that one ought to be free doctrine ofindividual rights. Spelled out in consid­ to go it on his own initiative, without uninvited erable detail by the English philosopher John intrusion from others-which also meant that Locke, this doctrine holds that each person is a other people could not be conscripted to be one's sovereign being, not to be ruled by or rule over means for even the most benign objectives-today others, but rather to take charge of his property­ one has a "human right" to nearly everything one his own person and estate. Our nation's founders values or likes. These are the numerous entitle­ thus rejected the most pervasive doctrine on the ment programs that have nearly bankrupted the globe at the time-thatsome people were justified nation. by God, nature, force, or convenience to be the Yet it isn't only that the concept of human rights masters of their fellowmen. has been given a new meaning, by way ofcombin­ The framers, unfortunately, did not fully accept ing the Lockean doctrine with many alien dogmas. the doctrine ofindividual rights when they permit­ Many political philosophers scoff at the idea out­ ted slavery, so the Constitution remained, for near­ right. Having accepted the notion that truth is his­ ly a century, a contradictory legal document. It torically relative, they view the belief that each took a civil war to change this. Indeed, without the person is a sovereign being, not to be subjugated philosophical basis stated in the Declaration, it is to the will of king, party, or even popular majori­ doubtful that a solid political argument against ties, as a relic of the distant past. slavery could have been found in our country's Paradoxically, atthesame time that such histori­ heritage. cist theories are used to make short shrift of our How is this doctrine of individual rights faring political heritage, other theorists are not hesitating among today's political philosophers? Not very to indict us for "our" past treatment of Native Tibor R. Machan teaches philosophy at Auburn Univer­ Americans, African-Americans, women, and oth­ sity, Alabama. ergroups. Here, suddenly, we have discovered uni- 271 versal standards, so we can say that ourforefathers against aggressors. The right to bear arms is the were bigots, racists, sexists, and so forth. Why this right of self-defense, which flows from the basic is taken seriously and not dismissed as incoherent, right to our lives and from the basic value that since it applies current value judgments to other life possesses for each of us. historical periods, is one of the curiosities of con­ The Third Amendment begins to affirm the temporary political discussions. right to private property by prohibiting govern­ While America's 200 years of experience with ment's use of private homes in time of peace. rights theory is certainly worthy ofcelebration, the Itis clear from this that the right to private prop­ substance of what we should be celebrating is not erty was a vital aspect ofthe politics ofthe framers. faring well in the halls of academe. Fortunately, And that right affirms in practical terms the basic however, those who inhabit those halls are not so rights to life and liberty already spelled out. In oth­ influential about the direction the world will take er words, the right to private property translates as they sometimes believe. into as concrete an indicator as possible the prac­ The people, so long as their right to free thought tical requirements for respecting the rights to life is still respected by law, are still in charge. And and liberty. Itmakes clear that those rights require they can make the difference between a future a sphere of personal jurisdiction secured by prop­ guided by the principles that gave birth to our erty law. nation or one directed by alien philosophies that will take us back to the dark ages of feudalism and The Fourth Amendment, which protects us despotic rule. against unreasonable searches and seizures, Itis worth some effort to recall the basic ethical extends the idea ofprivate property rights to cases and political ideals captured in the Bill of Rights. in which there can be understandable temptation This will indicate just how unjustified the histori­ to violate them. Even when an emergency or state cist skepticism is vis-a-vis that wonderful docu­ of siege exists, there may be only reasonable ment. search and seizure, meaning that the government may disregard the privacy of its citizens only with The First Amendment maintains that no law good reason. may be made concerning the crucial human activ­ This makes moral sense, once again, because ities of speech, press, assembly, or the petitioning when victimization has occurred, citizens of a free of the government for a redress of grievances. society are obliged to support efforts to rectify How does this prohibition square with moral matters. Without reasonable search and seizure sense? powers, such rectification is impossible-how else Morality involves, at the most basic level, that would the government's detectives conduct a pro­ (1) each person is free to make choices as to what cess of discovery and arrest a suspect? But stan­ he orshe will do and (2) there are identifiable stan­ dards ofreasonableness-which, ofcourse, cannot dards by which to determine which of our choices be laid outforever but must remain contextual and are better or worse. Any decent society must aim, unspecified, although they are always required ultimately, for justice. And justice amounts to -need to guide the process. (Here is a clear case respecting the basic nature of human community ofa procedural right, deriving from the right to life life. Such a task will, therefore, involve respecting and liberty.) the basic tenets ofmorality, since the moral nature The Fifth Amendment also illustrates the of human life is perhaps its most distinctive moral awareness of our framers. Except for mili­ feature. tary legal procedures-where the task is neces­ The First Amendment pays direct attention to sarily guided by emergency conditions-to the moral nature of our lives by placing protection restrain someone it is necessary to layout a around each person's right to think and speak as detailed indictment citing reasonable grounds for he judges best. suspicion. Once such a process has begun, it The Second Amendment shows equally firm makes sense that in a free society bent on main­ respect for the value of every person's life and taining justice, cooperation with the legal liberty in a social context by making it clear that machinery of government should be mandated. no one is to be deprived of his capacity to defend (This, incidentally, justifies the subpoena process 272 THE FREEMAN • JULY 1992

as well. Citizens of a society bent on justice may ations. It also imposes an obligation on legislators not exempt themselves from participating when and courts to proceed to discover the further the wheels of justice require their presence.) rights of the people. In short, the Ninth Amend­ Self-incrimination, in turn, may not be coerced, ment·is in a way a code of professional ethics for since that would be to treat an accused person as if our political representatives and appointed offi­ he had already been convicted. Moreover, no right cials. It is, of course, widely violated. may be disregarded without due process of law, The Tenth Amendment may be understood as because "due process" is the detailed expression a feature of a contextualist approach to the law. of just treatment. It involves the presentation of The federal government cannot have much evidence justifying reasonable suspicion, probable expertise in many areas, so it should not meddle cause, clear and present danger, and so on. Barring in such matters. It is, indeed, prohibited from these, no action may be taken that disregards the doing so-it is beyond its range of authority, its rights of citizens. jurisdiction. The law, after all, must be imple­ Finally, the Fifth Amendment assumes that pri­ mented locally, applying to the facts of life of the vate property may occasionally be needed for pub­ citizenry. Some of these facts will apply generally lic purposes. This makes sense-courthouses, enough so they may be treated at the Federal lev­ police stations, and military bases must be built. el. Others, in turn, are regional. Thus we have dif­ These are genuine public concerns, not to be con­ ferent governmental bodies-from the Federal fused with the bloated rendition of "public" down to the municipal. None of their laws may employed in recent times, whereby anything a siz­ violate the individual rights of the citizens. But able number of people happen to desire becomes apart from that prohibition, the different govern­ a public purpose. Only when these proper public mental bodies will have needs for different pow­ uses are at issue may government engage in tak­ ers. That is the thrust of this amendment. ings' and only if the market price is paid for what is taken. After the Bill of Rights, the amendment pro­ cess quickly deteriorated into a mobocracy, and The Sixth Amendment speaks of a "right to a nearly every time some powerful sentiment speedy and public trial," thus specifying further raged, an amendment was passed to satisfy it. It is certain procedural implications for a legal system not speculative to say that nearly every good sub­ concerned with justice in a genuine free society, sequent emendation of the Constitution could one in which citizens are recognized as sovereign. have been derived from its existing provisions, The same applies concerning the Seventh and including the abolition of slavery, while the rest Eighth Amendments. were expressions of impatience with the wheels The unfortunately neglected Ninth Amend­ of justice and the life of a free society. ment affirms that citizens have innumerable There is a lot more to morality than what the implicit rights, depending on their various circum­ laws of a just legal system contain, but these stances, based on the rights affirmed both in the laws are certainly not without moral content. Declaration of Independence and in the amend­ Furthermore, they even suggest several addi­ ments cited earlier. Since the Constitution is a brief tional moral considerations, for example, the and concise political/legal document, it cannot be idea of individual responsibility for one's life, expected to enter the details ofthe theory ofrights the virtues of prudence and courage and hon­ guiding it. esty. The affirmation of personal autonomy does The Ninth Amendment is the way the framers not make sense without the recognition that indicated that they have not forgotten the broad­ human beings are capable ofand responsible for erframework guiding their political/legal deliber- governing themselves. 0 273

The Rifle by the Door by Donald G. Smith

The history ofliberty is the history ofresistance. or even exist, when that environment isn't present. -WOODROW WILSON The newly independent Soviet republics, for example, have no tradition ofprivate property, nor ur Founding Fathers were not saints. In can anyone look back upon an ancestor who spite of the Fourth of July oratory that picked up a rifle and marched to keep government O tends to put them in the holy robes of the out of his life. It just isn't there, and we shouldn't anointed, they were not this at all; nor would I misread the signs, because surface Westernization want them to be. has precious little to do with freedom. The truth is that the men who shaped our nation Our system, both political and economic, was were a feisty and cantankerous lot who weren't born in the fierce and unyielding spirit ofpersonal about to play by rules they didn't like. They were independence. For capitalism to succeed there uprooted Europeans who came here because they must be a remnant of free-thinking, free-acting, didn't like what was going on in England, Ger­ sometimes difficult individuals who prize personal many, Poland, Sweden, or wherever, and wouldn't freedom above all else. This is what our system is put up with it. I like being the descendant ofsome­ about and why it works. one who walked off in a huff. There's nothing Our founders held to a philosophy of human wrong with a good huff now and then. worth and the right of an individual to function as The men who stood in ranks at Lexington just that-an individual. Even in our outward dis­ Green, and forced the Declaration of Indepen­ plays of unity, such as World War II, the driving dence, and sat out that terrible winter at Valley force was individual freedom. The G.!. who Forge, were the kind ofimplacable hard-heads who stormed the beaches at Normandy was not there made American civilization possible. These people to die for the fatherland but to finish a war and planted the seeds of free-market capitalism. become a civilian again. Totalitarian nations have We live with an economic system that grew from never understood that the best fighting man in a demand for political freedom, and this is its the world is the one who wants only to get back strength. In order for it to exist, however, it had to home, burn his uniform, and do something with breed in the right environment. It wasn't just our his life. leaders who made it work but also the recalcitrant Although we don't like to admit it, the spirit of farmer who kept a rifle by the door and was pre­ America is the spirit ofresistance, a negative force pared to go down fighting to protect his property. that says "I won't" more times than "I will"; "No It was the Green Mountain Boys and the Sons of way" more than "Yes, sir." There is a lot of Min­ Liberty, with a healthy dollop of Molly Pitcher. uteman in the best ofus and none ofit in the worst These people were imbued with a strong passion ofus-a certain irascibility that is a becoming trait for defending what was rightfully theirs, and the when galvanized into an overall spirit built more economic system grew out of this. upon the parts than the whole. One can only wonder if capitalism can flourish, This is our heritage, America, and we should Mr. Smith, a frequent contributor to The Freeman, lives love and respect it-every crusty, ill-natured, in Santa Maria, California. obstinate, hard-nosed piece of it. D 274

Memories ofa Recession Past by Malcolm A. Kline

his recession reminds me of the last one, straight who was working on which state's claims, when I was working in an unemployment the office was divided by state signs that made T office. President Reagan, too, had extend­ it look like a political convention. Every Friday, ed unemployment benefits as an answer to a in convention-like fashion, our supervisor recession, then extended them again, leaving the announced which section paid the most initial unemployed eligible to collect an entire year of claims. The New Jersey section, very hospitable to benefits. Many remained unemployed for a year. initial claims, usually won. While working in that Pennsylvania office in the Like many anti-recession programs, the extend­ summer of 1983, I began to wonder if there was a ed unemployment benefits of1983 took effect just connection. as the economy was turning up. Although we were The unemployed apply for compensation from nominally "temporary" employees, hired to han­ state agencies that process their claims and pay dle a heavy claims load in a recession, many stayed them their weekly benefit checks. Though funded on long after the recovery began, since extended to a great extent at the Federal level, unemploy­ benefits remained in place. ment compensation is distributed by state offices. The claims load lightened considerably when One of my first tasks involved learning three extended benefits ended and still more when sets of initials-UC, EB, and FSC. UC stood for unemployment benefits became fully taxable, thus the threshold 26 weeks of unemployment com­ creating an interesting set of incentives. pensation. Both EB (extended benefits) and FSC "Since the availability of UI [unemployment (Federal security compensation) were funded by insurance] benefits may create a disincentive to the federal government. EB lasted 13 weeks, FSC search for and accept re-employment, the VI sys­ another 13. tem encourages recipients to seek work by impos­ I drag in the last two acronyms because my job ing various administrative requirements," the U.S. depended on them. We were "intermittent intake Department of Labor told us. interviewers" (Ill's) whose salaries were paid by "Allrecipients are required tobe able and avail­ Uncle Sam. able for work; in most states, recipients who are The goal or standard for Ill's was to pay a cer­ not job-attached are expected to look actively for tain level of initial claims for extended unemploy­ work, and they are often required to list job-search ment benefits, so we paid them. In fact, we had a contacts when claiming VI benefits."* lively competition to do so. Few caseworkers followed up on these "listed Our office paid benefits to, and examined the job-search contacts." If they did, they would dis­ claims of, residents of the other 49 states who filed cover, as I did much later, such phenomena as claims against Pennsylvania companies. To keep race horses with "Inc." added to their names. Mr. Kline is an associate editor at the National Journal­ Salesmen working on commission frequently ism Center in Washington, D. C. collected benefits. In taprooms and other meet- 275

ing places, steelworkers spoke of unemployment receiving benefits if they were retraining for a new compensation as "a paid vacation to go deer position. The budding seminarian told me, "Well, hunting." Claims and demands for benefits were you can collect benefits if you're retraining for a the norm and occupied most of our time. new position, and I figure that's what I'm doing." The exception was the Asian immigrant who We denied that claim. mailed us a thank-you note for the two weeks of In Pennsylvania, every state agency is a union unemployment compensation she received before shop. Arrivals after 7:30 AM were frowned upon, landing anotherjob. She just didn't understand the but so were departures after 4:30 PM, since over­ system. time had to be approved. More predictable was the applicant who called Two 15-minute breaks supplemented the to complain that he had to wait three hours at an mandatory one-hour noon lunch. The morning unemployment office to file a claim for his weekly break came at 9:45, the afternoon break at 2:45. check and then wait another week to get it. One morning at 9:40, I eyed a letter requesting "You poor stiff," his less-than-understanding a telephone response. I was about to dial when I caseworker told him, "I've got to work 40 hours a noticed the time, then said aloud, "Aw, the hell week to collect my check!" with him; it's five minutes till break." The addictive nature of unemployment benefits An office veteran at the next desk said: "I'm came home to me when I followed up on a letter proud ofyou, Malki. You're starting to think like a we received. A man who worked in the print shop state employee." at The Philadelphia Bulletin before that newspa­ That's when I had to leave. 0 per folded ran out of unemployment benefits and

decided to enter a seminary. *A Study ofUnemployment Recipients and Exhaustees: Findings At the time, the unemployed could continue from a National Survey (U.S. Department of Labor, 1990), p. 114.

IDEAS ON LIBERTY

Self-Help

t may be ofcomparatively little consequence how a man is governed from without, whilst every thing depends upon how he governs himself from I within. The greatest slave is not he who is ruled by a despot, great though that evil be, but he who is the thrall of his own moral ignorance, selfishness, and vice. Nations who are thus enslaved at heart can not be freed by any mere changes ofmasters or ofinstitutions; and so long as the fatal delusion prevails, that liberty solely depends upon and consists in government, so long will such changes, no matter at what cost they may be effected, have as little practical and lasting result as the shifting of the figures in a phantasmagoria. The solid foundations of liberty must rest upon individual character; which is also the only sure guaranty for social security and national progress. John Stuart Mill truly observes that "even despotism does not produce its worst effects so long as individuality exists under it; and whatever crushes individuality is despo­ tism, by whatever name it be called." - SAMUEL SMILES From the book Self-Help, published in 1859. 276

Unemployment and Liberty by Benjamin Zycher

nVOlU.ntary idleness is an unpleasant experi· tion, he is searching for a job in which his expect­ ence, so it may seem absurd to speak of the ed productivity-his contribution to the social I "benefits" of unemployment. It often wreaks basket valued by others-is higher. Thus, the havoc with people's lives, and can impose costs period of unemployment increases (the present upon its victims from which long-term recovery value of) his stream ofcontributions to society, as may at best be difficult. measured by market prices reflecting individual But that is not the whole story. There is a differ­ preferences. Again, most would agree· that this ence between the sources and effects ofunemploy­ outcome is positive, but forget that a period of ment as viewed by an individual on the one hand unemployment may first be needed. These are and by society as a whole on the other. To putit dif­ examples of what economists call "frictional" ferently, individuals may opt for an economic sys­ unemployment. tem with particular kinds of unemployment that Now, the individuals described above, searching yield important benefits over time, not all of which voluntarily for new or better jobs, face conditions are narrowly economic. Before a quick conclusion very different from those confronting a worker is drawn about unemployment, it is useful to con­ suddenly handed a pink slip on a Friday afternoon. sider its sources in a free market. Yet strictly speaking, the two situations are identi­ Consider first someone entering the labor force. cal in principle, in that the worker facing a layoff This might be a former student looking for a first possibly could avoid unemployment and the need job, or a homemaker returning to the formal labor to search for new employment by offering to market. Should such people accept the first jobs accept a pay cut. A refusal to do so, followed by an they are offered? Or should they search for more effort to find a new job, is the same analytically as elusive opportunities providing higher pay, greater the refusal of our job seekers above to accept the compatibility or upward mobility, a closer fit with first available opportunity. qualifications and interests, or other desirable fea­ However, as a practical matter, not all market tures? Most people would agree that it is usually adjustments can be both incremental and econom­ best to spend some time considering various ic. In a world of constant change, the expectations options, but many forget that a period of unem­ ofsome people are bound to be disappointed, and ployment may be needed to uncover the ensuing important among these are their (prior) decisions benefits. about jobs, careers, and training. Tragic as such Bear in mind also that wages and salaries outcomes are for those affected adversely, it is under capitalism tend to reflect the value of important to keep in mind the sources .of unex­ expected productivity in alternative employ­ pected change. ments. Someone looking for a better-paying job In a free market, unexpected shifts in consumer is seeking more wealth, but whatever his motiva- preferences can alter the value of the labor that produces various goods and services. Any attempt Benjamin Zycher is Vice President for Research at the to blunt the effects on workers, therefore, will Milken Institute for Job and Capital Formation in Sher­ man Oaks, California. implicitly deny consumers the right to express 277 their changed preferences. At a normative level, "Cyclical" unemployment results from macro­ laid-off workers who previously displayed shifting economic mismanagement-in particular, exces­ consumer demands that caused other workers to sive swings in monetary growth-by the federal be laid off are in no position to complain-if we government. agree as a society to honor individual preferences, Once someone becomes unemployed "involun­ we cannot say that they are to be honored for some tarily," unemployment is likely to be viewed in a but not others. Each person risks unemployment completely negative light. But the decision to par­ in exchange for greater expected wealth. Such eco­ ticipate in an economic system offering the bene­ nomic shifts resulting from changes in relative fits and risks of unemployment is a decision made demands and/or costs yield what economists call before the fact, conceptually identical to deciding "structural" unemployment. at the beginning of the year whether to buy life The common thread linking frictional and struc­ insurance. Greater expected wealth often accom­ tural unemployment is their origin in individual panies a higher risk of involuntary future unem­ liberty, to wit, the liberty of the job seeker as he ployment, but any person may end up with great balances forgone opportunities against the possi­ wealth and little unemployment or with great bility of better options yet to be discovered, and unemployment and little wealth. the liberty of consumers as they choose among Fairness requires that people be free to choose goods and services and therefore among the many among occupations with alternative combinations types of labor implicitly embodied. Thus, some ofprospective wealth and unemployment risk, and unemployment is both inevitable and useful in then take their chances. That not all such combi­ terms of other human goals. nations are available is due not to the nature of Other types ofunemployment are less salutary. capitalism, but to our existence in a world oflimits. Various government policies cause "induced" or Market processes in fact offer a broad range of artificial unemployment. Foremost among them such choices, as many occupations offer greater is the minimum wage, which prevents the security in exchange for smaller incomes. Ifwe are employment of low-skilled workers whose to allow individuals to make choices among such expected productivity lies below the legal mini­ alternatives, and if consumers are to be allowed to mum. The Social Security payroll tax, various indulge their preferences, some unemployment, safety and health standards, and other policies harsh though it is, must be seen as an adjunct of are likely to have similar unemployment effects. human freedom. D The "Fair Trade" Myth by Shyam J. Kamath

he siren song of managed "fair" trade is a myth. Over 15 million new jobs were added once again in the air as the 1992 election between 1982 and 1989 as the U.S. ran up huge T nears. Cries of "buy American" fill the trade deficits. And the majority of these jobs paid newspapers and TV news programs. Japan-bash­ rather well, contrary to the "McJobs" myth. Job ing is in; free trade is out. growth was mainly in those sectors that were large­ The common argument advanced in favor of ly unprotected against foreign competition: com­ "fair" trade is that trade deficits (excesses of im­ puters and data processing, telecommunications, ports over exports) cost American jobs. But this is petroleum and chemicals, pharmaceuticals and Professor Kamath teaches economics at California health-related areas, scientific and photographic State University at Hayward. equipment, entertainment, leisure and recreation, 278 THE FREEMAN • JULY 1992 hospitality and tourism, and the service industries. the unfair trader. James Bovard points out in The Meanwhile, protectionist measures were failing Fair Trade Fraud (reviewed on page 282 of this to save American jobs. Quotas against Japanese issue) that America has over 8,000 tariffs, 3,000 autos (euphemistically called "voluntary" export clothing and textile import quotas, and a variety of restraints) imposed in the early 1980s didn't pre­ quotas and other nontariff barriers for steel, autos, vent the loss of over 200,000 jobs in the U.S. auto sugar, dairy products, peanuts, cotton, beef, industry, and General Motors recently announced machine tools and other industrial products. For massive new layoffs. The record in steel, textiles, example, America limits imports of ice cream to dairy products, shipping, and meat packing is the equivalent of one teaspoon per person each much the same. These industries shrank while pro­ year, and foreign peanuts to two per person. Such tective tariffs and subsidies were lavished on them restrictions reduce competition, raise prices, to save jobs. decrease variety, and cost American consumers Another common myth about "fair" trade is $80 billion per year, or $1,200 per family. that Japan severely restricts imports. In fact, The strongest argument against "fair" trade is Japan's formal and informal trade barriers are the existence of globally integrated multinational lower than those in America and other industrial­ corporations such as IBM, AT&T, and Procter & ized nations. For example, Japan's average tariff Gamble, and the interdependence of the inhabi­ on industrial products was 2.9 percent in 1987, tants of our "global village." It is estimated that compared with 4.3 percent in the U.S. and 5.8 over 40 percent of world trade is carried out by percent in the European Community. Nontariff more than 2,000 multinational corporations that barriers in Japan such as quotas and licenses were have no national identity and that produce and dis­ found by a World Bank study to be no more tribute through a globally integrated network. significant than those in the United States. Today, anyone wishing to "buy American" may Japan was the world's third largest importer in have to buy a car with a nameplate like Honda or 1990, taking in $235 billion worth ofgoods and ser­ Mazda rather than Chevrolet, Dodge, or Ford. vices. Imports have grown 85 percent since 1985. Logic and hard evidence dictate that we resist In terms of imports per person, the average the calls for "fair" trade if we wish to maintain Japanese spent $372 on American products in and enhance our standard of living in an interde­ 1990 while the average American spent $357 on pendent world. Free trade is still the best option Japanese products. During 1986-91, U.S. exports for promoting American prosperity. "Fair" trade rose by 91 percent, while Japan's exports grew by can only lead to an ever-escalating cycle of retal­ only 17 percent. American exports to Japan were iation and counter-retaliation, putting the world especially strong during this period, doubling to trading system at risk. Our future depends on $46.1 billion by the end of 1990. keeping our borders open and the goods and ser­ In fact, it can be argued that the United States is vices flowing. 0 279

tee) that the committee be abolished and the mandatory student activity fee not be collected. Instead I reasoned, "Let each individual student Student speak to his friends and acquaintances, decide what interests they have in common, and see how much money they would like to devote to their Activity common interests." When I attended the University of Chicago Law School from 1986 through 1989, I again suggested Fees that mandatoryfees be eliminated in favor ofa sys­ tem based on individual choice. When defending my idea at both schools, I was by Thomas C. Klein faced with questions such as: "Who will pay for the movies shown every Saturday?" "Howwill the school maintain the diversity of clubs and organi­ report in Insight magazine recently zations?" "Who will support the school paper?" revealed that the City University ofNew "What if a student just spends his $60 on beer?" A York (CUNY) student government I answered each question in turn, often defend­ incurred the following expenses: $13,011 for car ing my program to groups of students hurling service, $24,000 in salaries for the sister and close questions at me. I stated that the principal point friend of the student senate chairman, $2,209 for was to respect each individual's freedom of choice an electronic beeper service, and $49,000 for a lob­ over his own property. Each of us had relinquished bying trip to Albany to convince legislators not to this freedom under the system of centralized plan­ raise tuition. The expenditures are funded by an ning through the Budget Committee. 85-cent per semester student activity fee. I then addressed each empirical question as it When I attended Swarthmore College from was raised: The movie club will charge admission 1981 through 1985, I paid a $60 semiannual activity so that only those who attend will pay for movies; fee to fund various clubs, societies, newsletters, the diversity of clubs will be a function of actual and campus organizations. Thirteen hundred oth­ interest and how much each individual decides to er students paid the same mandatory fee. pay for his participation-certain clubs may fail The sum collected-$78,000 per semester­ for lack of support, others may come into exis­ was placed in an account and disbursed by a five­ tence; the school paper will have to support itself person Budget Committee. Ifa group of students through advertising, alumni contributions, sub­ formed a new organization, gained approval from scriptions, and single-copy sales instead of the dean ofstudents, and obtained a faculty advis­ through the current hidden tax on each student; if er, they could petition the Budget Committee for a student spends his money on beer, that is his own funds. Each club, society, newsletter, and organi­ free choice, no matter how others may view it. zation petitioned the committee at least once each My answers generated many questions and semester to secure an operating budget. After much discussion. Luckily, I found support for my holding hearings, the committee would allocate views from one of the economics professors at money to the Movie Society, the Mountaineering Swarthmore College and from like-minded stu­ Club, the Take~a-Professor-to-LunchProgram, dents at both Swarthmore and the University of the Women's Center, the Asian Students Society, Chicago. the Christian Fellowship, the Young Americans Unfortunately, funding centralization continues for Freedom, and other campus groups. at Swarthmore, the University ofChicago, CUNY, During my undergraduate days at Swarth­ and other college campuses. I hope that through more, I circulated the idea among my acquain­ the communication ofthe ideas ofliberty, and per­ tances (one ofwhom was on the Budget Commit- haps by the central planners' own missteps, such Mr. Klein practices corporate and securities law in Palo programs can be rooted out to allow freedom to Alto, California. flourish. D 280

Do Seat Belt Laws Work? by John Semmens

any states that have passed mandatory sumed safety benefits of increased auto safety seat belt-use laws have required that regulations appeared in lightly read academic M evidence of the law's effectiveness be journals. In a 1970 issue of Applied Economics, produced for the law to escape automatic expira­ L. B. Lave and W. W. Weber suggested that man­ tion. A recently published report-"Arizona Hos­ dated safety devices (seat belts, better bumpers, pital Costs for Seat Belt Use vs. Non-Use 1989, collapsible steering wheels) might lead to faster 1990, 1991"-from the Governor's Office ofHigh­ driving that could offset the safety gains. In 1975, way Safety purports to be the needed evidence for Sam PeHzman's "The Effects of Automobile the extension of Arizona's seat belt law. Unfortu­ Safety Regulations" in the Journal of Politi­ nately, these kinds of reports have neither asked cal Economy hypothesized that safer autos would nor answered the right questions. lead to more aggressive driving that would endan­ Proving that people suffer more severe and ger other users of the roads. expensive injuries when they're not wearing seat This earlier research has been mostly ignored or belts belabors the obvious. No credible opponent dismissed in favor of adherence to more simplistic of seat belt laws has disputed that seat belts can research that, unsurprisingly, proves that crash­ save wearers from death and injury. To present test dummies suffer more damage without safety statistics that never were in doubt as the long­ devices. Crash-test dummies, of course, cannot awaited evidence fails to deal with the unresolved have their driving behavior altered by a perception issue of whether requiring seat belt use is good of greater crash survivability. Consequently, the public policy. research with dummies doesn't refute the hypoth­ Critics of seat belt laws have contended that esis that driver behavior might be changed and they alter driver behavior in ways that increase the thus negate or reduce some of the anticipated hazards for other users ofthe streets and highways. safety gains. In particular, some drivers wearing seat belts may The plausibility ofthe aggressive driver hypoth­ feel more assured of surviving an accident, and esis cries out for more research. For example, hence tend to drive more aggressively, thus raising Hawaii, the state with the most rigorously en­ the risk ofcollisions with other vehicles and pedes­ forced seat belt law and the highest compliance trians. rate in the nation, has experienced an increase in In the early 1970s, a few challenges to the pre- traffic fatalities and fatality rates since its law went Mr. Semmens is an economistfor the Laissez Faire Insti­ into effect in December 1985. tute in Chandler, Arizona. This is not to say that the seat belts are killing 281

WASHINGTON POST WRITERS GROUP

vehicle occupants. Clearly, enough crash-test dum­ showed no consistent relationship with the exis­ mies have smashed into enough auto windshields tence of a seat belt law in the state. and dashboards to convince all but the most obsti­ This suggests a significantly less optimistic inter­ nate that wearing a seat belt is probably a good pretation of the impact of seat belt laws than the idea. What, then, is going on in Hawaii? Well, we prevailing orthodoxy would allow. Forcing unwill­ don't know. But the data do not support a smug ing motorists to wear seat belts may save their lives assurance that forcing people to wear seat belts is and reduce their injuries. Disconcertingly, though, without potential undesirable outcomes. seat belt laws appear to be increasing the hazards A recent statistical study of states with and for other users of the roads. without seat belt laws was undertaken by Profes­ Deciding whether this apparent shift in risk is an sor Christopher Garbacz of the University of acceptable cost of a seat belt law is a far different Missouri-Rolla. This study seems to support the proposition from pretending that there is no signif­ altered driver behavior hypothesis. Dr. Garbacz icant cost. Policy-makers may be satisfied that the found that states with seat belt laws saw decreases benefits of a seat belt law outweigh the costs. How­ in traffic fatalities for those covered by the laws ever, a humane public policy demands that those (typically drivers and front-seat passengers), but who may ultimately pay the costs be warned of the increases in fatalities for rear-seat passengers, potential increased risks they face on the streets cyclists, and pedestrians. Further, the patterns of and highways. To do less is to endanger some of changes in total traffic fatalities among the states the least protected users of our roads. D 282

mensurate costs. His description of tariffs is both clarifying and deliciously sardonic: "Inthe 1400s in BOOKS Europe, wealthy nobles could go to Rome and pur­ chase a Papal decree officially forgiving their most flagrant sins. Nowadays, American industries go to Washington to 'atone' for their economic mistakes THE FAIR TRADE FRAUD: by purchasing an exemption from foreign competi­ HOW CONGRESS PILLAGES tion. A tariff is simply a decree from Congress offi­ THE CONSUMER AND DECIMATES cially forgiving an industry for all its economic AMERICAN COMPETITIVENESS sins-its incompetence, mismanagement, lethargy, by James Bovard contempt for its customers, and so on. If the tariff St. Martin's Press, 175 Fifth Avenue, New York, NY 10010 1991 • 330 pages • $24.95 cloth is set high enough, Congress' economic holy water will wash away all of a company's earthly failings." Bovard notes, for example, that American food Reviewed by Raymond J. Keating producers have gained over 500 tariffs on foreign uthor James Bovard sets the tone for this food, and he decries that policymakers apparently book by declaring at the very outset, believe that "it is better that the poor go hungry A "Fair trade is a moral delusion that could than to allow them to eat foreign food." be leading to an economic catastrophe." The Import quotas, according toBovard, "epitomize remaining pages supply reasoned, empirical sup­ the subjugation of economics to politics" under port for such a claim. the presumption that "no private contract is as Bovard launches a relentless attack against pro­ important as the government's master scheme to tectionism masked as "fair trade." He mercilessly control supply." A revealing example ofCongress' exposes politicians' moral posturing on fair trade notion offair trade deals with ice cream: "The U.S. as being nothing more than pedestrian concerns exports hundreds of thousands of gallons of ice over campaign funding and re-election. More cream to Canada, yet Canadian ice cream is important, he illustrates why the concept of fair banned from the U.S. market." Furthermore, the trade damages both U.S. consumers and produc­ "USDA [United States Department of Agricul­ ers. He manages to combine a seemingly inex­ ture] estimates that dairy import quotas, price haustible supply of supporting statistics, studies, restrictions, and marketing restrictions cost Amer­ and anecdotes with a razor-sharp pen, making this ican consumers between $5 and $7 billion per year. not only a formidable contribution to the trade This amounts to over $50 billion in higher con­ debate, but a thoroughly enjoyable book. sumer costs since 1980, or roughly $800 per Amer­ Bovard illustrates how "fair trade" works ican family. For the same amount, each American against low prices, voluntary agreement, competi­ family could have bought its own cow." tion, and "the economic values ofprivate citizens," Accusing foreign firms of "dumping" is another in favor ofhigh prices, government coercion, state­ protectionist weapon wielded by fair-traders, and protected business, and "the moral and political it is perhaps the most fraught with arbitrary values of federal policymakers." The concept of bureaucratic and politically motivated rhetoric. fair trade set the stage for Congress to "dictate Bovard observes: "Dumping law exists to prevent over 8,000 different taxes on imports, with tariffs foreign companies from selling goods in the Unit­ as high as 458% ," the imposition of trade barriers ed States at 'less than fair value.' What is less than "costing American consumers $80 billion a fair value? The Commerce Department's creative year-equal to over $1,200 per family," and, in definitions have probably made many medieval general, the impediment of economic growth by scholastics smile in heaven." redirecting "capital and labor from relatively more The Commerce Department's arbitrary deter­ productive to relatively less productive uses." The mination process is perhaps best summarized by fundamental Ricardian concept of comparative the following: "After Commerce estimates the advantage eludes our elected officials. cost of production and adds 10% overhead [even Bovard examines the various fair-trade weapons if the firm carried lower overhead costs], Com­ used to wage economic warfare, and their com- merce adds 8% profit to achieve the total 'con- 283 structed value' of the foreign product. If a foreign may move us to furious dissent or cheerful agree­ % company earns a profit of 7 , Commerce will ment, but no one reads him unmoved. He may punish the company for selling at a loss of 1%." leave us battered, our pride wounded; but we love Under such malleable criteria, dumping cases the way he slaughters the Amalekites and Agag almost always result in penalties being levied on their king! It's not just the man's virtuosity with foreign firms ... and U.S. consumers. One might words, although few equal him as a literary stylist; say that all is fair in a trade war. nor is it his erudition, although it is obvious that he Bovard debunks other fair-trade myths, such as is genuinely learned and widely read. What makes subsidies, the notion of reciprocity, and the so­ Mencken unique and indispensable is his indepen­ called "level playing field." The damage to the dent stance; he wore no man's ring in his nose. And consumer from the imposition of protectionist he was fearless; no sham was offlimits to his barbs, measures is clear. Bovard expounds upon the no hypocrite was immune. many costs, showing how current trade policy Mencken never catered to any party, faction, or "punishes American consumers for the alleged clique; he was not swept up into any ofthe popular sins of foreign governments." and passing idiocies ofhis day; he did not bend the Bovard goes on to point out how American knee to any of our tribal idols, nor worship at the industry is harmed by such measures. First, U.S. shrine ofthe Zeitgeist. "He approached everything competitiveness suffers as imported inputs are with a mind unclouded by current opinions. There restricted or taxed, thereby raising the costs and was nothing ofthe superior person about him. This often lowering the quality of American products. makes him terrifying." These words aptly charac­ Second, and more fundamental, "The fewer trade terize Mencken, but they were written to define barriers the U.S. has, the more competitive Amer­ William Blake, quoted from T. S. Eliot's essay on ican companies will be. The fewer crutches the the English artist and poet. Now, Blake and government provides, the faster American indus­ Mencken were about as different as two people try will run." can be, but both belonged to the same rare breed The Fair Trade Fraud should enrage American of Homo sapiens-an order composed of men and consumers, and cause many Congressmen to hang women who are completely themselves: no echoes their heads in shame. Bovard declares, "The histo­ allowed. May their tribe increase! ry of American trade policy vivifies the perennial Democracy, in its corrupt version, operates economic illiteracy and moral irresponsibility of under the pretense that every man is just as good the U.S. Congress." Perhaps ourFederal represen­ as any other-or a little better. The corresponding tatives should be assigned this book for their acts ethos lays down a smoke screen behind which of contrition. They just might learn some basic cavort a gaudy troupe of impostors, quacks, and economic principles about the benefits of free charlatans. Mencken spotted them in academia, in trade. D ecclesia, and in the media; they flourished in liter­ ary circles and enjoyed a prodigal growth in poli­ Mr. Keating is New York Director of Citizens for a tics. Sound Economy. The politicos ofMencken's day were his primary target; he had at them with every weapon in his THE IMPOSSIBLE H. L. MENCKEN: amply stocked arsenal. He was a shrewd reporter A SELECTION OF HIS BEST NEWSPAPER whose high-voltage prose matched his outrage. He STORIES was utterly honest and impartial, albeit a bit cruel edited by Marion Elizabeth Rodgers when the occasion seemed to demand it. The Doubleday, 666 Fifth Avenue, New York, NY 10103 • 1991 mountebanks in public office were not, after all, 707 pages. $27.50 cloth; $14.95 paper harmless clowns; they were men with power prey­ ing on the multitudes of people who lacked the Reviewed by Edmund A. Opitz means to defend themselves. But Mencken also criticized the masses for their eading Mencken cleanses the mind of apparent willingness, nay even eagerness, to be cant and drivel, raises the blood pressure, bamboozled. Aware that the game was crooked, R and starts the adrenaline pumping. He they played on, believing it was the only game in 284 THE FREEMAN • JULY 1992 town. They compromised their innocence by cling­ sprightly manner conveys much,political savvy as ing to the airy hope that a turn of events would put well. them in a position to do their own swindling. We get his views on food, women, "literary Mencken used the word "democracy" in its gents," the American language, and music-the two different senses: on the one hand as descrip­ last especially in his essays on Bach, Brahms, and tive of a society of liberty and justice for all; on Beethoven. If his two paragraphs on Beethoven's the other, as a label for the political racket which Eroica do not double your enjoyment ofthis colos­ exercises public power for private gain-pretend­ sal masterpiece, read his other essay on the ing, all the while, to be The People's friend. The Eroica in his Chrestomathy. Ordemand your mon­ closing sentences of his short book, Notes on eyback! Democracy, give us a glimpse of his thoughts on Mencken is a man eminently worth knowing, the matter. Referring to those who are short­ and there's no betterway to make his acquaintance changed in the political scuffle he writes: "What I than by poring over this wonderful collection. can't make out is how any man can believe in What kind of a man will you be taking unto your­ democracy who feels for and with them, and is self? Hear the report of one of his friends, Albert pained when they are debauched and made a Jay Nock: "At dinner last night with Henry show of. How can any man be a 'democrat' who Mencken at Luchows.... There is no better com­ is sincerely a democrat?" panion in the world than Henry; I admire him, Mencken had a number of friends in public life: and have the warmest affection for him. I was senators, congressmen, judges. From his early days impressed afresh by his superb character-im­ as a reporter he was on good terms with the ward mensely able, unself-conscious, sincere, erudite, bosses who haunt smoke-filled rooms, and the simple-hearted, kindly, generous, really a noble ward heelers who lurk around the seamy edges of fellow if ever there was one in the world." society. Tammany types might serve a useful role A couple of men like this in'every generation, in those nooks and crannies where the rules do not and we need not despair of the Republic. D fit with precision. It was not the "honest imbeci­ lity" of the average politico that sent Mencken's The Reverend Mr. Opitz is a member of the staff of temperature up to 103. What brought him to the The Foundation for Economic Education and is the author ofthe book Religion and Capitalism: Allies, Not boiling point was the do-gooder, the right-thinker, Enemies. the forward-looker in politics-"the resilient, sneaking, limber, oleaginous, hollow and disingen­ uous [fellow, who purveyed] ... an idealism that is FORBIDDEN GROUNDS: THE CASE oblique, confusing, dishonest and ferocious." In AGAINST EMPLOYMENT other words, Boss Tweed was bad enough, but the DISCRIMINATION LAWS New Deal was worse! by Richard A. Epstein This huge tome contains roughly half a million Harvard University Press, 79 Garden Street, Cambridge, words of Mencken's writing for the press, sparked MA 02138 • 1992 • 530 pages • $39.95 cloth by some transient event, turned out under pres­ sure, and somehow transmuted by Mencken's Reviewed by Jeffrey A. Tucker genius into absolutely brilliant prose. And of course the style is all his own. The pace never ontemporary political culture tolerates falters; there's always the odd or unusual word two positions on civil rights. The first posi­ which clicks precisely into the right spot; the C tion says approved minorities need argument never wanders-except when dealing expanded "rights," which really mean privileges with some egregious cad or crook, when the and quotas in hiring, mandated benefits, and high ad hominem mode jumps in. taxes to pay reparations for past injustices. This Mencken avers that democracy is the most view is held by a wide spectrum ofthe political left. entertaining form of government ever invented. The second position challenges this by arguing He shares the fun with readers of this book in 172 that minority rights were necessary in the 1960s, pages of his reports on eight of the national politi­ but in recent years the quest for equality of eco­ cal conventions he covered from 1904 to 1948. His nomic opportunity has been transformed into BOOKS 285 equality of result, and this betrays the original Men ..."). The government could easily prosecute vision of civil rights. This view-that modern civil the employer who displayed such signs. But once rights laws are great but have been taken too far­ the Civil Rights Actpassed, no employer displayed is advanced by neo-conservatives in an unending obvious evidence of illegal discrimination. parade of opinion columns and books. Employers began to claim all decisions were made Richard Epstein, in this new book, overthrows on merit. both perspectives. Breaking out ofpolitical ortho­ But how can regulators know for sure? The doxy, he argues: Anti-discrimination laws have not government and interested private parties then only gone too far, they should all be repealed as looked for other forms of objective evidence of capricious, expensive, wasteful, and destructive of discrimination. The easiest way was to look at the economic freedom. His radical thesis appears in numbers: Why are there so few blacks and women what may be the most comprehensive and system­ in this firm? How many have been turned down atic treatment on various forms of discrimination recently? How come they are not being paid yet to appear. "enough" or advanced fast "enough"? Is the claim Epstein, a law professor at the University of ofmerit just a pretext for discrimination? The gov­ Chicago, is one of the finest legal scholars of our ernment began to distrust the motives of every time-and for his willingness to argue this view, he employer in the country. also becomes the most Politically Incorrect. Ifthis The employer's only protection against this book is treated justly, it will forever change the game was to hire on the basis of race, sex, and terms of debate on civil rights. national origin-the very thing prohibited in Title But can Epstein be right? Are modern civil VII-as an effort to avert prosecution. The result rights laws fundamentally flawed? The heart ofthe of the Civil Rights Act is the plethora of minority Civil Rights Act of 1964 is Title VII, which pro­ privileges we know too well. Nowadays, if courts hibits discrimination on the grounds of race, color, say a hiring test uses criteria not essential to the religion, sex, or national origin. At the time ofpas­ job, and effects a "disparate impact" on minorities, sage, Senator Hubert Humphrey said the act it is illegal. Even literacy tests have been deemed would strike a blow for merit and against preju­ discriminatory, which means they must be "race­ dice. And he promised on the Senate floor that it normed." "Merit" is a fine criterion, so long as it is wouldn't lead to quotas, or he would "start eating minority-friendly. the pages" ofthe bill. He was, ofcourse, complete­ The net effect ofTitle VII onminorities in labor ly wrong, and opponents of the act were correct. markets has been to increase the risks and costs of The act ended up striking a blow against merit and hiring them. Employers skim off the cream of the for state-mandated hiring quotas. minority labor force, rewarding, for example, well­ The act not only covered hiring. That would educated, high-skilled blacks at the expense of have left too much room for evasion by businesses. poorly educated and low-skilled blacks. And the Instead it created a new set of laws regulating pri­ non-minorities that are excluded or passed over vate decisions that were once left to the market: for promotions are getting increasingly angry. promotion, wages, and even job assignment. The Such are the results of attempts to plan the pri­ civil rights bureaucracy now controls even micro­ vate economy. The constitutional legitimacy ofciv­ details of labor market transactions that harm il rights derives entirely from a New Deal tradition business and make economic relations less peace­ that views the commerce clause as an open invita­ ful than they were before 1964. tion to any and all invasions. Once the premise is But how was this engendered by Title VII, granted that the government can interfere with which simply prohibits certain criteria from being private market transactions, and reward some used to discriminate against minorities? Epstein's people at the expense of others, it follows that the argument is simple and profound. Title VII is actu­ same can be done with the freedom to contract in ally a law against acting with certain motives in employment. mind. Yet it is difficult to legally prove motivation. Today, courts and government agencies use You need a smoking gun, as when an employer standards that are so complex as to be incompre­ hangs a sign saying, "Blacks, Jews, and Women hensible to average businessmen. Epstein's Need Not Apply" (or "Whites, Christians, and extended discussion of the evolution of anti- 286 THE FREEMAN • JULY 1992 discrimination rules brings to mind the pricing not to say diversity doesn't have its advantages. methods of Soviet bureaucrats. Indeed, he argues But the proper mix of homogeneity and diversity that civil rights are a form of central planning in the work force cannot be known before experi­ which accepts all the assumptions of the more ence. Epstein asks us to give up egalitarian extreme variety practiced by the Soviet Union. assumptions and let the market distribute labor In short, the critics of the Civil Rights Act of resources as it sees fit. 1964-often derided as bigots and racists-were Civil rights advocates have oversimplified the really prophets who pointed to what the act would world, he says. They assume that millions of eventually mean for the freedom ofcontract. "The employers have "some fundamental psychological fears of the diehard opponents of the statute," block to their own visions" which makes them act writes Epstein, "have proved correct." He drives irrationally. In fact, private parties know better home the lesson that government invites social than government what is socially peaceful. "Unless trouble when it uses motivation ("forbidden and until the contract in question poses the threat grounds") as the dominant test of legality. of harm to third parties ... or is procured by fraud Epstein presents a challenge to free-market or sharp practice, then each person is his or her advocates. They have usually argued that the mar­ own best judge both of the private costs incurred ket discourages discrimination by making bigots by contracting and of the private benefits obtained and sexists pay a premium for favored workers, from the contract. Individuals have the best even as competitors clean up on employees passed knowledge of their own preferences and have the over. But Epstein finds this argument weak. In strongest possible motivation to make the best consumer markets, one person's money is as good deal for themselves." as another's. But in labor markets, a contract The point is to move away from collective deci­ implies a long-term commitment to the culture of sions to private ones. As Epstein puts it, "the way the firm. The employer must use proxies to fore­ to resolve the fundamental social disagreement is cast the long-term compatibility of new employ­ not to have a knock-down, drag-out moral fight"; ees. Moreover, a homogeneous work force can it is "to allow people to go their separate ways." often increase the efficiency of the firm by making This would not end affirmative action and quo­ a uniform ambience easy to achieve. tas, which, he argues, are only destructive when Epstein says we should face the cultural and mandated by the government. If the Civil Rights sociological fact that people's preferences-and Act of 1964 and all subsequent legislation were thus the actions of economic agents-will tend to repealed, companies could and would practice a sort themselves into groups defined by common wide variety of race and sex privileges. "The level characteristics. One example is language. A ofaffirmative action or the extent ofquotas should restaurant exclusively serving Chinese-speaking be regarded as an internal affair of the firm, and customers will not do well with Spanish-speaking never as the affair of the public at large or the waiters. There are reasons for culturally homoge­ state," he writes. Economic efficiency and public neous workplaces: "the music played in the work­ attitudes would keep firms in check. place, the food that is brought in for lunch, the hol­ Here is a case in point. A friend of mine owns a idays on which the business is closed down, the business in Richmond, Virginia, and he is para­ banter around the coffeepot, the places chosen for lyzed by the threat of civil rights suits. Being liber­ firm outings, and a thousand other small details ally minded, he wants to practice private affirma­ that contribute to the efficiency of the firm." tive action, hiring blacks over more qualified Is this tendency toward intra-firm homogeneity whites. But he can't do it because if he also fires unfair? Does it violate anyone's civil rights? No, blacks, he takes the risk of expensive lawsuits. says Epstein. Discrimination is a part of the divi­ Repeal civil rights laws, and, if he so chooses, he sion of labor, and there is no need to impose one could hire an all-black work force. model offairness on the entire economy. "The par­ Forbidden Grounds also covers sex discrimina­ tition of the market into specialized and well­ tion, even delving into sociobiology to show why defined niches should increase the satisfaction of substantial work-related differences between men all consumers. Any anti-discrimination law cuts and women always will be with us. And it refutes against that commendable objective." Which is the need for anti-discrimination laws for recently BOOKS 287

approved victims: the aging and the disabled. His have prevented lawyers from litigating on their case persuades. own behalf. Epstein's astonishing, tightly argued, 530-page In America, however, all those restraints have legal and economic treatise is a call to rethink the now gone by the boards. most explosive issues in American political cul­ Take the process of "discovery." Although now ture. Let the debate begin. D widely practiced, it is actually only about four decades old and completely unique to American leffrey Tucker is a fellow ofthe Ludwig von Mises Insti­ law. Anywhere else, you must sue someone on the tute. basis of specific evidence that you present when you go to court. Under "discovery," however, you can make vague and unspecified charges and then summon the defendant's entire personal and pri­ THE LITIGATION EXPLOSION vate records, fishing for evidence. Discovery has by Walter Olson become an essentially unlimited right to private Truman Talley Books, Dutton, 375 Hudson Street, New search and seizure. York, NY 10014 • 1991 • 350 pages • $24.95 cloth; $13.00 paper Or take depositions. Once they were limited to extreme circumstances-if a key witness were on his death bed, for instance. Yet gradually, the Reviewed by William Tucker lawyers persuaded the judges that lawsuits would id you know that if your spouse sues you resolve themselves more quickly if lawyers had for divorce, you can find yourself in the better access to information. The result was an D private company of his or her lawyer essentially unlimited power to hold private inter­ under legal obligation to answer any and all ques­ rogations. If someone sues you today (or even if tions about your sex and private life? you are a third-party witness), you must sit in a pri­ Did you know you can volunteer to help put vate deposition with the opponent's lawyer, under together a jungle gym at your child's school and legal obligation to answer any and all questions. find yourself being sued for several hundred thou­ Your only recourse is to bring your own lawyer at sand dollars worth of"pain and suffering" ifa child your own expense. Even if the case is never pur­ later breaks an ankle on the set? sued, you're stuck with the legal fees. Did you know that the standards of evidence in Although the law schools constantly turn out civil trials have been so relaxed that you can be charming rationalizations for all this-and the held liable for hundreds of thousands of dollars in judiciary is usually willing to accept them-there damages on the basis of evidence that would be is only one real explanation: It is hugely prof­ inadmissible in a criminal courtroom? itable for plaintiffs' attorneys. The entire plaintiff In this amazing book, Walter Olson documents bar has become a swarm of "private attorneys what the "war of all against all" will eventually be general" inventing new wrongs such as "jobs like. On that day when the last pretense of civilized stress injury" or "clergy malpractice," scouring restraint and mutual forbearance has given way, the countryside for alleged victims, exacting huge everybody will be a lawyer. "punitive" damages from deep-pocketed quarry, What is most remarkable-and certainly not while keeping almost half the proceeds for them­ widely known-is how different American law has selves. Ifthe insurance companies begin to groan become from that of the rest of the world. In all under this new weight, so what? Let the govern­ places and at all times, certain restraints have been ment take over insurance-that will only make placed on lawyers to prevent them from using the the pot bigger. courtroom as their private racquetball court. In The truly amazing thing about all this is that at some places the restraints are external-the the exact same time the rules of civil procedure "English rule" of civil cases, for example, which were being loosened beyond all previous measure, requires the losing side to pay the winner's attor­ the criminal code was being tightened to the point neys fees and keeps going-to-court from becoming of absurdity on behalf of criminal defendants. a risk-free sport. In other times and places, it has Only a few years ago, for example, the U.S. been the codes and traditions of the bar itself that Supreme Court ruled that a police officer had vio- 288 THE FREEMAN· JULY 1992 lated a burglar's constitutional rights by turning a is the plaintiff attorneys who are the high rollers. television set to read the serial number after legally Defense attorneys have certainly benefited from entering the burglar's apartment and finding it the litigation explosion, but they are not pursuing stashedwith stolen goods. Yet at the same time, dis­ multi-million-dollar jackpots. They make their covery proceedings were being opened up so that money by the hour. plaintiff attorneys have almost unlimited access to As Olson summarizes it succinctly: "Ittook cen­ the personal and business records of civil defen­ turies of struggle against arbitrary authority to dants. The Miranda restrictions on confessions establish the civil-liberty safeguards that protect were wheeled into place at precisely the same time criminal defendants from being railroaded to pun­ that civil attorneys were being given almost unlim­ ishment. Today the forces of irresponsible accusa­ ited powers to grill people in depositions. And tion have turned instead to the civil law, which they hearsay restrictions were being tightened in crimi­ like better anyway because they get to keep the nal proceedings just as they were being almost proceeds.... America is now reaping the harvest completely eliminated in the civil courtroom. of a strange and ill-considered experiment in the What is the explanation? The answer is simple. legal system. We have deputized ourimmense pro­ In criminal proceedings, lawyers make all their fessional body of lawyers to stir up grievances for money on the defense side. Public prosecutors profit." D make little more than high school teachers, while William Tucker is author ofThe Excluded Americans: successful defense attorneys pull down six- and Homelessness and Housing Policies, winner ofthe 1991 seven-figure salaries. On the civil side, however, it Mencken Awardfor best public policy book.

THE JOHN TEMPLETON HONOR ROLL FOR FREE ENTERPRISE TEACHING

The Foundation for Economic Education is pleased to anounce the publication of its descriptive survey detailing The John Templeton Foundation Honor Roll for Free Enterprise Teaching for 1992.

Copies of the honor roll are available on request by contacting:

Janette Brown The Foundation for Economic Education Irvington-an-Hudson, New York 10533 telephone: (914) 591-7230 fax: (914) 591-8910