the

FreemanVOL. 20, NO. 12 • DECEMBER 1970

What You Don't Know Might Help You! Edmund A.. Opitz 707Learning to live with liberty calls for faith and reliance upon a harmoniousuniverse.

Goose or Citizen?"Keep on supporting me and I'll not kill you." Some incentive!

Graham Scott 725

Private Property, Public Purpose Henry Hazlitt 727Saving and sound investment may be the most important benefit that the rich canconfer on the poor.

Uses of Ignorance George Hagedorn 740Why persist in projecting our ignorance, to what is unknowable in principle?

Throttling th'e Railroads:8. The Grip of the Unions Clarence B. Carson 743

How the government fostered the growth of labor unions and aided in their ham-stringing the railroads.

Book Reviews: 755"The Conscience of a Majority" by Barry Goldwater"The Challenge of World Poverty" by Gunnar Myrdal

Index for 1970 761

Anyone wishing to. communic;ate with authors may sendfirst-class mail in care of THE FREEMAN for forwarding.

the

FreemanA MONTHLY JOURNAL OF IDEAS ON LIBERTY

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erty, Public Purpose."

What you don't know

EDMUND A. OPITZ

THE PRACTICE of liberty in humanaffairs is an acquired skill and,like every other skill, the practiceof liberty must be .learned. Im­agine a ballet performed upon astage and involving a dozen dan­cers. Each dancer must perfectvarious motions and then learn aroutine of steps so that the en­semble creates a moving work ofart before our eyes. The dancemust exhibit a pattern, else theperformers - however skilled in­dividually - would simply get ineach other's way. The practice ofliberty includes the knack of keep­ing out of each other's way, thusgiving free play to the naturalforces of social cohesion.

There is an aspiration towardliberty inherent in our very be­ing; it's a corollary of the fact of

The Reverend Mr. Opitz is a member of thestaff of the Foundation for Economic Educa­tion. He is the author of the book, Religionand Capitalism: Allies Not Enemies, recentlypublished by Arlington House and also avail­able from FEE.

our individuality. But this poten­tiality is not realized unless welearn techniques for expressing it.Liberty has to be learned - aswell as earned - and like everyother skill we acquire, it may belost. The circus juggler who haslearned to keep six plates in theair must work constantly to re­fine and improve his skill or hebegins to lose it. And it is thesame with liberty; liberty may beunlearned, and the unlearning ofliberty goes on at a constantly ac­celerating rate in our time. Per­haps we'd know why, if we knewmore about the learning processitself.

Everyone of you who playsgolf, or bats a tennis ball, orbangs away on a piano has mo­ments of frustration. It's not theoccasional bad shot or wrong notethat causes the irritation; it's thefact that our progress is so un­even. There's such a thing as be-

708 THE FREEMAN December

ginner's luck, and it may be thatafter our first golf or tennis les­son we surprise everyone by mak­ing a number of good shots. Andso we approach the second lessonwith expectations keyed high­only to fall flat on our face. Ev­erything goes wrong. We may ex­perience similar frustrations inthe course of the next several les­sons, and then something seemsto click. We hit the ball, and itfeels right. Enthusiasm flares, butthe improvement doesn't last. Or,if it does, we seem to bog downagain on this level. Sometimesthere's a slump; but if we persistthere is eventually another break­through, and then the struggle toconsolidate our gains goes ononce more.

All learning takes place in some­what this fashion. The psycholo­gist speaks of "pIateaus of learn­ing'" and if you draw a. graph itwill resemble a profile of a stair­case with deep treads and lowrisers. The line does not show asteady rise; instead, it shows thelearner slogging away on one level,and then a breakthrough to ahigher level; more slogging, an­other breakthrough, until we reachour potential.

Unlearning is as much a partof life as learning. Sometimes wewant to unlearn, but there is alsothe all-too-common involuntaryunlearning of a skill we'd like to

retain. The great pianist, Pade­rewski, once remarked that if hewent a day without getting in hiscustomary hours and hours ofpractice, he knew it. If he wenttwo days without practice, thecritics knew it. If he went threedays, his friends knew it. Ath­letes have the same problem; oncethey've reached a peak and thenlost it, the comeback trail isrough. Similar difficulties besetall human affairs.

Liberty in Our Time

Our subject is human liberty,and the fate of liberty in ourworld. When this country wasyoung, the accepted belief wasthat men were by nature free, andthat governments were institutedamong men to secure that free­dom by defending the rights of allmen alike. "The God who gave uslife gave us liberty at the sametime," wrote Jefferson. Libertynow, in the twentieth century, isviewed as a permissive thing, tobe exercised by the citizen at thediscretion of his political masterswithin the lines laid down by thegovernment. Liberty, once re­garded as a birthright, now par­takes of the nature of a politicalfavor. The ways of liberty oncelearned by some of our ancestors,and in some measure applied bythem in actual practice, were un­learned by other forebears of

1970 WHAT YOU DON'T KNOW' MIGHT HELP YOU! 709

ours. And a good deal of learningand unlearning has been going onin this generation, perhaps evenby us.

If we examine the learning proc­ess more carefully we realize thatthere's more to it than consciouseffort, important as this is. Agreat deal of learning takes placebehind the scenes, below the levelof consciousness. Weare learningbetween one practice session andthe next. It is not by a mightyeffort of will that you move from

'one plateau to another; if youpractice correctly, the break­through will be accomplished foryou. Here's an illustration of theway it works, taken from the writ­ings of the great French mathe­matician of a generation ago,Henri Poincare.

Poincare on Insight

Poincare was stumped by a cer­tain problem, and for fifteen daysspent an hour or two a day tryingto work out a proof, with no re­sults. Then, "one evening, con­trary to my custom" 1 drank blackcoffee and could not sleep. Ideasrose in crowds; I felt them collideuntil pairs interlocked, so to speak,making a stable combination. [1dozed off, and] by the next morn­ing 1 had established the exist­ence of a class of Fuchsian func­tions.... I had only to write outthe results.... The idea came to

r.oe, without anything in my for­mer thoughts seeming to havepaved the way for it."

Poincare is credited by otherrnathematicians with several im­portant breakthroughs, which oc­curred in the manner described,in the form of sudden illumina­tions. These insights, he says, are"a manifest sign of long, uncon­scious prior work. The role of thisunconscious work in mathemati­cal invention appears to me in­eontestable." There's a condition-- persistent prior work. Break­throughs "never happen exceptafter some days of voluntary effort'which has appeared absolutelyfruitless and whence nothing goodseems to have come, where theway seems totally astray. Butthese efforts have not been assterile as one thinks; they haveset agoing the unconscious ma­chine and without them it wouldnot have moved and would haveproduced nothing."

Genius, as someone remarked, is90 per cent perspiration and only10 per cent inspiration. SirFrancis Galton, who did the pio­neering studies of genius abouta century ago, observed that hissubjects were bigger, stronger,and more energetic than averagemen and women - otherwise theycouldn't have performed the re­quired prodigies of work.

The achiever, then, knows how

710 THE FREEMAN December

to apply the pressure, and howlong. He also knows that there isa time to let up, to relax the con­scious effort and let a deeper wis­dom take over. If we may use theword Application for the firststage, we might call this secondstage Incubation; ideas appar­ently must ripen before they canhatch. In order to successfullynegotiate this stage of learning­the period when nature takes itsown course - we must practice thedifficult art of letting things alone- which is quite different fromdoing nothing. Albert Jay Nock,who edited the old Freeman, from1920 to 1924, had a stable ofbright young writers under hiseditorial command. One day afriend said to Nock, "Albert, it'swonderful what you have done forthese young people." "Nonsense,"Nock replied, "all I've done is letthem alone." "That may be so,"was the response, "but thingswould have been different if someone else had been letting themalone."

The Notebook of Coleridge

The mind has a front end or toplayer, and we consciously feeddata into this part of our mindthrough our eyes and ears, by ob­servation and experiment. Thenthe raw data of experience ismulled over and reflected upon.We talk it over with colleagues,

argue it out with opponents, writeit up, act it out~ And all the while,learning is taking place. At theproper moment we shift gears andput the subconscious mind to workon the material the conscious mindhas prepared for it. And if theconscious preparation is adequate,the rest of the job is taken careof with a finesse and expertisethat is simply astounding.

Let me cite the case of Sam­uel Taylor Coleridge, one of thesupremely gifted poets of our lan­guage. Apart from his publishedworks, Coleridge left a notebookin manuscript, in a kind of short­hand, recording his reading andhis observations. This notebookforms the basis for a classic studyof Coleridge, really a study of theworkings of the imaginative en­ergy itself: The Road to Xanadu,by John Livingston Lowes. In­cidents and phrases got into Cole­ridge's notebook and thence intohis subconscious mind, to be trans­formed there by his genius, tak­ing final shape in his poetry."Every expression of an artist,"writes Lowes, "is merely a focalpoint of the surging chaos of theunexpressed. And it is that surg­ing and potent chaos which a doc­ument like the Note Book recre­ates." The word "chaos" here isnot used with connotations of con­fusion or randomness; chaos is aterm for the teeming, primordial

1970 WHAT YOU DON'T KNOW MIGHT HELP YOU! 711

raw material which challenges theartist to shape it into forms ofbeauty by the power of his imagi­nation. "Unless a man has a littlechaos in his soul," wrote Nie­tzsche, "he'll .never give birth to adancing star."

The Subconscious

Below the level of consciousmental activity there are deeperlayers of the mind, and an enor­mous amount of hogwash has beenwritten about the subconsciousmind, some of it by amateurs buta lot of it by medical men engagedin the practice of psychiatry orpsychoanalysis. I have been sug­gesting, by the two examples Ihave cited - Poincare and Cole­ridge - that the mental processeswhich occur behind the scenes aremighty allies, able to accomplishbeneficial results we could achievein no other way. The subconsciousmind is the silent partner of ourrational faculties, wise and trust­worthy. Turn to the popular liter­ature of psychoanalysis, however,and the picture is quite different.There, one gets the impressionthat only the conscious mind is us;that each of us is shackled to anidiot; that the subconscious mindis a mere collection of drives, im­pulses, and emotions; that thisunconscious part of us tyrannizesover our rational faculties andmust be squelched.

Why these conflicting views?The main reason is that psychia­trists deal with sick people, andthe subconscious mind of psy­chopaths may very well be as psy­chiatrists describe it. Geniusesand normal people do not ordinar­ily wind up in psychiatric clinics,and clinical findings, therefore, donot pertain to great poets andmathematicians - or to normalpeople.

We are not talking aboutachievement without tears, orlearning while you sleep, or awak­ening your hidden powers. Thereare no short cuts. But we do havethe assurance that if our consciousthinking is sound, persistent, andhard, our subconscious mental pro­cesses will cooperate to mobilizethe constructive forces that bringabout the final result.

The capacities of the humanmind are almost limitless, andthose of the human body are onlyslightly less so. The incrediblefeats of endurance, strength,speed, and skill that we witnesson track, field, arena, and stageare beyond most of us. Only ahandful of people will ever run afour-minute mile, no matter howhard they train, or win the heavy­weight championship, or break 65at golf, or perform on a trapeze,but almost anyone who wills to doso can play a good game of golf,or develop unusual strength, or

712 THE FREEMAN December

multiply his endurance. The rec­ipe is the same as that for acquir­ing mental skills - an alternationof hard workouts with rest, or Ap­plication followed by Incubation.Endurance, strength, and skill im­prove even when you do nothing- provided you preface the quiettime by intense effort. This phys­ical partner of ours has enormouspotential in many directions, butfew people ever realize their po­tential. When reasonably fit, thisphysical partner of ours displaysa remarkable wisdom in its work­ings. Through its organs of sight,hearing, and touch we are proper­ly oriented toward our physicalenvironment. There are two othersense organs: The sense of smellis not as important to us as toother creatures, but we know howimportant his taste buds are toan infant. I think it was GeraldHeard who suggested that ababy's motto might be: Seeing isbelieving, but tasting is knowing.

The Amazing Human Body

This body of ours performs so­phisticated chemical operationswith the raw material we take inas food, distributes nourishmentto the tissues that need it, cart­ing off the waste products. Chem­ical balances are maintained,temperature is regulated, foreignbodies are neutralized, wounds arehealed - and all this is done qui-

etly without fuss or stress, un­less we interfere. We are "fear­fully and wonderfully made," andthe body performs miracles daily.There's a genius down inside us.The most awe-inspiring perform­ance of that genius is the master­work he -accomplishes before weare born. The eminent biologist,Hudson Hoagland, delivered apaper at lVI.LT., in 1967, in whichoccurs this passage: "Frank Crickhas estimated that the amount ofinformation contained in the chro­mosomes of a single fertilizedhuman egg is equivalent to abouta thousand printed volumes ofbooks, each as large as a volumeof the Encyclopedia Britannica.This amount of coded instructionpacked into the size of a millionthof a pinhead is the remarkablematerial which transmits informa­tion from parent to offspring totell the next generation how tomake a person." Each one of uspassed that test, else we wouldn'tbe here.

A skilled adult scientist in anexpensive laboratory gets a do-it­yourself kit with various aminoacids, colloids, and protein mole­cules. He combines these in a cer­tain way and exposes the com­pound to electrical currents for aweek or so. And then, for a. shorttime his concoction appears to ex­hibit some characteristics of life.The scientist gets headlines. But

1970 WHAT YOU DON'T KNOVV MIGHT HELP YOU! 713

each of us, when no more than atiny speck, was brilliant enoughto manufacture a person! Stupid­ity, of course, sets in shortly afterbirth and full recovery is rare.

Work and Wait

Learning something, whether itbe the mastering of a new subjectmatter or the acquiring of a newskill, is more than conscious ef­fort. Conscious effort is an indis­pensable part of the total learningprocess, however, for it is thespark that gets the machinerygoing. Learning is a dual process.It reminds us of an iceberg withmuch of its bulk below the sur­face. Go about the topside matterscorrectly, and events of great im­portance take place below thewaterline without any humanagency directing, controlling, ormanaging them. This is a fact ofgreat significance, to be takeninto account in deciding the na­ture of this universe in which wefind ourselves: Things work forour benefit if we know how tocooperate w'ith them and other­wise let them alone.

The art of letting things aloneapplies to the complex interac­tions we have with nature. Eachspring we are impressed anewwith the exuberance of the earth,by its fruitfulness, its hospitalityto the endless variety of livingforms. Men poke seeds into the

ground but plants grow by inter­acting with nonhuman forces;"God giveth the increase," as apious old poet said. Make prepara­tions of the right sort, work. hard,and the good earth cooperates byfocusing nature's powers ofgrowth to put a multiplier ontoyour efforts. We have to overcomenatural obstacles, but we enlistthe help of natural forces to doso. "A mighty help in our contestwith nature," writes Bohm­Bawerk, "is nature herself."

The Invisible Hand

Move now into our final ex­ample, which has to do with so­ciety and the economic order.Remember Adam Smith's famousmetaphor of "the invisible hand"?What was the problem he soughtto explain? He observed countlessmillions of people in the differentnations of the world, engaged inthousands of different occupa­tions and trades, each busy withhis own affairs, pursuing his ownaims. But what is the result ofthis seemingly chaotic situation?The result is an orderly transferof goods and services; people arefed, clothed, and housed; thewealth of the world is broughtwithin reach of all who enter intothese multiple transactions. Thereis a marvelous harmony in thissituation, just as if some invisi­ble hand were guiding each per-

714 THE FREEMAN December

son to produce the kinds andquantities of goods the market iscalling for. It is the result ofhuman action but not the execu­tion of human design. The rightkind of human effort in the mar­ket place enlists the help of another-than-human intelligence.Anyone who has looked into theeconomic order must marvel atthe intelligence displayed in theway the market works - intelli­gence manifesting itself in theprecise adaptation of means toends throughout the system. Yetno human agency is putting peo­ple through their paces; there isa spontaneous order which ariseswhen men obey a few moral rulesand otherwise act in freedom.Why do things happen this way?Because it's that kind of a uni­verse!

Three-quarters of a centuryafter Adam Smith, Frederic Bas­tiat mused over the miracle ofthe provisioning of Paris. Hereare a million human beings whodo not grow their own food, nordo they make most of the thingsthey use. Yet food and otherne~essities appear as if by magic!No Napoleon commands thesemovements. "What, then, is theingenious and secret power whichgoverns the astonishing regu­larity of movements so compli­cated ?" Bastiat asks. And heanswers his own question, "That

power is an absolute principle,the principle of freedom in trans­actions."

I have been stressing the pointthat there is wisdom and intelli­gence directing the events whichhappen below the surface, or be­low the level of conscious action.This is not to diminish the im­portance of willed effort; it is tosuggest that we have to knowwhen to let up and let go, trust­ing the forces of growth and co­hesion we find at work in ourbodies and minds, as well as in -I

nature and the market. This will­ingness to take the plunge is amatter of mood - a mood of faithor confidence or trust or beliefthat the universe is on our side.But just as Adam Smith was writ­ing his masterpiece a new andhostile mood was emerging inWestern nations.

The Age of Enlightenment

The eighteenth century is re­ferred to as the Age of The En­lightenment. It was a period ofgreat overreaction to the ages ofreligion, a time when Man witha capital M was exalted into agod, able to fashion men in hisown image. It was an age of op­timistic rationalism, with allmysteries resolved. It was the ageof the Rights of Man, confident ofits power to wipe out an oldsociety and manufacture a new

1970 WHAT YOU DON'T KNOW MIGHT HELP YOU! 715

one at will. A take-charge moodcarne to dominate many minds, amanagerial mentality. The ideawas that the world would fallapart if we stopped holding it to­gether; things wouldn't work un­less we made them work; every­thing was defective and had tobe patched up, rigged out, putinto functioning order.

This was the mood of the menwho engineered the French Rev­olution, the rootless intellectualsof the day; but the mood wasinfectious and it has spread allover the globe, seeping into andout of every sector of life. Itseeped into the theory and prac­tice of medicine about a centuryago. Certain medical theorists ex­amined the human organism andfound it a crude contrivance ofpipes, tubes, levers, and deadweight. This botched mechanismcould be kept going only if some­one constantly patched and re­paired it. Writing of this anti­quated medical theory, an his­torian says: "This held that thebody was a faulty machine andNature a blind worker. The stu­dent made an inventory of thebody's contents and found, as heexpected, some out of place, somewearing out, some clumsy make­shifts ... and some mischievoussurvivals left over." Medical prac­tice, based on this theory, was tointerfere with the body's working

by probing, operating, removing,and altering. The practice oftenproved disastrous to the patient!Today's medical theory is quitedifferent.

The Managerial Mentality

The managerial mentality getsinto philosophy, and is especiallymarked among the Existentialists.One of them writes: "Being aman is deciding what man will be.... Man remains the author ofhis own destiny, the creator ofhis own values." Philosophy usedto be the pursuit of truth for itsown sake. No longer. The con­temporary philosopher aims atknowledge for the sake of con­trol. The primary target of thecontrollers is, of course, the eco­nomic order. The free marketmust go.

When this managerial mental­ity, this take-charge mood, per­vades a society, it will kill thefree economy where it finds it, orprevent it from emerging in coun­tries which don't have it. Whenthe mood .is to manage, you'llhave a managed economy, becauseeveryone lacks confidence that theeconomic machinery will operate- unless it is directed, controlled,and planned. The belief is thatsome human agency must be incommand or nothing will function.Social engineering is the order ofthe day; society is to be master-

716 THE FREEMAN December

minded by men waving blueprintsand armed with powers of en­forcement. Nobody is to be left tohis own devices; everybody is tobe assigned a task so that so­ciety can be operated with me­chanical precision.

But men are not robots or pup­pets; they have the gift of freewill, and most people choose notto be the tools of other men­when they understand the issues.When they find themselvestrapped in situations which de­mean their humanity they rebel,and their rebellion takes variousforms. The rebellion sometimesmoves in the direction of free­dom, but more often the rebellionis just as mindless and bizarre asthe things revolted against.

Ideas Come First

I have suggested that a falseideology has been percolating intoWestern societies for two cen­turies or more. How is it, then,that things appeared to go sowell for a while - that is, duringmuch of the nineteenth century- and only in our time has thesituation gone to pieces? Well,the impact of ideas is never feltimmediately. Imagine, if you will,that history is like a huge pipe­line; like the Big Inch, say, whichbrings oil from Texas to the east­ern seaboard. If a batch of oil ispumped into the western end of

this line, and if it travels attwelve miles per hour, it won'treach New York until about aweek later. Ideas work the sameway; put them into the pipelineof history and it may be a gen­eration or a century or longerbefore they surface.

Go back two millennia to thedawn of our era. The Roman Em­pire was authoritarian, and thenew ideas about God and man andlife promulgated in the Gospelslargely d,isappeared into the pipe­line - so: far as their impact onthe history of the first severalcenturies was concerned. The Ro­man Empire went from badto worse and finally fell, andEurope was in a bad way forhundreds of years. The MiddleAges was a turbulent periodwhose major religious thrust wasa blend of Caesarism and Christi­anity. A new style of personal­istic Christianity emerged in thesixteenth and seventeenth cen­turies, the period which also sawthe beginnings of Puritanism inEngland. The political arm of thePuritans was the Whig Party,whose later spokesman was Ed­mund Burke, and which becamethe Liberal Party in the earlynineteenth century. Ideas werecoming out of the pipeline, es­pecially in nineteenth centuryAmerica, where we enjoyed morereligious, political, and economic

--1970 WHAT YOU DON'T KNO'W MIGHT HELP YOU! 717

liberty than any people hitherto.We were reaping the harvest ofsound ideas put into the pipe­line over the course of many cen­turies - including some brilliantones added since The Wealth ofNations . We might mention TheFederalist Papers, 'the writings ofBurke, Mill, Bastiat, and Spencer,plus the important contributionsof the Austrian School fromBohm-Bawerk to Mises whichhave refined and extended the sci­ence of economics with meticu­lous care, establishing its mainpoints beyond dispute. In short,there are some good ideas in thepipeline in 1970, and if we keepon stuffing more of them into thenear end they are bound toemerge in due course.

A Preponderance of SocialistLiterature in the Past Century

But such good ideas as wentinto the pipeline during this peri­od were overcome and nullified bythe virulence and sheer bulk ofthe bad ideas. F rom the time ofMarx to the present day the so-\cialists and communists havewritten a hundred books for everybook written by a libertarian orconservative, plus a thousandpamphlets; and whereas the so­cialists and communists offered acontagious vision of a new lifefor humanity, their opponentscountered with the promise of two

cars in every garage! It is badthat we have been losing in sucha lopsided contest, but it wouldhave been worse if we had won.

There are some good ideas com­ing out of our side of the pipe­line, and they are getting better.But they are not good enough forthe task at hand. They have takenon some of the protective colora­tion of the collectivists with re­spect to the ends and aims ofhuman life, objecting merely tocollectivist means.

The Jacobins promise to man­ufacture a new society fromscratch and, with democratic con­trols on scientific power, bringabout a heaven on earth - mean­ing the City of Man in whicheveryone is well-housed, well­clothed, and well-fed. All too fre­quently, defenders of the freemarket have responded: The Cityof Man is our goal, too, but wecan show you how to have betterhousing, superior clothing, andtastier food! The fact is that thestruggle goes deeper than eco­nomics; two ways of life are inconflict. You don't win a battlefor the minds of men by promis­ing to fatten their pocketbooks.You might say that if a man'sheart is empty because life haslost its meaning, the full bellyargument turns his stomach!

Two ways of life are locked incombat, so let's engage in some

718 THE FREEMAN December

self-examination and self-criti­cism in order to raise our sightsand change the terms in whichthe contest is viewed. Shiftinggears, we begin with a solemnobservation by the eighteenth cen­tury philosopher, George Berke­ley, after whom a certain uni­versity city on the coast wasnamed:

He who hath not much meditatedupon God, the human mind, and thesupreme good, may possibly make athriving earthworm, but will mostindubitably make a sorry patriot anda sorry statesman.

Raising Our Sights

What do these three ideas­God, mind, and the supreme good- have to do with the free econ­omy? I think I can demonstratethat they have a lot to do with it,and that unless they are takeninto account, economic liberty isa vain hope.

The idea of God has to do withthe ends or goals for which hu­man life should be lived. The oldcatechism said that the chief endof man is to know God and enjoyhim forever. But most economistshave told us that economics is avalue-free science, that it is neu­tral as to ends. Let men dedicatetheir lives to any end that catchestheir fancy; to the economist it'sa matter of indifference. This isa typical line taken by economists,

and it contains potential disasterfor the free economy. Suppose thechosen end is power. Many mendedicate their lives to the con­centration of political power insociety, and then scheme to getthat power into the hands ofthemselves and their party. Everyminor success by the power­hungry nullifies the free economyat some point. It is suicidal forthe economist to declare that hisdiscipline is indifferent as towhat ends in life men pursue.

Or take wealth. Suppose a sig­nificant number of men agree thatthe pursuit of wealth is the chiefend of man. Making money in thefree economy is laudable enough,being a token that you are pro­viding people with things theywant. But if money-making is ac­cepted as a man's chief end thenany means are justified if theyfurther this end. The free econ­omy is more productive than anyother - on the whole; but youcannot promise any given individ­ual that he'll better his own cir­cumstances in the free market.Many people can do better forthemselves if they operate a rack­et. Congresswoman Edith Greenof Oregon has made a calculationwhich shows that a welfare moth­er with four children could in oneyear net $11,698 of relief funds;double the number of children andthe ante is upped to $21,093.. But

1970 WHAT YOU DON'T KNO'iV MIGHT HELP YOU! 719

this is peanuts compared to thesubsidies some ~Iick operators canget by political finagling. Propo­nents of the free economy willcontinue to lose unless human lifeis geared to the goals proper forman, and this makes the God con­cept a live issue.

Goals Proper to Man

Well, it may be asked, what arethe 'goals proper for man? It isobvious that there is no pat, copy­book answer to a question of thismagnitude; what is important isthat this question continues to beasked and that it can be wrestledwith unceasingly. Albert Jay Nockaddresses himself to the problemwhen he speaks of "man's fivefundamental social instincts." Hecharges that only the instinct ofexpansion and accumulation, thatis, for power and wealth, has hadfree play during the past centuryand more, while "the instincts ofintellect and knowledge, of re­ligion and morals, of beauty andpoetry, of social life and manners,were disallowed and perverted."

There are many facets to humannature and we cannot afford toneglect any. The English philoso­pher, C. E. M. Joad, writes asfollows.

For a guide to the demands of ournature we should refer to the pur­suits of our fathers. For what man­kind has done uninterruptedly for

thousands of years we may be as­sured that there is a natural itch inthe blood. In all ancestral and cus­tomary pursuits, then, we should in­dulge, but in none of them overmuch.We should pray a little, fight a little,play a little, dig a little in theground, and go on the sea in ships;we should make love, speak to ourfellows in public, and expand in thecompany of our friends in private.Above all we should recognize thatwe have an instinctive desire for oc­casional· solitude, and a need forcountry sights and sounds.

The Nature of the Mind

Berkeley's second point has todo with the nature of the humanmind. Is the mind a mere offshootof the brain or a tool of survivalor an instrument of adaptation tosociety? In which case we areborn, marry, work, die, and that'sthe end of us. Or is the manifesta­tion of mind in each of us morethan a mere adj unct to the brainand nervous system; is it some­thing that endures when its phys­ical partner perishes; is it an im­mortal essence? This is an issuewhich philosophers have debatedfor centuries, but I raise it hereonly because of its bearing on thefree economy.

Shakespeare wrote of "thisblessed plot, this realm, this Eng­land." That was nearly four cen­turies ago; a dozen generationshave Iived and died since those

720 THE FREEMAN December

lines were penned, but hundredsof years ago men were proudlyconscious of living in a nationwith a long history. And todaythey boast that "there'll always bean England." The nation endures;individuals perish. The nation ex­isted before any of us were born,and it will continue in existence

I after everyone here is dead. Youhop aboard this ongoing reality,last out your three-score-yearsand ten, and that's the end of you.Suppose this version of the waythings are is widely accepted, andsuppose you find yourself out ofstep with the nation's consensus- as many of us would be at oddswith today's establishment. If you_. a fleeting fragment of an an­cient and enduring nation - chal­lenge the nation's consensus youwould not only be pitting yourpuny self against your contem­poraries but tackling past cen­turies and future generations aswell. The encounter would besomewhat lopsided!

But there is another interpre­tation of the way things are, andaccording to this wiser readingof the human situation, kingdomsrise and fall, nations come and go,civilizations finally crumble, butthe person is forever. When thereare firm convictions along theselines the individual has an enor­mous leverage against any ma­jority, any society, any nation.

The nature of the human mind isa vital political question.

Human Motivation

Berkeley's third idea has to dowith human motivation. What isman's supreme good? The tradi­tional answer was: To please God.Since the eighteenth century theanswer has been: The supremegood is to please yourself. Thething gets pretty fatuous in' theideology of some would-be de­fenders of capitalism who try totell us that the aim of life is toplease customers! What were ourancestors driving at when theyspoke about pleasing God? Let metry to frame an answer in con­temporary terms.

I have pointed out that each ofus, in his prenatal stage, knewhow to manufacture a baby. Quitea stunt! But the full stature ofhumanity is an achievement, notan endowment; all that being bornconfers upon us by way of natu­ral endowment is the plastic andsensitive raw material needed forevolving a human being. Finish­ing the job is up to us, and it willtake us a lifetime to do it - if wedo it at all! Before birth we hadthe advantage of working by in­stinct: the formula was inside us.But after birth we have to look fora recipe outside, that is to say,we must look for a set of ruleswhich are written into the nature

1970 WHAT YOU DON'T KNOW MIGHT HELP YOU! 721

of things. These rules for com­pleting our growth are what ourforebears spoke of as God's lawsor Commandments. By discover­ing and obeying these commands,each of us furthers his own pur­poses and completes his own na­ture.

The Road to Chaos

When men cease to believe in anobjective set of rules, then eachperson tries to make up his ownrules as he goes along; he tries toplease himself by "doing his ownthing." But this is like trying toplay baseball when each playerdecides for himself how manystrikes are out, or whether to runbases clockwise, or whatever. "Do­ing your own thing" doesn't workout, for, if no external standardsare acknowledged, the weak doingtheir thing are at the mercy ofthe strong doing theirs; the hon­est entrepreneurs doing theirthing are at the mercy of politicalfinaglers doing theirs; those whowant to be let alone are harassedby those whose thing is meddling.Throwaway the rulebook andchaos ensues. Putting the rules forliving in the order of their prior­ity is a live issue for the freedomphilosophy. We have negJectedthis philosophical framework; andcollectivist ideology, taking advan­tage of our neglect, has crowdedinto the vacancy.

Nature on Side of Freedom

It is encouraging to know thatthe nature of things is ultimatelyon our side. The aberrations weface are against the grain ofthings and will fall of their ownweight - if we don't misguidedlyprop them up. Does the oppositionseem strong? Well, said Disraeli,"the dominant philosophy in anyage is always the one which is onthe way out." Collectivism in ourtime has changed into nihilism,and nihilism is as far as you cango into a dead end. From there,the way back is the way ahead.

The collectivism which has cometo full flower in the totalitariannations, which is growing in allcountries, including our own, is aplague that reminds one of thewitchcraft mania of the sixteenthand seventeenth centuries. Howwas that disagreeable episodetranscended? Not by antiwitch­craft crusades nor by social pres­sures on behalf of civil rights forwitches; witchcraft crawled backinto the woodwork when it wasconfronted by a quite differenttactic. Aldous Huxley, discussingthe period, says "the theologiansand inquisitors . . . by treatingwitchcraft as the most heinous ofcrimes, actuaHy spI'ead the beHefsand fostered the practices whichthey were trying so hard to re­press. By the beginning of theeighteenth century witchcraft had

722 THE FREEMAN Decetnber

ceased to be a serious social prob­lem. It died out, among otherreasons, because almost nobodynow bothered to repress it. Forthe less it was persecuted the lessit was propagandized." A new un­derstanding of the nature of thecosmos, a new world view, beganto gain acceptance in the eight­eenth century, and witchcraft,finding no foothold in it, witheredon the vine.

Great Changes Come Slowly

History· has a number of greatturning points. We may not beable to agree on matters of his­torical causation, but all studentsare unanimous on one point: thesegreat changes were in the worksa long time before their effectswere manifested on the surface.

In Victor Hugo's great novelLes Miserables there is a dra­matic account of the Battle ofWaterloo, after which Hugo re­flects on the cosmic dimensions ofthat battle. "Why Napoleon'sWaterloo?" he asks, "Was it pos­sible that Napoleon should gainthis battle?" We answer No. Why?Because of Wellington? Becauseof Blucher? No; because of God!Bonaparte victor at Waterloo­that was no longer according tothe laws of the nineteenth cen­tury. Another series of events waspreparing wherein Napoleon hadno further place... Napoleon had

been denounced in the infinite andhis downfall was resolved. Hebothered God. Waterloo is not abattle; it is the universe changingfront."

A novelist may be allowed hisliberties, but Hugo's main pointis clear; every event on the sur­face of history has been manu­factured at a deeper level by hu­man initiative and intelligence co­operating with cosmic energies.

Whenever people of our generalpersuasion get together to assessthe world scene the discussionsounds like an inquest; things arenot going our way; the freedomphilosophy is in disrepute, andthings have fallen apart faster inrecent years than any of us wouldha ve dared predict. Judge theevents of our time from the news­paper or journalistic level and themood is despair. But we know onsecond thought that many goodand important things are happen­ing at deeper levels. Probe belowthe surface and there are signs ofhope. There are good things in thepipeline, and also good people.

I t is difficult to assess the sig­nificance of contemporary events,although wisdom after the eventis easy. Hindsight tells us thatthe voyage of The Mayflowerthree and a half centuries agowas one of the most importantvoyages in history, but few peo­ple of the time were even aware

1970 WHAT YOU DON'T KNOW MIGHT HELP YOU! 723

of it. It was just another trip forthe seamen involved, writes Wil­liam Baker, the naval architectwho designed the present May­flower after much research. Eventhe name, Mayflower, was a com­mon one for merchant vessels inthe seventeenth century, and theboats hired by the Pilgrims "weremerely common traders." Bakerresearched the Port of Londonrecords and traced the voyages of"The Mayflower, ChristopherJ ones, Master," from August,1609, to October, 1621. There areno entries for the year 1620. ThePort of London official deemed thisvoyage to the New World not evenworth recording! Nor is the nameof their ship recorded by the menof the Plymouth Colony until1623. The celebrated Bradfordmanuscript, written by the manwho governed Plymouth Planta­tion during most of its first thirty­six years, was missing for gen­erations and not published in fulluntil 1856. Several centuries wentby before the Pilgrims assumedtheir rightful place in Americanhistory.

A Vast New Outpouring

of the Literature of Freedom

The events that disturb us todayhave been long in preparation; andthe events that will correct thesedisturbances are in the makingright no\v. They are, for example,

in the books now being writtenand read. There are now about onehundred titles listed in the FEEbook catalogue. Apart from thehandful of classics, every book inthis list has been written since theend of World War II! Almost asmany more books by brilliant lib­ertarian and. conservative think­ers have appeared during thissame quarter century which arenot included in the catalogue, andthe writers of our side continueto provide a steady stream of ma­terial presenting the case for thefree society.

People on our side didn't writethese kinds of books during the1850-1950 period; their creativitywent into other channels. Theywere doing the work of the worldwhile the socialists were writingthe books. Our people were exem­plifying the accomplishments of asociety which at least gave lipservice to the ideals of freedom,while the socialists were writingmillions of words to extol theplanned life and forming all kindsof organizations to bring about acollectivist order. Our forebearsprobably believed that the freeway of life is its own rationale,but it is not so. Good deeds are notenough, we must supply a reason\vhy. And that is just what is hap­pening today, as libertarian andconservative literature pours offthe presses.

724 THE FREEMAN December

The Inherent Stability of the Masses

There's something else belowthe surface of today's events,ready to be engaged in our cause,and that is the solid core of de­cency and common sense in themass of men, covered over nowand again, confused, but waitingto be enlisted. One often hearsthe despairing question, How canwe win the masses back fromliberalism? That's not our prob­lem; the masses have never beenconverted to liberalism! To be­come a real liberal you have to goto graduate school! The averageman, the man in the street, is notour problem. He may be mean,shiftless, ignorant, and a wife­beater when drunk, but he is nota collectivist and he is here bythe millions, waiting to pin hisemotions alongside the flag andcheer for the home team. CardinalNewman was right: "There is al­ways in the multitude an ac­knowledgment of truths whichthey themselves do not practice."

When our side gets good enough,the multitudes will swarm in ourdirection.

We have a real mess on ourhands, but no one can say it isnot richly deserved. For the pastcouple of centuries we have bull­headedly made a wrong choice atevery opportunity. We have dis­carded the tried and true and letourselves be seduced by the mythsof an immanent utopia. We haveembraced phony values and fol­lowed phony leaders. And in con­sequence of our folly things arein a bad way, but not as bad asthey might be. Things aren't asbad as they would be if Realitywere neutral. It is our great goodfortune that the nature of thingsis on our side, on the side of free­dom, that is; and it's the collec­tivists' tough luck that their pro­gram goes against the grain.There are forces in us and in theuniverse which make for growthand cohesion; unobstructed theymake for liberty. Let's join 'em!

I)

IDEAS ON

LIBERTY

No Productionism, No Consumerism

CONSUMERISM is based upon productionism; before there can beconsumers there must first be producers. There's no better way toserve consumers than to reward and encourage producers.

Regulations intended to restrain disservices become in them­selves the worst kind of disservice when they restrict the pro­ducers' freedoms to serve consumers and the consumers' freedomto be served by the producers.

Taxes, more than anything else, keep consumers from ever get­ting their money's worth.

J. KESNER KAHN

GOOSE

OR

CITIZEN?

GRAHAM SCOTT

PERHAPS you've had an experiencelike mine. You've been arguingover socialism for about an hourwith someone, and you finally con­centrate all your powers of per­suasion on the proposition thatsocialism will destroy individualinitiative. Then, without a mo­ment's delay, comes the socialistrebuttal: "But we don't intend tokill the goose that lays the goldeneggs."

Reassured? Fairly certain thatunder socialism things won't be allthat bad? Well, think again.

(1) The promise, sincere as itis, is simply that the goose thatlays the golden eggs will not bekilled. This is cold comfort if youhappen to be the goose in ques­tion. I mean, you might want to

The Reverend Mr. Scott is a minister of thE!United Church of Canada and a doctoral can··didate at the Universite de Strasbourg.

hatch one or two of those eggs,but the only promise you've got isthat you won't be killed. Now bythe time you've spent most ofyour life laying egg after egg,death might just seem like a wel­come release, but there is this sin­cere promise that they won't killthe goose that lays the golden eggs.Some promise, some reassurance!

(2) The promise is also thatthe goose that lays the golden eggswill not be killed. You might askyourself if you are a goose or acitizen. Are you satisfied with be­ing treated like a bird whose fateis decided for him, or would yourather be regarded as a man? Youknow, when people start talkingabout you as if you were an ani­mal, you'd better let them knowthat you're a human being, freeand responsible by nature. You'reno man's creature; and although

725

726 THE FREEMAN December

you don't produce golden eggs,whatever you do produce belongsto you by right.

(3) The socialist promise in­cludes this business of not killingthe goose that lays the golden eggs.Now a goose lays eggs becausethat's its nature, and I supposethe goose that lays golden eggsdoes that by nature too. But yourprofessional or entrepreneurialskills do not come naturally. Ifthey did, we'd all be millionairesovernight. In fact, professionaland entrepreneurial skills comefrom the hard work called learn­ing and from a lot of persistencewhen the going gets rough, not tomention the self-control and intel­lectual judgment that are essen­tial for any successful enterprise.Although most people are capableof learning, persistence, self-con­trol, and good judgment, the fact

Alexander Hamilton

is that there are those who couldbut don't and there are those whodo. This difference is usually thatof extraordinary effort. Those whodo, make the effort; those whocould but don't, do not make theeffort. And to make an extraordi­nary effort a man needs an incen­tive, and the less the incentive theless effort a man will make.

(4) Not being killed is sorrycompensation for the kind of ef­fort required to learn and to prac­tice professional and entrepre­neurial skills. In a free society itis no reward at all, because freemen expect a positive reward fortheir efforts, not the negative as­surance that they won't be doneaway with. In other \vords, thegoose that lays the golden eggsmay be just a fairy tale, but beingtreated like one in real life is defi­nitely for the birds. ~

IDEAS ON

LIBERTY

THE SACRED RIGHTS of mankind are not to be rummaged for among

old parchments or musty records. They are written as with a sun­

beam, in the whole volume of human nature, by the hand of Divin­

ity itself, and can never be erased or obscured by human power.

This is what is called the law of nature, which being coeval with

mankind and dictated by God himself, is, of course, superior in

obligation to any other. No human laws are of any validity if con­

trary to this. It is binding over all the globe, in all countries, and

at all times.

Private Property, Public Purpose

HENRY HAZLITT

THE SOCIALISTS and communistspropose to cure poverty by seizingprivate property, particularlyproperty in the means of produc­tion, and turning it over to beoperated by the government.

What the advocates of all expro­priation schemes fail to realize isthat property in private handsused for the production of goodsand services for the market is al­ready for all practical purposespublic wealth. It is serving thepublic just as much as - in fact,far more effectively than - if itwere owned and operated by thegovernment.

Suppose that a single rich manwere to invest his capital in a rail··road owned by himself alone. Hecould not use this merely to trans·-

Henry Hazlitt is well-known to FREEMANreaders as author, columnist, editor, lecturer',and practitioner of freedom. This article willappear as a chapter in a forthcoming book,The Conquest of Poverty, to be published byArlington House.

port his own family and their per­sonal goods. That would be ruin­ously wasteful. If he wished tomake a profit on his investment,he would have to use his railroadto transport the p~blic and theirgoods. He would have to devotehis railroad to a public use.

And unlike a governmentagency, the private owner isobliged by self-preservation to tryto avoid losses, which means thathe is forced to run his railroadeconomically and efficiently. Andalso unlike a government agency,the private capitalist is nearlyalways obliged to face competi­tion - which means to make theservices he provides or the goodshe sells superior or at leastequal to those provided by his com­petitors. Therefore the privatecapitalist normally serves the pub­lic far better than the governmentcould if it took over his property.

727

728 THE FREEMAN December

Looked at from the standpoint ofthe service they provide, the pri­vate railroads today are worthvastly more to the public than totheir owners.

Though socialists chronicallyfail to understand it, there is noth­ing original in the theme juststated. It was hinted at in AdamSmith:

Every individual is continually ex­erting himself to find out the mostadvantageous employment for what­ever capital he can command. It ishis own advantage, indeed, and notthat of the society, which he has inview. But the study of his own ad­vantage naturally, or rather neces­sarily leads him to prefer that em­ployment which is most advantageousto the society.l

At another point Adam Smithwas even more explicit:

Every prodigal appears to be apublic enemy, and every frugal mana public benefactor.... The princi­ple which prompts to save, is thedesire of bettering our condition....An augmentation of fortune is themeans by which the greater part ofmen propose and wish to bettertheir condition. . . . And the mostlikely way of augmenting their for­tune, is to save and accumulate somepart of what they desire.... [Thefunds they accumulate] are destinedfor the maintenance of productive

1 Wealth of Nations (1776), Bk. IV,Ch. II.

labor.... The productive powers ofthe same number of laborers cannotbe increased, but in consequenceeither of some addition and improve­ment to those-machines and instru­ments which facilitate and abridgelabor; or of a more proper divisionand distribution of employment. Ineither case an additional capital isalmost always required.2

In the history of economicthought, however, it is astonishinghow much this truth was neglectedor forgotten, even by some ofSmith's most eminent successors.But the theorem has been revived,and some of its corollaries moreexplicitly examined, by severalwriters in the present century.

How Henry Ford Profitably

Served the Public

One of them was George E.Roberts, director of the U. S. Mintunder three Presidents, who wasresponsible for the Monthly Eco­nomic Letter of the National CityBank of New York from 1914 until1940.

An example often cited byRoberts was Henry Ford and hisautomobile plant. Roberts pointedout in the July letter of 1918 thatthe portion of the profits of HenryFord's automobile business that hehad invested in the developmentand manufacture of a farm tractorwas not devoted to Ford's private

2 Ibid., Bk. II, Ch. III.

1970 PRIVATE PROPERTY, PUBLIC PURPOSE 729

wants; nor was that portion whichhe invested in furnaces for mak­ing steel; nor that portion investedin workingmen's houses. "If HenryFord had exceptional talent forthe direction of large productiveenterprises the public had no rea­son to regret that he had an in­come of $50,000,000 a year withwhich to enlarge his operations. Ifthat income came to him becausehe had a genius for industrialmanagement, the results to thepublic were probably larger thanthey would have been if the $50,­000,000 had been arbitrarily dis­tributed at 50 cents per head toall the [then, 1918] population ofthe country."

In brief, only that portion of hisincome which the owner spendsupon himself and his dependentsis devoted to him or to them. Allthe rest is devoted to the publicas completely as though the titleof ownership was in the state. Theindividual may toil, study, con­trive, and save, but all that hesaves inures to others.

But the Ford Motor Company,from the profits of which theoriginal owner drew so little forhis own personal needs, is not aunique example in American busi­ness. Perhaps the greater part ofprivate profits are today reinvestedin industry to pay for increasedproduction and service for thepublic.

Profits After Taxes Average

4 Per Cent of Sales

Let us see what happened, forexample, to all the corporate prof­its in the United States in 1968,fifty years after George Robertswas writing about the Ford Com­pany. These aggregate net profitsamounted before taxes to a totalof $88.7 billion (or one-eighth ofthe total national income in thatyear of $712.7 billion).

Out of these profits the corpora­tions had to pay 46 per cent, or$40.6 billion, to the government intaxes. The public, of course, gotdirectly whatever benefit theseprovided. Corporate profits aftertaxes then amounted to $48.2 bil­lion, or less than 7 per cent of thenational income.

These profits after taxes, more­over, averaged only 4 cents forevery dollar of sales. This meantthat for every dollar that the cor­porations took in from sales, theypaid out 96 cents - partly fortaxes, but mainly for wages andfor supplies from others.

But by no means all of the $48.2billion earned after taxes went tothe stockholders of the corpora­tions in dividends. More than half- $24.9 billion - was retained orreinvested in the business. Only$23.3 billion went to the stock­holders in dividends.

There is nothing untypical inthese 1968 corporate reinvestment

730 THE FREEMAN December

figures. In everyone of the sixyears preceding 1968 the amountof funds retained for reinvestmentexceeded the total amount paid outin dividends.

Moreover, even the $25 billionfigure understates corporate re­investment in 1968. For in thatyear the corporations suffered$46.5 billion depreciation on theirold plant and equipment. Nearlyall of this was reinvested in re­pairs to old equipment or to com­plete replacement. The $24.9 bil­lion represented reinvestment ofprofits in additional or greatly im­proved equipment.

And even the $23.3 billion thatfinally went to stockholders wasnot all retained by them to be spenton their personal consumption. Agreat deal of it was reinvested innew enterprises. The amount is notprecisely ascertainable; but theU. S. Department of Commerceestimates that total personal sav­ings in 1968 exceeded $40 billion.

Thus because of both corporateand personal saving, an ever-in­creasing supply is produced offinished goods and services to beshared by the American masses.

In a modern economy, in brief,those who save and invest canhardly help but serve the public.As Mises has put it: "In the mar­ket society the proprietors of capi­tal and land can enj oy their prop­erty only by employing it for the

satisfaction of other people'swants. They must serve the con­sumers in order to have any ad­vantage from what is their own.The very fact that they own meansof production forces them to sub­mit to the wishes of the public.Ownership is an asset only forthose who know how to employ itin the best possible way for thebenefit of the consumers. It is asocial function."3

It follows from this that therich can do the most good for thepoor if they refrain from ostenta­tion and extravagance, and if in­stead they save and invest theirsavings in industries producinggoods for the masses.

F. A. Harper has gone so far asto write: "Both fact and logicseem to me to support the viewthat savings invested in privatelyowned economic tools of produc­tion amount to an act of charity.And further, I believe it to be­as a type - the greatest economiccharity of all."4

Professor Harper supports thisview by quoting, among others,from Samuel Johnson, who oncesaid: "You are much surer thatyou are doing good when you pay

3 Ludwig von Mises, Human Action(Third Revised Edition; Chicago: HenryRegnery Co., 1966), p. 648.

4 "The Greatest Economic Charity."Essay in symposium On Freedom andFree Enterprise, Mary Sennholz, ed. VanNostrand, 1956), p. 99.

1970 PRIVATE PROPERTY, PUBLIC PURPOSE 731

money to those who work, as arecompense of their labor, thanwhen you give money merely incharity."5, So, saving and sound investmentare by far the most importantmeans by which the rich can con­fer benefits on the poor.

Saving and Investment

This theme has found expres­sion in this century by a deplor­ably small number of writers. Oneof the most persuasive was Hart­ley Withers, a former editor ofthe famous London Economistwho published an ingratiatin~little book in 1914, a few weeksbefore the outbreak of the FirstWorld War, called Po verty andvVaste. ti The contention of his bookis that when a wealthy manspends money on luxuries hecauses the production of luxuriesand so diverts capital, energy,and labor from the production ofnecessaries, and so makes neces­saries scarce and dear for thepoor. \Vithers does not ask him

... to giv~ his money away, for hewould probably do more harm thangood thereby, unless he did it verycarefully and skilfully; but only toinvest part of what he now spends

5 James Boswell, The Life of SamuelJohnson (Boston: Charles E. Lauriat Co.,1925). Vol. II, p. 636.

6 (London: Smith, Elder, 1914; Second,Revised Edition, John Murray, 1931.)

on luxuries so that more capital maybe available for the output of neces­saries. So that by the simultaneousprocess of increasing the supply ofcapital and diminishing the demandfor luxuries the wages of the poormay be increased and the supply oftheir needs may be cheapened; andhe himself may feel more comfort­able in the enjoyment of his income.7

Yet in spite of the authority ofthe classical economists and theinherent strength of the argu­ments for saving and investment,the gospel of spending has aneven older history. One of thechief tenets of the "new econom­ics" of our time is that saving isnot only ridiculous but the chiefcause of depressions and unem­ployment.

Adam Smith's arguments forsaving and investment were atleast partly a refutation of someof the mercantilist doctrines thriv­ing in the century before he wrote.Professor Eli Heckscher, in hisM ercant,ilism (2 vol., 1935),quotes a number of examples of\vhat he calls "the deep-rooted be­lief in the utility of luxury andthe evil of thrift. Thrift, in fact,was regarded as the cause of un­employment, and for two reasons:in the first place, because real in­come was believed to diminish bythe amount of money which didnot enter into exchange, and sec-

7 Poverty and Waste, p. 139.

732 THE FREEMAN December

ondIy, because saving was believedto withdraw money from circula­tion."8

An· example of· how persistentthese fallacies were, long afterAdam Smith's refutation, is foundin the words that the sailor­turned-novelist, Captain Marryat,put into the mouth of his hero,Mr. Midshipman Easy, in his novelby that name published in 1836:

The luxury, the pampered state,the idleness - if you please, thewickedness - of the rich, all contrib­ute to the support, the comfort, andthe employment of the poor. Youmay behold extravagance - it is avice; but that very extravagancecirculates money, and the vice of onecontributes to the happiness of many.The only vice which is not redeemedby producing commensurate good, isavarice.

Mr. Midshipman Easy is sup­posed to have learned this wisdomin the navy, but it is almost anexact summary of the doctrinepreached in Bernard Mandeville'sFable of the Bees in 1714.

Luxury Spending

Now though this doctrine isfalse in its attack on thrift, thereis an important germ of truth init. The rich can hardly preventthemselves from helping the poorto some extent, almost regardlessof how they spend or save their

8 Vol. ii, p. 208.

money. So far from the wealth ofthe rich being the cause of thepoverty of the poor, as the imme­morial popular fallacy has it, thepoor are made less poor by theireconomic relations with the rich.Even if the rich spend their moneyfoolishly and wastefUlly, they giveemployment to the poor as serv­ants, as suppliers, even as pand­ers to their vices. But what istoo often forgotten is that if therich saved and invested theirmoney they would not only giveemployment to just as many peo­ple producing capital goods, butthat as a result of the reducedcosts of production and the in­creased supply of consumer goodswhich this investment broughtabout, the real wages of the work­ers and the supply of goods andservices available to them wouldgreatly increase.

What is also forgotten by thedefenders of luxury spending isthat, though it improves the con­dition of the poor who cater to it,it also increases their dissatisfac­tion, unrest, and resentment. Theresult is increased envy of, andsullenness toward, those who aremaking them better off.

The first eminent economist whoattempted to refute Adam Smith'sproposition that "every prodigalappears to be a public enemy, andevery frugal man a public bene­factor" was Thomas R. Malthus.

1970 PRIVATE PROPERTY, PUBLIC PURPOSE 733

Malthus's objections were partlywell taken and partly fallacious.I have examined them rather fullyin another place; 9 and I shall con­tent myself here with quoting afew lines from the answer that agreater economist than Malthus,David Ricardo, made at the time(circa 1814-21):

Mr. Malthus never appears to re­member that to save is to spend, assurely as what he exclusively callsspending.... I deny that the wantsof consumers generally are diminishedby parsimony - they are transferredwith the power to consume to an­other set of consumers.l0

John Maynard Keynes

We have yet to discuss the viewsof the most influential opponentof saving in our time - JohnMaynard Keynes.

I t is widely believed, especiallyby his disciples, that Lord Keynesdid not condemn saving until, in asudden vision on his road to Da­mascus, the truth flashed uponhim and he published it in TheGeneral Theory of Employment,Interest, and Money in 1936. Allthis is apocryphal. Keynes dispar­aged saving almost from the be­ginning of his career. He waswarning his countrymen in a

9 The Failure of the "New Economics"(Van Nostrand, 1959), pp. 40-43 and355-362.

10 Notes on Malthus (Sraffa edition),p. 449 and p. 309.

broadcast address in January,1931, that "whenever you save fiveshillings, you put a man out ofwork for a day." And long beforethat, in his Economic Conse­quences of the Peace, published in1920, he was writing passages likethis:

The railways of the world which[the nineteenth century] built as amonument to posterity, were, not lessthan the Pyramids of Egypt, thework of labor which was not free toconsume in immediate enjoyment thefull equivalent of its efforts.

Thus this remarkable system de­pended for its growth on a doublebluff or deception. On the one handthe laboring classes accepted fromignorance or powerlessness, or werecompelled, persuaded, or cajoled bycustom, convention, authority, and thewell-established order of Society intoaccepting, a situation in which theycould call their own very little of thecake that they and Nature and thecapitalists were cooperating to pro­duce. And on the other hand the cap­italist classes were allowed to call thebest part of the cake theirs and weretheoretically free to consume it, onthe tacit underlying condition thatthey conSUll1ed very little of it inpractice. The duty of "saving" be­came nine-tenths of virtue and thegrowth of the cake the object of truereligion. There grew round the non­consunlption of the cake all thoseinstincts of puritanis111 which in otherages has withdrawn itself from theworld and has neglected the arts of

734 THE FREEMAN December

production as well as those of enjoy­ment. And so the cake increased; butto what end was not clearly contem­plated. Individuals would be exhortednot so much to abstain as to defer,and to cultivate the pleasures of se­curity and anticipation. Saving wasfor old age or for your children; butthis was only in theory - the virtueof the cake was that it was never tobe consumed, neither by you nor byyour children after you. (pp. 19-20.)

This passage illustrates the ir­responsible flippancy that runsthrough so much of Keynes's work.It was clearly written tongue-in­cheek. In the very next sentencesKeynes made a left-handed retrac­tion: "In writing thus I do notnecessarily disparage the practicesof that generation. In the uncon­scious recesses of its being Societyknew what it was about," etc.

Yet he let his derision stand todo its harm.

If we accepted Keynes's originalpassage as sincerely written, wewould have to point out in reply:(1) The railways of the world can­not be seriously compared with thepyramids of Egypt, because therailways enormously improved theproduction, transportation, andavailability of goods and servicesfor the masses. (2) There was nobluff and no deception. The work­ers who built the railroads wereperfectly "free" to consume in im­mediate enjoyment the full equiva-

lent of their efforts. It was thecapitalist classes that did nearlyall the saving, not the workers.(3) Even the capitalist classes didconsume most of their slice of thecake; they were simply wiseenough to refrain from consumingall of it in the same year as theybaked it.

This point is so fundamental,and both Keynes and his discipleshave so confused themselves andothers with their mockery and in­tellectual somersaults, that it isworth making the matter plain byconstructing an illustrative table.

Results in Ruritania:A Larger IICakeli

Let us assume that in Ruritania,as a result of net annual savingand investment of 10 per cent ofoutput, there is over the long runan average increase in real pro­duction of 3 per cent a year. Thenthe picture of economic growth weget over a ten-year period runslike this in terms of index num­bers:

Total Consumers' CapitalYear Production Goods Goods

First 100 90 10Second 103 92.7 10.3Third 106.1 95.5 10.6Fifth 112.5 101.3 11.2Tenth 130.5 117.5 13.0

(These results do not differ toowidely from what has been hap-

1970 PRIVATE PROPERTY, PUBLIC PURPOSE 735

pening in recent years in theUnited States.)

What this table illustrates isthat total production in Ruritaniaincreases each year because of thenet saving (and consequent in­vestment), and would not increasewithout it. The saving is used yearafter year to increase the quantityand improve the quality of exist­ing machinery or other capitalequipment, and so to increase theoutput of both consumption andcapital goods.

Each year there is a larger andlarger "cake." Each year, it istrue, not all of the currently pro­duced cake is consumed. But thereis no irrational or cumulative con­sumer restraint. For each year alarger and larger cake is in factconsumed; until even at the endof five years (in our illustration),the annual consumers' cake aloneis equal to the combined pro­ducers' and consumers' cakes ofthe first year. Moreover, the capi­tal equipment, the ability to pro­duce goods, is now 12 per centgreater than in the first year. Andby the tenth year the ability toproduce goods is 30 per centgreater than in the first year; thetotal cake produced is 30 per centgreater than in the first year, andthe consumers' cake alone is morethan 17 per cent greater than thecombined consumers' and pro­ducers' cakes in the first year.

No Allowances for Depreciation

There is a further point to betaken into account. Our table isbuilt on the assumption that therehas been a net annual saving andinvestment of 10 per cent a year;but in order to achieve this Ruri­tania will probably have to havea gross annual saving and invest,­ment of, say, twice as much, or20 per cent, to cover the repairs,depreciation··and deterioration tak­ing place every year in housing,roads, trucks, factories, equip­ment. This is a consideration forwhich no room can be found inKeynes's simplistic and mockingcake· analogy. The same kind ofreasoning which would make itseem silly to save for new capitalwould also make it seem silly tosave enough even to replace oldcapital.

In a Keynesian world, in whichsaving was a sin, production wouldgo lower and lower, and the worldwould get poorer and poorer.

In the illustrative table I haveby implication assumed the long­run equality of saving and invest­ment. Keynes himself shifted hisconcepts and definitions of bothsaving and investment repeatedly.In his General Theory the discus­sion of their relation is hopelesslyconfused. At one point (p. 74) hetells us that saving and invest­ment are "necessarily equal" and"merely different aspects of the

736 THE FREEMAN December

same thing." At another point (p.21) he is telling us that they are"two essentially different activi­ties" without even a "nexus."

Produce, Save, Invest

Let us, putting all this aside,try to look at the matter bothsimply and realistically. Let usdefine saving as an excess of pro­duction over consumption; and letus define investment as the employ­ment of this unconsumed excess tocreate additional means of produc­tion. Then, though saving and in­vestment are not always neces­sarily equal, over the long run theytend to equality.

New capital is formed by pro­duction combined with saving. Be­fore there can be a given amountof investment, there must be a pre­ceding equal amount of saving.Saving is the first half of the ac­tion necessary for more invest­ment. "To complete the act offorming capital it is of coursenecessary to complement the nega­tive factor of saving with the posi­tive factor of devoting the thingsaved to a productive service....[But] saving is an indispensablecondition precedent of the forma­tion of capital."ll

Keynes constantly deplored sav-

11 Eugen von Bohm-Bawerk, PositiveTheory of Capital, 1891 (South Holland,Ill.: Libertarian Press, 1959), pp. 104,118.

ing while praIsIng investment,persistently forgetting that thesecond was impossible without thefirst.

Of course it is most desirableeconomically that whatever issaved should also be invested, andin addition invested prudently andwisely. But in the modern world,investment follows or accompaniessaving almost automatically. Fewpeople in the Western world fodaykeep their money under the floorboards. Even the poorer savers puttheir money out at interest insavings banks; and those banksact as intermediaries to take careof the more direct forms of in­vestment. Even if a man keepsa relatively large sum in an in­active checking deposit, the bankin which he keeps it, trying al­ways to maximize its profits or tominimize losses, seeks to keepitself "fully loaned up" - that is,with close to the minimum neces­sary cash reserves. If there is in­sufficient demand at the time forcommercial loans, the bank willbuy Treasury bills or notes. Theresult in the United States, forexample, is that a bank in NewYork or Chicago would normallylend out five-sixths of the "hoard­er's" deposit; and a "countrybank" would lend out even moreof it.

Of course, to repeat, a saver cando the most economic good, both

1970 PRIVATE PROPERTY, PUBLIC PURPOSE 737

for himself and his community,if he invests most of his savings,and invests them prudently andwisely. But - contrary to the the­ories of the mercantilists and theKeynesians - even if he "hoards"his savings he may often penefitboth himself and the communityand at least under normal condi­tions do no harm.

To understand more clearly whythis is so it may be instructive tobegin by distinguishing betweenthree kinds of (or motives for)saving, and three groups of savers-roughly the poor, the middle

class, and the wealthy.

Rent-day Saving

Let us call the most necessarykind, which even the poorest mustpractice, "rent-day saving." Menbuy and pay for things over dif­ferent time periods. They buy andpay for food, for the most part,daily. They pay rent weekly ormonthly. They buy major articlesof clothing once or twice a year.A man who earns $10 a day can­not afford to spend $10 a day onfood and drink. He can spend onthem, say, not more than $6 aday, and must put aside $4 a dayfrom which to payout part at theend of the month for rent, light,and heat, and another part for awinter overcoat at the end of sixmonths, and so on. This is thekind of saving necessary to ensure

one's ability to spend throughoutthe year. "Rent-day saving" cansymbolize all the saving necessaryto pay for regularly recurrent andunavoidable living expenses. Ob­viously this kind of saving, sus­tained only for weeks or a season,is not cumulative and can in nocircumstances be held responsiblefor business depressions. It is ut­ter irresponsibility to ridicule it.

Rainy-day Saving Can'tCause Depression

The next kind of saving, whichapplies especially to the middleclasses, or moderately well off, iswhat we may call "rainy-day sav­ing." This is saving against suchpossible contingencies as loss of ajob, illness in the family, death ofthe breadwinner, or the like.

It is this "rainy-day saving"that the Keynesians most deplore,and from which they fear thedirest consequences. Yet even inextreme cases it does not, exceptin very special cyclical circum­stances, tend to bring about anydepression or economic slowdown.

Let us consider, for example, asociety consisting entirely of"hoarders" and "misers." Theyare hoarders and misers in thissense : that they all assume theyare going to live till 70 but willbe forced to retire at 60; and theywant to have as much to spend ineach of their last ten years as in

738 THE FREEMAN December

their 40 working years from 20to 60. This means that each familywill save one-fifth of its annual in­come over 40 years in order tohave the same amount to spend ineach of its final ten years.

Weare deliberately assumingthe extreme case, so let us assumethat the money saved is not in­vested in a business or in stocksor bonds, is not even put in asavings bank, earns no interest,but is simply "hoarded."

This of course would permit noeconomic improvement whatever,but if it were the regular perma­nent way of life in that commun­ity, at least it would not lead to adepression. The people who re­frained from buying a certainamount of consumers' goods andservices would not be bidding uptheir prices; they would simplybe leaving them for others to buy.If this saving for old age werethe regular and expected way oflife, and not some sudden unan­ticipated mania for saving, themanufacturers of consumer goodswould not have produced an over­supply to be left on their hands;the older people in their seventhdecade would in fact be spendingmore than similarly aged peoplein a "spending" society, and theunspent savings of those who diedwould revert to the spendingstream. Over a long period, yearby year, there would be just as

much spent as in a "spending"society.

Let us remember that moneysaved, in an evenly-rotating econ­omy, where there is neither mone­tary inflation nor deflation, doesnot go out of existence. Savings,even when they are not investedin production goods, are merelydeferred or postponed spending.The money stays somewhere andis always finally spent. In the longrun, in a society with a relativelystable ratio between hoarders andspenders, savings are constantlycoming back into the spendingstream, through old-age spendingor through deaths, keeping thestream at an even flow.

What we are trying to under­stand is merely the effect of sav­ing per se, and not of sudden andunanticipated changes in spendingand saving. Therefore we are ab­stracting from the effects pro­duced by unexpected changes inspending and saving or changesin the stock of money. If even aheavy amount of saving were theregular way of life in a commun­ity, the relative production andprices of consumers' and pro­ducers' goods would already be ad­j usted to this. Of course, if a de­pression sets in from some othercause, and the prices of securi­ties and of goods begin to fall, andpeople suddenly fear the loss oftheir jobs, or a further fall in

1970 PRIVATE PROPERTY, PUBLIC PURPOSE 739

prices, this may lead to a massiveand unanticipated increase in sav­ing (or more exactly in nonspend­ing) and this may of course in­tensify a depression already begunfrom other causes. But depres­sions cannot be blamed on regular,predictable, anticipated saving.

Some readers may contend thatI have not yet imagined the mostextreme case of saving - a society,say, all the members of which per­petually save more than half asmuch as they earn, and keep sav­ing, not for old age, or for anyreasonable contingency, but sim­ply because of a "religion" of sav­ing. In brief, these would be thecake nonconsumers of Keynes'ssatire. But such an imaginary so­ciety involves a contradiction ofassumptions. If the members ofthat society intended always tolive at their existing modest oreven mean level, why would theykeep exerting themselves to pro­duce more than they ever expectedto consume? That would be patho­logic to the point of insanity.Keynes's allegory of the extent ofsupposed nineteenth century thriftwas surely his own hallucination.

Capitalistic Saving for

Investment in Industry

We come finally to the third typeof saving - what we may call "cap­italistic" saving. This is savingthat is put aside for investment

in industry-either directly, or in­directly in the form of savingsbank deposits. It is saving thatyields interest or profits. Thesaver hopes, in his old age or evenearlier, to live on the incomeyielded by his investments ratherthan by consuming his saved capi­tal.

This type of "capitalistic" sav­ing was until recently confined tothe very rich. Indeed, even thevery rich were not able to take ad­vantage of this type of saving un­til the modern development ofbanks and corporations. As lateas the beginning of the eighteenthcentury we hear of London mer­chants on their retirement takinga chest of gold coin with them tothe country with the intention ofgradually drawing on that hoardfor the rest of their lives.l.:.? Todaythe greater part even of the Amer­ican middle classes, however, en­joy the advantage of capitalisticsaving.

To sum up. Contrary to age-oldprejudices, the wealth of the richis not the cause of the poverty ofthe poor, but helps to alleviatethat poverty. No matter whetherit is their intention or not, almostanything that the rich can legally

12 F. A. Hayek, Profits, Interest andInvestment (London: George Routledge,1939), pp. 162-163. See also the numerouscases mentioned in G. M. Trevelyan'sEnglish Social History (David McCay,1942) .

740 THE FREEMAN December

do tends to help the poor. Thespending of the rich gives employ­ment to the poor. But the savingof the rich, and their investmentof these savings in the means ofproduction, gives just as much em­ployment, and in addition makesthat employment constantly moreproductive and more highly paid,while it also constantly increasesand cheapens the production ofnecessities and amenities for themasses.

The rich should of course bedirectly charitable in the conven-

tional sense, to people who be­cause of illness, disability, or othermisfortune cannot take employ­ment or earn enough. Conventionalforms of private charity shouldconstantly be extended. But themost effective charity on the partof the rich is to live simply, toavoid extravagance and ostenta­tious display, and to save and in­vest so as to provide more peoplewith increasingly productive jobs,and to provide the masses with anever-greater abundance of thenecessities and amenities of life.

t)

GEORGE HAGEDORN-------------------~---.

Uses of Ignorance

SOME TIME AGO in Washington,this writer gave a talk at a meet­ing of fellow economists, in whicha somewhat unusual course of ac­tion was suggested. I will state itat this point and ask you to re­strain your initial indignation.

My recommendation was this:Business economists ought, at thisstage of history, to seize aggres-

Mr. Hagedorn is Vice-President and Chief Econ­omist of the National Association of Manufac­turers. This column appeared in NAM Reports,September 7, 1970.

sively all opportunities for assert­ing the1:r own ignorance.

I start from the premise thateconomists have a vast fund of ig­norance to exploit. There are im­portant items of factual informa­tion we do not have, there arecritical relationships we do notunderstand, and there are poten­tialities for the future that weare not aware of.

Economists are generally wellaware of the limitations of theirknowledge. And they do not ordi-

1970 USES OF IGNORANCE 741

narily conceal it from the non­economists with whom they deal.But their statements of their ownignorance tend to be apologeticconfessions, whereas my recom­mendation is that they should beaggressive assertions.

The inability of economists toknow certain important things isitself a fact of great significance.We economists are probably thepeople best qualified to analyzethe implications, for company ac­tion and for government policy,of our own ignorance. We shouldstrive to make our lack of knowl­edge a part of the positive con­tent of decision-making, ratherthan a sad apologetic footnote toit. This is what I mean by an ag­gressive assertion of ignorance.

I have in past writings occa­sionally ventured the opinion thatmuch of the economic forecastingthat is done in the ordinary wayis not only useless but harmful.Decision-making is an inescapablenecessity in business operations,but forecasting is not. Any deci-,sion has to be made in the light ofrelevant facts which are known,but also in recognition of what isunknown and perhaps unknow··able. The worst thing the econ··omist can do for the decision-·maker is to obscure the line be··tween what is known and what isunknown.

This is almost exactly what is

done in the customary proceduresof forecasting. The economist,fully aware of his own limita­tions, feels obliged simply "to dothe best he can" in providing fore­casts of anything his principalswant forecasted.

Especially in Political Affairs

I also believe that a more ag­gressive assertion by economistsof ignorance is desirable in theformulation of national economicpolicies. The fine-tuning approachto monetary and fiscal policywould, of course, be fully justifiedif our knowledge of the changingeconomic situation were alwayscomplete. But if our explanationsof the limitations in our knowl­edge are apologetic, rather thanaggressive, we are not likely todeter policy makers from the fine­tuning approach.

An aggressive assertion of ourignorance, and an analytic explo­ration of its consequences, leadshoweve'r to a rej ection of the fine­tuning approach altogether. Thedecision-making strategy whichtakes full account of ignoranceleads in the direction of maintain­ing a relatively steady posture infiscal and monetary policy.

National policy in regard to thebalance of payments is a primeexample of how an ,aggressiveassertion of ignorance can be ofgreat help. I speak feelingly on

742 THE FREEMAN December

this subject because my own fundof ignorance on it is so large.Furthermore, I am proud of thefact that I came by my ignorancethe hard way - through long studywhich revealed that most of whatI knew about the balance of pay­ments wasn't so. An aggressiveassertion of ignorance on the"balance of payments problem"(whatever that may be) wouldhave led to better national policydecisions in that area than wehave in fact had.

Unknowable in Principle,Unworkable in Practice

One logical reaction from econ­omists to my emphasis on igno­rance may be to advocate moreand bigger programs of researchto fill in the knowledge gaps. Idon't mean to argue against thisapproach but I do have reserva­tions about its fruitfulness. Muchof what we would like to know is,I think, not only unknown in prac­tice but unknowable in principle.

The reason I say this is that

Wisdom and the Law

there seems to me to be an in­herent contradiction in the beliefthat we ever can know certainthings. For example, if we everbecame able to predict the largeand sudden changes in the inven­tory situation that are occasional­ly recorded, they would cease tohappen.

Perhaps what is needed in eco­nomics is an equivalent of theHeisenberg principle of uncer­tainty in physics. This kind ofprecise definition of what we canknow and can't know would, Ibelieve, be a most notable contri­bution to our science and a mosthelpful guide to practitioners ofour art.

All this shouldn't be too shock­ing and it may even be trite. Ifeconomists really knew what theyare supposed (by others and some­times by themselves) to know,there would be a good case for acentrally planned economy. Wecan save society from that fate byasserting our ignorance aggres­sively. ~

IDEAS ON

LIBERTY

IF CIRCUMSPECTION and caution are a part of wisdom when wework only upon inanimate matter, surely they become a part ofduty too, when the subject of our demolition and construction isnot brick and timber but sentient beings.... The true lawgiverought to have a heart full of sensibility. He ought to love andrespect his kind, and to fear himself.

EDMUND BURKE, Reflections on theRevolution in France (1790)

CLARENCE B. CARSON

Throttling the Bailroads

The Gripof the Unions

GOVERNMENT throttled the rail­roads in three ways mainly. Inthe first place, restrictive regula­tion took away crucial managerialauthority from the railroads andvested it in the Interstate Com­merce Commission. This was sup­plemented, in turn, by variouslegislative inhibitions of generalapplication. In the second place,government subsidized and other­wise privileged competitive meansof transport. In the third place,government fostered the organi­zation of railway unions and aidedthem in various ways in circum­scribing and hamstringing the use

Dr. Carson is a frequent contributor to THEFREEMAN and other journals and the authorof several books, his latest being The War onthe Poor (Arlington House, 1969). He isChairman of the Social Science Department atOkaloosa-Walton College in Florida.

of rail facilities. The first two ofthese interventions have alreadybeen covered. It is time now toexamine the grip of the laborunions on the railroads.

Labor unions, in general, areorganized to get higher wagesand improve the working condi­tions of their members. To dothis, they attempt to take the de­termination of these conditions outof the market place and have themdetermined by negotiation withthe employer who negotiates un­der the threat that he will bedenied access to any workers if hedoes not comply with their de­mands. The economic impact ofthis intervention extends outwardto effect with varying degreesfour distinct groupings of people.

744 THE FREEMAN December

Effects of Labor Union Activity

on People

Those who are apt to be mostdirectly affected by labor unionactivity are other potential work­ers for an employer. They aremost likely to be the ones againstwhom threats and violence areused if there is a strike - and ifthe employer attempts to operatethe struck facility. Other work­ers are the ones, also, who aredenied the opportunity for jobswhich they might have if unionsdid not prevent them from beingemployed. More broadly, if unionssucceed in getting higher wagesand better conditions than theywould otherwise have got, they doso by reducing the number whocan be employed in that undertak­ing, as a rule. The general impactis either to reduce the numberwho can be employed or reducethe wages and working conditionsof some of those employed, orboth.

Less directly, labor union activ­ity is aimed at employers (thoughunion rhetoric suggests that theyare the primary target). Employ­ers are not usually the victims ofthreats and violence, but thisdoes not mean that they may notsuffer. They may and do sufferduring a strike by sabotage, byadditional charges incurred in at­tempting to protect and maintainfacilities, by having to go to the

trouble and expense of trainingnew employees, or by being un­able to operate their facilities andprovide goods and services withall the train of disadvantages thatmay follow from that.

Labor union activity may, inthe third instance, have effectswhich reach through to all of usas consumers. This is so, obvi­ously, when a prolonged strike cutsoff goods and services which wecould otherwise have had. It isso, too, when labor costs are raisedso that goods and services aremade more expensive. In this case,the consumer may shift to substi­tutes or reduce his consumptionof the goods or services involved.

The fourth effect is rarely, ifever, discussed and has not, to myknowledge, had any careful em­pirical studies made which wouldtend to verify it. Yet it is aneffect which can be reasonablyadduced and which much evidencethat is common knowledge tendsto support. The effect I have inmind is on those who work in anduse the facilities of employerswhose employees are extensivelyorganized into unions. Those fa­cilities are likely to show theeffects of the tampering with themarket which produces an imbal­ance in capital outlay. If an em­ployer has to pay higher wagesfor shorter hours, if his workersattain various perquisites which

1970 RAILROADS: THE GRIP OF THE UNIONS 745

hamper their use, if he must stillcompete with others in providingthe goods and services, if he mustcompete for money with otherusers, then something has to giveif he is to operate successfully.That something will quite oftenbe the appearance, style, and qual­ity of his facilities.

I noted in an earlier chapterthat railroad facilities are fre­quently rundown, that freight andpassenger stations are often de­crepit and in poor state of repair,that passenger cars are old anddirty, and that facilities in gen­eral are below the standard inother fields. Railroads have obvi­ously skimped in expenses forfacilities in order to meet otheroutlays. This, in turn, has had arather predictable effect on em­ployee morale, and helps to ac­count for surly and desultoryservice. In one direction, at least,the union quest for better workingconditions has resulted in worsen­ing working conditions.

Growth of Railway Unions

The railway unions were amongthe earliest trade unions organ­ized on any scale within theUnited States. The Brotherhoodof Locomotive Engineers was or­ganized in 1863. The remainderof the Big Four of the Brother­hoods were organized within thenext twenty years. In addition,

two other maj or union develop­ments occurred in the nineteenthcentury involving railway employ­ees. The Knights of Labor gainedconsiderable following amongthem, and even brought off a suc­cessful strike against the GouldSystem in 1884-85. In the 1890's,Eugene Debs organized the Amer­ican Railway Union which broughtoff, temporarily, a sympathystrike for Pullman workers. How­ever, the Knights of Labor andthe American Railway Union wereshort-lived organizations, whilethe Brotherhoods had much great­er permanency.

Union membership grew in theearly twentieth century and hada great surge during World War Iafter the government took overthe railroads. Since that time, theunions have remained strong and,though they have rarely struck,it is generally conceded that theycould shut down the railroadsrather effectively if and when theydid. Many of the unions have re­mained independent, but some ofthem are affiliated with the Amer­ican Federation of Labor or withthe Teamsters.

The Government and the Unions

The relationship between thegovernment and the railway un­ions needs to be made clear atthis point. To do this is no easytask. Not only has the nature of

746 THE FREEMAN December

this relationship us ually beenmired in controversy involving thelegitimacy of union activities butalso the relationship itself hasbeen complex and confusing. Pres­idents, governors, and govern­ment officials have frequently at­tempted either to be or appear tobe neutral in the contests betweenunions and railroad companies.They could not be, though thisfact has frequently been keptfrom public attention. They couldnot be, most basically, becauseunion tactics would not permitthem to be. Government must beeither for or against labor unionsas they have been constituted andoperated. There is no middleground.

The reason for this can bemade clear by a little examinationinto the nature of labor unions.According to union rhetoric, la­bor is not a commodity. The im­port of this is that wages shouldnot be determined in the marketbut should be determined else­where. Again, according to therhetoric, wages should be set asa result of negotiation. Not, how­ever, by negotiation between theemployer and the individual em­ployee; according to widely heldnotions, that became impracticabledue to the development of largecompanies and corporations.

The notion that wages are, orever have been, determined to any

significant degree by negotiationsis a red herring used to throw theinquirer off the scent. It is truethat occasionally negotiations mayoccur between a prospective em­ployer and someone who has amuch needed skill, ability, or repu­tation, and when the prospectiveemployee has several prospects.But this is the exception to therule by which wages are deter­mined. There is usually a goingwage in the market at any giventime for a particular job, a wagerate resulting from competitionamong employers for workers andamong workers for jobs - that is,from the supply of workers andthe demand for their produce.Any negotiations that would occurwould be on the fringes of thequestion of wages and workingconditions.

Can a Union Negotiate?

How, then, could a union in­duce an employer to negotiatewith its leaders for workers? Toput it another way, if a companycould hire workers at a wage itsmanagers were willing to pay,why would those managers ne­gotiate the matter with laborunion leaders? The answer, it isclear both in theory and in his­tory, is that they would not do sowillingly. This means that for theunion to be brought in, some com­pelling reason must exist.

1970 RAILROADS: THE GRIP OF THE UNIONS 747

In order to be able to negotiateas an equal with an employer, aunion must corner the market ofworkers available to him. This canbe done in one of two ways whenthe task is stripped to its essen­tials. A union might, in theory,corner the market by placingavailable workers under contractto it and paying them the wagesand providing the working condi­tions it demanded from any otheremployer. This would be a marketoperation, and the union would begoing into the market to bid forworkers. Negotiations could thentake place between prospectiveemployers and the union for work­ers by negotiating to buy the con­tracts. In fact, no such operationhas ever been undertaken by aunion, nor is it likely to be. Unlessa union had unlimited funds em­ployers would only have to holdout for some period of time tobankrupt and break the union.

Unions do attempt to cornerthe market, but they do not usemarket methods to do so. Theyattempt to deny the employer ac­cess to workers and the construc­tive use of his facilities until hecomes to terms. They do this, ifhe attempts to operate, by intimi­dation - by strikes, by drivingprospective employees away fromthe facilities, by sabotage, and bythreats. They have no recogniz­able good or service to sell; they

have no workers under a workcontract for a period of timewhich could be transferred to anemployer. All they have to offeris an agreement to refrain fromtheir tactics of intimidation fora period of time in C return forcertain wage scales and workingconditions to prevail for those whowork for an employer.

Government cannot, I say, beneutral toward the use of suchtactics. It must either prohibitand inhibit intimidation or it mustcondone it. It must either enforcecontracts arrived at by coercionor it must negate them. Govern­ment must either monopolize theuse of intimidation or concur inthe use of it by others. There isno middle ground.

Railway unions posed the di­lemma very early in their opera­tions for government of whetherto side with or against them.They posed it more dramaticallythan most unions have done. Theydid so because of the nature andimportance of the railroads.Trains are particularly vulnerableto the saboteur. A twisted rail, anincapacitated engineer, a railwrongly set to take a train intoa siding, strategically greasedrails, can cause an amazingamount of mischief. Moreover, astation or switchyard shutdowncan prevent the effective use ofthe extended facilities of a rail-

748 THE, FREEMAN December

road. On the other hand, largeportions of a wheat crop couldbe lost by the denial of rail serv­ice at a crucial time, and largecities would be hard put to sur­vive. In consequence, those whogoverned have been confrontedwith the dilemma of either pre­venting the use of intimidationby unions or throwing the weightof government behind the unionsso that rail companies will beforced to make sufficient conces­sions or comply with what iswanted and thus make the unions'tactics unnecessary. In short, theyhave had to use force either onthe companies or on the unions.

Government Sides with the Unions

Government - both Federal andstate - took the side of the unions,at first tentatively, and then overthe years much more thoroughly.They have done so in three ways,mainly. First, the Federal gov­ernment threw its weight behindthe mediation of disputes. Thisfavored the unions because in theabsence of intimidation there isno reason to suppose the compa­nies would have wished to resortto mediation to settle disputes.(Of course, given the threat ofintimidation, the companiesmight, and did sometimes, wantmediation more than the unionsdid.) Second, both Federal andstate governments prescribed such

things as hours of work, compen­sation for overtime, and varioussorts of work rules. Third, bysupporting negotiated agreements,by requiring companies to adhereto them, and by other tacit aidsgovernments encouraged thegrowth of unions.

The first national labor law ofany sort was the Act of 1888which was concerned exclusivelywith the railroads and the unions.It was the first tentative steptoward government support forarbitration of disputes. This Actprovided that if the parties to adispute chose to do so they couldsubmit it to a Board of Arbitra­tion which would have the powerto subpoena witnesses and gettestimony. Compliance with thedecision of the Board was to bevoluntary. The Act also providedfor a Presidential Commission tobe appointed upon request, a com­mission which would be authorizedto publicize its findings.!

This first Act was hardly used;in consequence, it was supplantedby the Erdman Act in 1898. ThisAct provided that once the disputehad been submitted for arbitra­tion and a decision made, the de­cision was to be binding on bqthparties. The Erdman Act alsocontained rules which supported

1 See Philip Ross, The Government asa Source of Union Power (Providence:Brown University Press, 1965), p. 19.

1970 RAILROADS: THE GRIP OF THE UNIONS 749

labor union organization. "It wasmade a misdemeanor for an em­ployer to require the execution ofan oral or written yellow dog con­tract from any employee as a con­dition of employment, to threatenor discriminate against any em­ployee because of union member­ship ..."2 and so forth. This partof the Act, ho\vever, \vas shortlynullified by the Supreme Court,but it does indicate how fartoward the support of unionismCongress was willing to go atthis date. The Newlands Actpassed in 1913 strengthened themediation features of the ErdmanAct.

Around World War I, the Fed­eral government began to pre­scribe the length of work day forrail employees, or, more specifi­cally, the terms of payment fortime worked. "In 1916, underthreat of an imminent railroadstrike, Congress within four dayspassed the Adamson Act, givingtrainmen the 'basic' eight-hourday without wage reduction. Over­time payment at 'time and one­half' was required for railroadworkers in 1919."3

The Federal government tookover and operated the railroadsduring World War 1. The policy

2 Ibid., p. 21.3 Merle Fainsod, et al., Government

and the American Economy (New York:Norton, 1959, 3rd ed.), pp. 163-64.

toward organized labor duringthat period, and its results, is de­scribed by one work in this way:"During federal control of therailways from 1917 to 1920, pub­lic policy encouraged organizationby forbidding antiunion discrimi­nation and by introducing nation­wide agreements on hours, wages,and working conditions.... Likeorganized labor at large, the rail­way brotherhoods made greatstrides during the war years."4Also, the government devised awhole series of job classificationswhich tended to rigidify the roleof a given worker; in addition,seniority rules were set up andenforced.5

The Transportation Act of J920

The Transportation Act of 1920included extensive provisions thatwere supposed to lead to settle­ment of labor disputes. It de­clared that it was the duty ofrepresentatives of managementand labor to arrive at a settle­ment. If they failed, the matterwas then to go before a LaborBoard. The Board was supposedto decide "all disputes with respectto the wages or salaries of employ­ees ..." not settled by negotiation.Not much came of this, however,because the unions wanted todeal with disputes nationally-

4 Ibid., p. 184.:> Ross, op. cit., pp. 29-30.

750 THE FREEMAN December

that is, treat all railroads as be­longing to a single system - whilethe companies insisted upon sepa­rate negotiations for each system.

New methods were set up inthe Railway Labor Act of 1926."It places primary emphasis ondirect collective bargaining andmediation, but also establishes vol­untary arbitration and compulsoryinvestigation." This Act wasamended in 1934 by an act whichestablished a National RailroadAdjustment Board. By this latteract, also, labor unions were ef­fectively empowered by govern­ment. "The 1934 amendments tothe Railway Labor Act forbidcompany unions. The roads mustnegotiate in good faith with theauthorized labor representativescertified by the Board, althoughagreement is, of course, not com­pelled. Carriers may not engagein a number of specified laborpractices, such as promotion ofcompany unions, yellow-dog con­tracts, and other hindrances toindependent unions."G

The tendency of the Federalgovernment's special protection ofrailroad workers is also indicatedby the Emergency Railroad Trans­portation Act passed in 1933. TheAct authorized mergers and con­solidations of rail facilities to beoverseen by a Federal Coordi-

G FainsocI, 0]). cit., pp. 185-86.

nator. But workers were to beprotected as follows:

The nunlber of employees in theservice of a carrier shall not be re­duced by reason of any action takenpursuant to the authority of this titlebelow the nunlber as shown by thepay rolls of employees in service dur­ing the month of May, 1933 ... butnot more in anyone year than 5 percentum ... ; nor shall any employeein such service be deprived of em­ployment such as he had during saidnl0nth of Mayor be in a worse posi­tion with respect to his cOlTIpensationfor such employment, by reason ofany action taken pursuant to theauthority conferred by this title. 7

The above are examples ratherthan a full-fledged account of theway the Federal government aidedin fastening the incubus of union­ism on the railroads. Part of theeffort ,vas motivated by the desireto avoid ruinous strikes, but allof it has been undertaken with apolitician's eye to the vote ofprivileged union men. The rail­roads were the first to receivesuch governm~nt attention. Thelaws governing railroads unionsand negotiations betwe~n the~have been special acts. Otherunions generally fall under gen­eral acts. The effects of this spe­cial status of railroad unions have

'4 Henry S. Commager, Documents ofAmerican History (New York: Appleton­Century-Crofts, 1963), p. 271.

1970 RAILROADS: THE GRIP OF THE UNIONS 751

been with us longer than theeffects of the general legislation.The government has, on the onehand, empowered the unions toact as a monopoly; on the other,it has attempted to restrain themfrom taking full advantage of theposition. The railroads have beencaught between the Scylla of mo­nopoly unions and the Charybdisof continual government interven­tion in negotiations.

States have also passed legisla­tion along lines sought by unions.An example of this is the full­crew laws passed by a number ofstates. New York State passedsuch a law in 1913. The situationin 1960 was this:

In its present· form, New York'sfull crew law specifies a minimumnumber of operating employees onfreight trains of more than twenty­five cars, on freights of fewer thantwenty-five cars, on passenger trainsof more than five cars, on light en­gines, on fuel-electric engines and onlocomotives used in switching oper­ations.

For the most part, the minimumcrew specified is larger than crewsrequired by existing contracts be­tween the railroads and employe or­ganizations. Thus trains enteringNew York from other states arefrequently required to stop at borderpoints to pick up extra crewmen.8

8 Leo Egan, "Rail Crews and Politics,"New York Times, (January 28, 1960),p.35.

Other such rules have to do withdistance to be traveled by a work­man, and such like. Where stateshave not prescribed crew sizes,they are usually provided for inunion contracts.

Stultifying Effects ofGovernment Action

The economic effects of unionaction empowered by governmentand of government action sup­ported by unions have been bur­densome and stultifying on therailroads. They have hamperedthe use of personnel in economicways by the railroads, have con­centrated workmen in the leastproductive undertakings, have de­nied the railroads the benefits oftechnology, have fastened antiquepractices on the roads in perpetu­ity, and have contributed much tothe decline of the railroads andto over-all railroad employment.Some examples will show how thishas been done.

Railroads are hampered by rigidwork rules in the employment oftheir personnel. For example,"Where yard service has beenmaintained road crews may notperform switching for their train,even though no yard crew is onduty at the time. Such a yardcrew must be called to do thework; otherwise the road crewmay claim an extra day's pay atthe yard rate for a few minutes'

752 THE FREEMAN December

Rail Labor Costs Excessive

9 Marvin L. Fair and Ernest W. Wil­liams, Jr., Economics of Transportation(New York: Harper, 1950), pp. 626-67.

10 Ibid., p. 607.

Railroad costs for labor havefrequently been proportionatelyhigher than other modes of trans­portation, that is, have accountedfor a higher proportion of oper­ating costs. "In 1939 the per­centage of pay-roll costs, withtaxes and depreciation includedin operating costs, was calculatedfor various types of transporta­tion as follows:

work in switching, and the yardcrew not called may similarlyclaim payment." Again, "On someroads a road crew may not doubleover in taking a train from ayard. Transfer crews may set carson an industrial siding, but theymay not spot them for loading orunloading. A switching crew mustbe brought up to do that. In mostyards switching crews must becalled at set hours. If called later,penalty payments accrue. Hencelocomotives and crews, called atstated hours, stand idle until busi­ness flows in some time later,but during the same trick."9

There are several reasons forthese higher costs. One is that rail­road workmen frequently workmuch less than an 8-hour day toget credit for one or before over­time begins. One book estimatesthat the average crew under aver­age conditions in the freight serv­ice could complete its work dayin 614 hours and that a passengercrew could do so in 4lh hours.n

This is so because of work rules,and it obviously drives the cost oflabor upward.

An observer seeing a freighttrain pulling 125 cars on a longdistance haul with only a fewcrewmen aboard might supposethat railroads were making moneyhand over fist. After all, this looksas if it would be a much moreeconomical use of personnel thancould be matched by any othermeans of transportation than per­haps barges or pipelines. But suchan observer would only be seeingthat part of railroad operationsthat keeps them going despite allelse. In point of fact, a consider­able portion of the labor costs ofrailroads is concentrated in theleast productive and least remu­nerative operations. They are em­ployed on freight locals whereseveral men may handle only afew boxcars in the course of aday, on switching and siding oper­ations, on passenger trains, in

11 Ibid., p. 625.

53.840.739.038.235.231.710

Class I line-haul railwaysAir transportationWater carriersMotor truck transportationMotorbus transportationPipe-line transportation

1970 RAILROADS: THE GRIP OF THE UNIONS 753

small stations which do little tono business but maintain an agentand sometimes other personnel, oncommuter trains which operateonly at certain hours, and so on.

featherbedding. Practices

When railroads introduce labor­saving technology they are fre­quently prevented from reducinglabor costs significantly. Laborunions may not oppose the intro­duction of new equipment, butthey do oppose the laying off ofworkmen, the shifting of them toless remunerative employments,or the reduction of work crews.

Some sorts of services have un­doubtedly been priced out of themarket by work rules. For ex­ample, "The height of absurdityin full crewing appears to havebeen reached upon a medium-sizedrailroad when a modified smallauto delivery unit was placed onflanged wheels to perform passen­ger service on a branch line. Whena crew of five men was requiredto man it, its utility for the pur­pose disappeared and the servicewas abandoned."12 I used to won­der why railroads did not widelyuse one-car self-propelled units tocarry passengers on branch lines.They could bring long distancetravelers to and from main linestations as well as provide servicefrom villages and small towns to

12 Ibid., p. 627.

cities. The reason is now clear.Despite the fact that one manoperating such a unit would nothave. as much to attend to as acity bus driver, the unions wouldinsist that several men be em­ployed in the undertaking.

Decline in Service

The grip of the unions on therailroads has produced a train ofresults of most doubtful desirabil­ity. This grip has contributed tothe decline of passenger andfreight service, to the removal ofthe railroads as competitors inthe providing of many kinds ofservices and to certain areas, tothe decline of railroad employees,to the cost to the consumer of hisuse of rail service, to the deteri­oration of morale of both em­ployees and consumers, and to thedecrepit state of many of the railfacilities.

There may be those who supposethat it was enlightened policy forgovernment to maintain an un­easy peace in railroading by em­powering unions, by fostering ne­gotiation, and by substituting theintimidation of government forthat of unions on occasion. Theremay be those who suppose thatgovernment established monopo­lies are desirable if the objectssought are in accord with theirwishes. Yet it is proper to askwhether those who think in this

754 THE FREEMAN December

fashion believe that it was desira­ble so to hamper, constrain, andlimit the railroads that they couldno longer effectively offer manyof their services and could nolonger attract customers in someareas. If this latter was not desir­able then the former could not be

enlightened either. The grip ofthe unions, the grip of govern­ment regulators, and the grip ofprivileged competitors - all underthe auspices of government power- have combined to reduce therailroads to their present debili­tated state. ~

Next: The Future of the Railroads.

The Unplanned Society

IDEAS ON

LIBERTY

MODERN MAN prides himself that he has built [his] civilization

as if in doing so he had carried out a plan which he had before

formed in his mind. The fact is, of course, that if at any point of

the past man had mapped out his future on the basis of the then­existing knowledge and then followed this plan, we would not bewhere we are. We would not only be much poorer, we would not only

be less wise, but we would also be less gentle, less moral; in fact

we would still have brutally to fight each other for our very lives.

We owe the fact that not only our knowledge has grown, but also

our morals have improved - and I think they have improved, and

especially that the concern for our neighbor has increased - notto anybody planning for such a development, but to the fact that

in an essentially free society certain trends have prevailed be­cause they made for a peaceful, orderly, and progressive society.

F. A. HAYEK, from remarks in

What's Past Is Prologue

A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN

The Conscience' of a Majority

VERY EARLY in the nineteen six­ties Barry Goldwater, then an ob­scure Senator from the small (inpopulation) far western state ofArizona, caught a significant turnin the feelings of the averageAmerican. As he puts it in his newbook, The Conscience of a Majority(Prentice-Hall, $7.95), the peoplewho were poor in New Deal dayshad, in the Eisenhower years,amassed enormous private savingsand insurance and had "reachedan all-time high in putting asidefunds for their future life." Theywere not ready as yet to repudiatethe Welfal'e State, but they weregetting uneasy about the manyproposed extensions of it thatthreatened to erode the private in­surance dollar. And, in their ques­tioning mood, the people proceededto make Barry Gold\vater's TheConscience of a Conservative abest-seller.

If history had gone in a straightline the new "conservatism," which

was in reality a resurgent classicalliberalism, would have really madeitself felt at the polls in 1964 whenBarry Goldwater was the Repub­lican presidential candidate. But amalign fate intervened. Barry tellsthe story of his own hesitancies,which paralleled the hesitancies ofthe country, in a revealing earlychapter of The Conscience of aMajority. He had looked forwardto a zestful series of dialogues withPresident John F. Kennedy on themany issues that made them friend­ly enemies. When Kennedy was as­sassinated, however, Barry lost allheart for political campaigning.He accepted the nomination of hisparty out of a sense of duty to theyoung people who pressed it onhim. But he knew that LyndonJohnson would never debate funda­mentals with him, and he doubtedthat the country, which was still ina state of shock, was ready for afight over basic philosophies. Theresult was a half-hearted campaign

755

756 THE FREEMAN December

which the popular commentators onTV and in the press interpreted asthe final death throes of the con­servative movement.

A New Consensus

How wrong those commentatorswere: in his story of the "revoltof the middle American" who car­ried on after the star-crossed 1964defeat, Barry Goldwater showshow the old New Deal consensusbroke down. The South, tired ofbeing dragged along in the dirt bya northern and urban DemocraticParty that cared only for its votes,lost its sense of shame in votingRepublican. The "ethnics" - thepoor of the northern cities who hadcome late to this country from Eu­rope - now had property, as oftenas not in the more affluent suburbs.The displacement of populations tothe "sunbelt" states and to the Pa­cific Coast gave people scope on theland and a new sense of well-being.As Kevin Phillips phrased it, theold middle class had become en­larged into middle America.

A new consensus was in the mak­ing, and Richard Nixon made themost of it. He has not been as purea man philosophically as BarryGoldwater, but, as a student ofpower, Nixon knows how much hehad to give to the conservatives tomaintain his popularity. BarryGoldwater is satisfied that the Nix­on victory in 1968 vindicated his

o,vn stand in 1964. He likes whatNixon is doing to wind down thewar in Vietnam without welshingon our international commitments;he approves of Nixon's feelingsabout inflation. This is not to saythat Barry Goldwater is the manto give any occupant of the WhiteHouse a blank check. But he isreasonably certain that the oldtrust in the "let the governmentdo it" philosophy has had its day.

Along with a sense of vindica­tion, Barry Goldwater has a feelingthat he can now speak out on cer­tain subjects without being ac­cused of a sour-grape attitude. Hehated what TV andthe press did tohim in 1964, when they portrayedhim as a warmonger and an eco­nomic antediluvian, but, knowingthat if he said anything he wouldbe labeled a bad loser, he kept quietabout his grievances. It wasn't un­til Spiro Agnew, an incumbentVice-President and therefore asuccess, put TV and the big metro­politan newspapers in their placethat Barry Goldwater felt inclinedto take off his own wraps. The re­sult is some first-rate inside historyof the "media" treatment of the1964 campaign.

The Voluntary Way

Having paid his respects, mainlysarcastic, to the malfeasances andmisfeasances of the "liberals" in1964, Barry Goldwater turns to the

1970 THE CONSCIENCE OF A MAJORITY 757

"shape of the future." He is justas much of a voluntarist as ever,and he is consistent about it in away that displeases some of hisbrother conservatives. For exam­ple, he wants to let the eighteen­year-olds vote. Since he is againstdiscrimination, he can't see whythe eighteen-year-olds should bediscriminated against by being dis­qualified on election day. After all,eighteen-year-olders are liable forincome taxes, they can be drafted,they can be made to stand trial asadults, and they can be imprisoned.If they can be taxed they shouldhave representation, if the spiritof 1776 is to be honored.

As for the military draft, Gold­water is against it on moralgrounds. The fundamental right ofman, he says, is the right to life.Besides, it is wrong to assume thatfree men won't fight if necessaryfor their country.

Goldwater is our most consistentSenatorial believer in limited gov­ernment, and he wants the state tostay out of production. The idea of"nationalizing" industries whichdo seventy-five per cent of theirbusiness with the Pentagon fillshim with horror. But he believesthe state does have the duty of pro­tecting its citizens, with the policeat home and a strong military es­tablishment at the border. He de­fends the "military-industrial com­plex," he doesn't regret spending

big money for a "sufficient" num­ber of missiles and for an ABM,he supports the purchase of mon­ster troop transport planes such asthe C-5A, and he approves of adiplomacy designed to keep thecommunists from outflanking thefree world at the traditional"hinges" in Southeast Asia, atSuez, and along the approaches tothe Panama Canal. This is all con­sistent with Adam Smith's ideathat the provision of safety is alegitimate state function; it sepa­rates Barry Goldwater, the liber­tarian, from the anarchists.

The Quality of Life

Finally, Barry Goldwater is oneof our most articulate conserva­tionists. One of his big issues in1964 was the "quality of life." Justas he was premature in raising the"crime in the streets" issue at the1964 San Francisco convention, sohe was ahead of his time in stress­ing the pollution issue. He is a realtoughie on this, for he approves in­dictments of big corporations fordumping blast furnace wastes intoLake Michigan and for ruiningLake Erie. He believes in free en­terprise, but he also believes in theright of peopJe to live in a cleanenvironment: He likes Nixon be­cause the present Republican Ad­ministration is the first to prose­cute big pollution offenders.

In The Conscience of a Majority

758 THE FREEMAN December

you get the whole Goldwater. Theyoung ought to be for him, for hedoesn't object to their "doing theirthing" provided it is with due re­gard for the rights of others. Gold­water likes the young in college; itis their instructors who get the fullimpact of his wrath for their "ir­responsible" teaching, which hethinks is the source of most of ourtroubles.

~ THE CHALLENGE OF WORLDPOVERTY: A World Anti-PovertyProgram in Outline by GunnarMyrdal (New York: PantheonBooks, 1970, 518 pp., $8.95).

Reviewed by Henry Hazlitt

ON FEW ECONOMISTS have morehonors and praise been lavishedthan on Gunnar Myrdal. He hasheld high office in his nativeSweden. He has been an official ofthe United Nations for ten years.Universities, especially in Amer­ica, have seemed to stumble overeach other in heaping honorarydegrees upon him. John Fischerof Harper's calls him "the onlyman I can think of who has writ­ten two books capable of changinghistory." Kenneth Boulding thinkshe "may very well be the world'stop social scientist."

He is surely prolific. The pres­ent book, running to more than500 pages, seems bulky enough;

but it is only a sort of appendixto his three-volume work, AsianDrama: An Inquiry into the Pov­erty of Nations, which ran over2,000 pages.

Yet in spite of a huge mass offactual reports, and some soundrecommendations in special fields- on education in the underdevel­oped countries, for example­Myrdal's latest book must be setdown on net balance as a costlyfailure. In the economic field hisrecommendations are practicallyalways in the direction of lessfreedom, more state intervention­ism, and more socialism. Theiradoption could only increase andprolong vvorld poverty.

An outstanding example is hisrepeated insistence on the neces­sity of radical "land reform" inthe underdeveloped countries.What this would involve he neverexplicitly spells out. At one point(p. 111) he suggests that mem­bers of the "landless underclass"should be given "a small plot ofland"; at another point (p. 261)he suggests "public ownershipand management." What he neverexplicitly mentions is that eithervvould require confiscation of theland from those who now have it.Even if (improbably) the fullmarket value were paid to previ­ous owners, this would mean im­posing a terrific burden of taxa­tion to pay for it - which would

1970 OTHER BOOKS 759

equally depress investment andproduction - in order to benefitan arbitrarily selected group of"the poor."

And the results would be ex­actly the opposite of what Mr.Myrdal expects. The "reform"would greatly reduce agriculturalproduction, not increase it. Withall his masses of current "facts,"Mr. Myrdal never once mentionsthe actual results of the enormousnumber of "land reforms" in his­tory, even in the twentieth cen­tury - in Bolivia and Mexico, forexample - where they led to agreat decline in agricultural pro­duction and an increase in foodimports, or in Soviet Russia,where farm collectivizationbrought on mass famine in whichmillions perished.

Mr. Myrdalinsists that theunderdeveloped countries should"help themselves," but his notionof self-help is always more statesocialism. His basic remedy forpoverty is the ancient one of ig­noring property rights and seiz­ing from the rich to give to thepoor - the "remedy" that alwaysin the long run increases poverty.He explicitly repudiates the freemnrket. The troubles of the poorcountries have been "mainly thenatural outcome of the marketforces, which do not work forequality but tend to increase in­equality" (p. 283, his italics). He

is constantly advocating govern­ment "planning" - price controls,interest-rate controls, import con­trols, and he does not hesitate torecommend that South Asianeountries adopt more "legislationand regulations enforced by com­puls,ion" (p. 216, his italics).

He is not only against the freemarket but specifically againstfree trade. In opposition to estab­lished classical theory and all his­toric experience, he argues thatfree trade between developed andunderdeveloped countries actuallyhurts the underdeveloped coun­tries. Even technological advancein the developed countries, he ar­gues, hurts the underdevelopedcountries. He even advises theunderdeveloped countries to re­strict "the replacement of laborby machines" (p. 455, his italics).

There is no space here to analyzethe huge bundle of hoary economicfallacies that Mr. Myrdal is stillable to embrace. He does not ex­plicitly attack capitalism, butevery major proposal he makes isanticapitalistic. He demands huge­ly increased foreign aid, givenwithout strings or conditions. Butso far from wanting increased vol­untary private foreign investment,he deplores it, and implies thatthe seizures of American privateproperty in Peru, or wherever,were thoroughly justified. Hethinks (p. 487): "The United

760 THE FREEMAN December

States should be prepared to tol­erate large-scale nationalization ofAmerican enterprises." He as­sumes throughout that the richare mainly to blame for the pov­erty of the poor. He blames thelack of sufficient "reforms" in theunderdeveloped countries on theobstructive tactics of an "en­trenched upper-upper class" andof "reactionaries" in general. Thelatter seem to include almosteverybody who disagrees withhim.

The United States is Mr.Myrdal's special villain. As a self­described "social scientist," henever tires of comparing that"overrich country" unfavorablywith his native Sweden. It seemswe do nearly everything wrong,both at home and abroad, but ourworst crime has been to try todefend South Vietnam from acommunist takeover. To the "Viet-

The Right of Choice

namese people," Mr. Myrdal in­forms us, the war there is "a warof liberation, and more preciselya fight against military intrus,ionby a foreign, white, and rich na­tion" (p. 433, his italics) - mean­ing us.

Mr. Myrdal would probably re­sent it if we called his thinkingMarxist. "Marxism," he decides ina footnote, is not a scientific term.But he also boasts in the samefootnote that, "from a study ofhow [Marx] worked, I rather be­lieve that in regard to LatinAmerica he would have reachedconclusions not very far fromthose" reached by Mr. Myrdalhimself (p. 518). I shall not con­tradict him.

There are a few serious publish­ing defects. It is inexcusable, forexample, that a book of 518 pages,crammed with factual references,should have no index. ~

IDEAS ON

LIBERTY

MAN MUST HAVE THE RIGHT OF CHOICE, even to choose wrong, ifhe shall ever learn to choose right. The child walks as we unwindthe swaddling clothes; the building stands in its full beauty aswe remove the scaffolding. Let us beware lest we make gods ofthe scaffolding; lest by making more intricate the wrappings oflaw, more strong the rods of coercion, man himself remainfeeble and imperfect.

JOSIAH c. WEDGWOOD