the

FreemanVOL. 31, NO. 12 • DECEMBER 1981

The Myth of Self-Reliance Bill Anderson 707Nostalgia for the IIgood old days" may mean poverty and misery.

Contraction of State Must BeCommon Goal Kenneth McDonald 714

Reducing our claims will curb government controls.

The Benefits of Speculation Walter Block 717The speculator serves by reducing price fluctuations.

The Road to Ruin John Semmens 723The highway example of waste in public sector spending.

Progress Is Difference George C. Leef 730Progress is assured as long as people are free to be different.

George Mason: Father of theBill of Rights Raymond Polin 734

For the record, in celebration of Bill of Rights Day on December 15.

Perspectives on Religionand Capitalism Edmund A. Opitz 740

The freely choosing person, guiding his life by reason, within themoral law.

Who Bears the Tax Burden? Todd S. Hultman 753Do the corporations, or their customers, pay the tax?

Book Reviews: 755Ills Public Education Necessary?" by Samuel Blumenfeld"Equality, the Third World, and Economic Delusion" by P. 1. Bauer

Index for 1981 761

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

FOUNDATION FOR ECONOMIC EDUCATIONIrvington-on-Hudson, N.Y. 10533 Tel: (914) 591-7230

Leonard E. Read, President

Managing Editor: Paul L. PoirotProduction Editor: Beth A. Hoffman

Contributing Editors: Robert G. AndersonBettina Bien GreavesEdmund A. Opitz (Book Reviews)Roger ReamBrian Summers

THE FREEMAN is published monthly by theFoundation for Economic Education, Inc., a non­political, nonprofit, educational champion of pri­vate property, the free market, the profit and losssystem, and limited government.

The costs of Foundation projects and servicesare met through donations. Total expenses aver­age $18.00 a year per person on the mailing list.Donations are invited in any amount. THEFREEMAN is available to any interested personin the United States for the asking. For foreigndelivery, a donation is required sufficient to coverdirect mailing cost of $5.00 a year.

Copyright, 1981. The Foundation for Economic .Education, ·Inc. Printed in U.S.A.Additional copies, postpaid: 3 for $1.00; 10 or more, 25 cents each.

THE FREEMAN is available on microfilm from University Microfilms International, 300North Zeeb Road, Ann Arbor, Mich. 48106.

Some articles available as reprints at cost; state quantity desired. Permission granted toreprint any article from this issue1 with appropriate credit.

Bill Anderson

The Myth of Self-Reliance

=1 f f i a~I received a most appealing maga­zine in the mail the other day, apublication full of pictures of a goodlife that could be mine ifonly I wouldtry to be more self-reliant. Therewere attractive log cabins with rus­tic, spacious interiors, lush green­houses that produce fresh vegeta­bles in the dead of winter, solarpanels that will heat my home at amuch lower cost than our local util­ity, and tips on living better withless dependency on automobiles andother such evils of modern technol­ogy.

The message was clear: by beingdependent on the labor and produc­tivity of others, we have lost oursources of independence; we are nottruly free and, indeed, have en-

Mr. Anderson is Director of Publicity at TennesseeWesleyan College and a free-lance writer.

slaved ourselves in a technologicalsociety that can only demand more,more, more. There was even an edi­torial to that effect:

"Before 1776 we were less thanfree as a country, but Americanswere independent in a personalsense. Most people then built theirown homes, grew their own food,made their furniture and clothes,and even bred their own horses fortransportation. True, life was muchharder than now. But the supportsystems were within reach of almosteveryone, and were subject to indi­vidual control. People 'paid' for muchof what they used with their own ef­fort. Almost all the raw materialswere renewable. Our material cul­ture was sustainable, and Americacould be cut off from the rest of theworld without the creation of much

707

708 THE FREEMAN December

suffering or hardship ... What canbe done about our growing depen­dence in these modern times?"!

In one sense, that writer is cor­rect. After all, it is to our advantageto be competent in many areas. Itmakes better sense for me to changea fuse than to pay an electrician $16to do the same thing; it might bewise for me to know how to operatea fire extinguisher so should a fireever break out in my house, I canquickly put it out rather than wait15 minutes until the fire depart­ment arrives to salvage what is leftof the structure.

This fall I am riding my bicycle towork on occasions both to save gas­oline (but not time) and to get exer­cise that has been sorely lacking inthe last year. Last summer I workedhard to nurture a very productivegarden and at the present time I amconstructing a small solar panel withaluminum cans and scrap materials.In fact, a visitor in our home mightwell assume, after observing my wifeand me at work, that we do sub­scribe at least in part to a self-suffi­cient lifestyle. Nothing could be fur­ther from the truth.

The Myth of Self-Sufficiency

The self-sufficient lifestyle is amyth, and even if it were possible inthis age, or was possible at any timein history, it is socially undesirable.The self-sufficient lifestyle is impos­sible to live because all of us are de-

pendent upon the productivity ofothers and those who might chooseto live entirely by their own hand doso at the high cost of poverty andmisery to themselves.

There was a time in history whencommunities were, on the whole,relatively self-sufficient. The farm­ers grew all the community's foodnear the towns, blacksmiths forgedtools and weapons in their grimyshops, the townspeople's clothing wasmade from wool and flax producedlocally, and the community's safetywas in the hands of the local noble­man. In case the readers have notfigured out the time period, it wasthe Dark Ages when the world's mostdeveloped people, the Europeans,lived in squalor, semi-starvation andunder constant threat of attack bythe armies of rival noblemen-pov­erty and misery.

Most persons advocating the self­sufficient lifestyle will quickly rejectany accusation that says they areadvocating a form of feudalism. Af­ter all, most of them are self-pro­claimed pacifists (no warring onneighboring villages permitted) whoclaim they simply wish to live inpeace and live their lives withoutinterference from hostile outsideforces. But we still have not an­swered the basic question: Is the self­sufficient lifestyle possible and, if so,is it desirable?

Even in the tightly-knit feudalcommunities there was a need for

1981 THE MYTH OF SELF-RELIANCE 709

cooperation rather than self-suffi­ciency. The nobleman was depen­dent upon the productivity of theserf for his food; the serf was depen­dent upon the blacksmith for thetools (capital) that would enable himto grow enough food to keep the per­sons in the community alive for an­other year; and all were dependentupon the intelligence and leadershipof the nobleman who had to keep ri­val armies from sacking the townsand destroying the crops. In thissense, individuals were not self-suf­ficient, but the combination of theirproductivity enabled most membersof the community to eke out a mar­ginal existence.. In reference to the aforemen~

tioned editorial, it might be good tocompare the lifestyle of the Ameri­can pioneers to that of the Europe­ans of feudal communities, and alsoto see just how desirable the pi­0neering life was in contrast to ourpresent existence in this country.First, the pioneers had the advan­tage of firearms (made by othercraftsmen) which were more effec­tive in protecting their homes andsettlement villages than the arrowsand lances of the Middle Ages, andalso provided an effective tool forhunting. But, like that of their an­cestors of Medieval Europe, their lifewas a harsh one. "Most of themtraveled on foot, their possessions ontheir backs, in wheelbarrows, orsaddled to a few scrawny cows that

had been transformed into beasts ofburden. Travelers from abroad notedthe characteristic bluish complexionof these settlers, many of whom suf­fered from forest fever, milk sick­ness, and especially the swamp-bredague (malaria)."2

Improved Standards of LivingThrough Specialization and Trade

It is true that many pioneers di­rectly produced their items of ne­cessities, but their lives also re­flected the harshness of that kind oflifestyle. Their children did not at­tend school, but instead worked inthe fields alongside their parents.Death by disease was high and in­fant mortality common. Alone in thewoods, they were often easy prey forwarring bands of Indians and out­laws. However, as more and morepeople pushed west, the pioneers be­came less isolated, banded togetherin villages, became more dependentupon ea~h other for their goods and,as a result, improved their standardof living.

But, as the editorial writer mightargue, at least the early pioneerswere self-sufficient and had morecontrol over their own destiny. Tosay that, however, one must assume

I that vulnerability to hostile raiders,the ever-present reality of mortaldiseases, and the back-breaking la­bor needed to survive the wilds issomehow more desirable than ourpresent status, dependent as we may

710 THE FREEMAN December

be on the productive efforts of oth­ers.

As for the self-sufficiency ofAmerica as a whole, one must lookat the results of the Embargo Act of1807 to see just how well the peopleof this nation lived when deprived offoreign goods.

"The Embargo Act meant ruin,not to Britain and Europe (the in­tended targets of President ThomasJefferson), but to American com­merce and American ports. In spiteof the losses caused by the Europeanwars, between 1803 and 1807 Amer­ican exports had grown from $55million to $108 million. By 1808,they had dwindled to the little thatcould be smuggled out of the coun­try. In New York, as one travelerreported, 'the grass had begun togrow upon the wharves.' Industriesassociated with commerce, such asshipbuilding and sailmaking, werealso at a standstill, their artisansunemployed."3

Progress Regained After Repeal ofthe Embargo Act

It took little more than a year be­fore America's experiment in con­suming only what was producedwithin its own borders was junkedfor the more preferable "growing de­pendence" on producers of other na­tions. It was as though the Ameri­can political leadership had finallyregained its sanity and once againtook heed to what Adam Smith in

The Wealth ofNations had told them32 years earlier:

"It is the maxim of every prudentmaster of a family, never to attemptto make at home what it will costhim more to make than buy. Thetailor does not attempt to make hisown shoes, but buys them of theshoemaker. The shoemaker does notattempt to make his own clothes,but employs a tailor.... What isprudence in the conduct ofevery pri­vate family can scarce be folly inthat of a great kingdom."

This passage is used mainly in de­fense of free trade between nations,but it is also vital for the individualas well. For example, my car needsmajor repairs before winter. Now, Ican either attempt to repair it my­self or take it to a mechanic. If I tryto fix it myself, I must first buy somespecialty tools in addition to the toolsI already own. I must then purchaseall the new parts, then put my tal­ent and experience together into oneless-than-magnificent effort as I tryto do something I have never donebefore. Of course, I know enoughabout my car to be able to completethe job without being forced to haveit towed to the junkheap, but the to­tal cost of my effort, tools plus partsplus time plus high blood pressure,would be far greater than the ex­pense I would incur by simply tak­ing it to a mechanic I trust and leav­ing it with him fora couple days. Inthis case, my attempts at self-suffi-

1981 THE MYTH OF SELF-RELIANCE 711

ciency would be far more costly thandependency upon a knowledgeablemechanic.

But even if I could repair my carat a lower cost than I would pay fora repairman, in reality I still wouldnot be self-sufficient. After all, Iwould be dependent upon the auto­makers for the spare parts, toolmak­ers for my tools, and writers andpublishers for the repair manual. Inother words, I would be dependentupon the voluntary cooperation ofthe thousands of persons who had ahand in making all those productsin the same way the rugged, inde­pendent backwoodsmen were depen­dent upon the skilled craftsmen whomade their accurate rifles.

For Survival and Comfort

The truth is, no matter how muchanyone talks about self-reliance, in­terdependence is still necessary for,first, our survival, and second, anycomforts we collect. We are told thatif we ride bicycles, then we won't bedependent on either the automakersor the Arabs who provide us withmuch of our oil. That may be true inone sense, but that view is ex­tremely short-sighted. My lO-speedbike was made in Italy, which meansthat if I am to be personally inde­pendent of the automobile and itsproducers, I must now be dependentupon the competence of an Italianbikemaker. I am also dependent uponthe skill of the ship captain who

brings that bike across the ocean (ona vessel powered by Arab oil) andupon the good driving habits of thetrucker who brings the product tothe retail shop (on a truck poweredby high-priced diesel fuel).

Ifmy solar heating panel succeedsin lowering my utility bill, I willstill have to depend upon the Ten­nessee Valley Authority to provideme with at least some of my electric­ity, but I will then be dependentupon the aluminum cans producedby the nearby Alcoa plant-whichdraws its electricity from the samesource as I do. Neither does my pro­ductive garden make me a self-re­liant person. True, I may not spendas much money at the grocery storeas I once did, but my dependency isnow shifted to the makers of rototill­ers and garden tools and fertilizer.

I am dependent upon the oak andmaple trees in my yard to provideme with the leaves needed for a goodgarden mulch. I am also dependentupon the oil companies for the gaso­line to power my tiller and my util­ity to provide electricity to run thedeep freezer in which I store most ofour produce. If I attach a windmillto my shed that will produce myelectricity in windy weather, I amthen dependent upon the skill of themaker of that windmill, along withbeing reliant upon the changes inthe atmosphere that will producethe needed wind.

I can take another course of ac-

712 THE FREEMAN December

tion. I can unhook my electric, waterand telephone lines, put my car andtruck in mothballs, use pointed sticksas garden tools, wear oak leaves andanimal skins, and go hungry sixmonths of the year. At that point, Imight be reasonably self-reliant uponmy primitive wits, but I can't saymuch for my cave-man quality oflife, nor would my neighbors givemuch support for my noble experi­ment.

Hidden Costs

What is ironic about this situationis that to live a reasonably self-re­liant life, one must work muchharder and do with much less thanone who allows himself to be depen­dent upon the efforts and capital ofothers. If I ride a bike to work, Imust also pay part ofmy cost in timeand convenience. When I work inthe garden, I am unable to spend asmuch time pursuing other produc­tive ends. Of course, riding a bike orworking eight hours under a broil­ing sun in my garden is a personalchoice I make freely, but I makethose choices without being underthe illusion that somehow I am pay­ing less for them.

Besides helping provide a betterlife for all, interdependence has an­other saving feature: it promotes co­operation between people, even peo­ple who might hate one another. Forexample, relations between theUnited States and Libya are pres-

ently near the boiling point, but evenwhile the heads of state of the twogovernments are trading charges andcountercharges, U.S. oil tankers lineup in the Tripoli harbor each day todraw Libyan oil. The oil helps runthe productive U.S. economy, whilemoney paid for the crude enablesLibyans to buy foreign goods thatpreviously have not been availableto them.

Seeds of War

It is noteworthy that people whourge national self-sufficiency do sobecause they fear what might hap­pen to the lines of trade if a warbreaks out. Yet, one of the reasons anation will risk war is that it be­lieves it can do so without chancinga collapse of its economic structures.Before Hitler's Panzer divisions in­vaded Poland and later France, theGerman dictator made reasonablysure by his earlier "nonviolent" con­quests of the Rhineland, Austria andCzechoslovakia that his nation wasself-sufficient in production of foodand war goods. In the same way,Mao Tse-tung tried to insure China'sself-sufficiency (at horrendous costto the Chinese) not so much for na­tional pride as for making sure Chinacould withstand attack by the SovietUnion.

In both cases, the economic self­reliance of these nations wasachieved not through freedom butrather through coercion that re-

1981 THE MYTH OF SELF-RELIANCE 713

quired a choice between completeobedience or death. One nationeventually helped plunge an entireworld into a destructive war, whileanother seeks to reverse the dam­ages inflicted upon it by more than30 years of a communist system. Theend results in both cases have beenfar different than were planned bythe political leaders, and are cer­tainly not the results that most peo­ple would desire if left to their ownfree choice.

And if interdependency builds co­operation between nations, it ob­viously does the. same for individu­als. Two workers on the assemblyline at our local stove plant may notlike each other, but both 'will coop­erate in the building of a new stove,since both will benefit in the form of

Free Trade or Protection?

wages, while consumers benefit aswell, since they can acquire newwealth in the form of stoves.

Contrary to the preachings of the"small is beautiful," "self-reliant" set,interdependency and a complex di­vision of labor will promote freedom,cooperation, and abetter, safer lifefor all. Those who attempt to cir­cumvent this interlocking web willdo so at the cost of freedom, and atthe same time will promote conflictrather than peace. '@

-FOOTNOTES-

lRobertRodale, "What's In AName?" Rodale'sNew Shelter, July/August, 1981, p. 6.

2Richard Hofstadter, The United States (NewYork, 1966),p. 246.

3Hofstadter, p. 209.

IDEAS ON

LIBERTY

Which is best for America, free trade or protection? The question mightbe rephrased more broadly: Which is best for America, freedom or com­pulsion? For in the act of protection lies the act of compulsion. Underprotection consumers are no longer free; their choice is denied. Eco­nomic democracy breaks down; the rule of the few decides. To buy theforeign product consumers are compelled to pay a penalty, being forcedin effect to do business with a high-cost domestic producer. As a result,the consumer pays more and gets less. The resources of the economy areprevented from flowing into the most productive industries; instead,much of the nation's resources are locked in inefficient, high-cost, pro­tected industries. With the exception of the protected investors andmanagements, everyone loses.

WILLIAM H. PETERSON, "Barriers to World Commerce"

Kenneth McDonald

Contraction of StateMust Be

Common Goal

MORE than a century ago, FredericBastiat described the state as "thatgreat fictitious entity by which ev­eryone seeks to live at the expenseofeveryone else." The illusion hauntsthe modern state today. In countryafter country governments have dugthemselves into pits from which theyseek to escape by dragging the restof society_ down. Yet they got therewith good intentions.

There is an attraction to doinggood with other people's money thatis very seductive. Men and womenare drawn to politics by a desire toimprove the lot of their fellows. Ifthey choose to do so without reach­ing into their own pockets, who shallblame them? The welfare state

Kenneth McDonald is a Toronto free-lance writer.This article is adapted from one that appeared in Re­port on Business, The Globe and Mal" Toronto.

714

makes philanthropists of us all.Unfortunately it seduces us also

with a belief that the state, whichthe citizens concocted to serve suchcommon needs as for roads andlighthouses and police, and to whichcommon purpose they contributedthrough taxes, has money of its own.

It is in this, in the changed per­ception from a man-made conve­nience to an independent organism,that we were led astray. Imputing tothe state the abilities that only manpossesses-to invent, to produce andto innovate-we have imputed to italso the ability that flows from them:to create wealth.

Thus when political leaders prom­ise to do this for us, or to do that, welook gratefully upon them for theirmunificence, as if the wherewithalto do those things were somehow

CONTRACTION OF STATE MUST BE COMMON GOAL 715

plucked from the air. Forgetting thatit must be plucked from us, we haveforgotten that the contributionswhich we are now obliged to makewere made at one time by an agree­ment which is no longer sought.

Having accepted that we shall betaxed, we have accepted that theproceeds will be spent, not merelyupon roads and lighthouses and po­lice, which serve us all, but upon amultitude of things which serve onlysome of us: in youth education; inage pensions; in between almost ev­erything from failing companies athome to failing countries abroad.

As if to excuse the changed per­ception, our leaders explain that thestate's apparatus has become verycomplex, as indeed it has. But thecomplexity is man-made too, madeby the state's functionaries takingon more than they can handle.

Here we find a change from thegood intentions to the compulsionsof politics, from the common ser­vices that are necessary for all to theparticular services that are desir­able only for some.

"We have done such and such forthis group. How can we deny theclaims of that?" It is not long beforethose reflections are magnified intoendeavors of the functionariesthemselves. "We have regulated this.Why should we not regulate that?We have established a state corpo­ration to do this. Why should we notestablish another, and another?

Having established them, why shouldwe not put some of our own peoplein charge of them, or some othersfrom the world of politics in whichwe have come to move so easily?"

Missing from the reflections is anysense of participation by the greatmass ofcitizens who in the end mustpay the price. Whether from the taxesthat are paid or deducted, or fromlending to the state through bondand other instruments that lose valueevery minute, or from the tax of in­flation that results from the func­tionaries' excesses, the ever-grow­ing bill is paid by the citizens.

Never are they given a choice.Never, for example, are grants oftheir money put to them in termsthey can understand, as in, say, tothe citizens of Ourtown: "We aregoing to set up this industrial parkin Anothertown and we're going totake some money from you to payfor it. Is that OK?" Or, say, to thecitizens of Anytown: "We are goingto set up a pulp and paper facility inTransutopia and we're going to takesome money from you to pay for it.Any objection?"

William B. Stout, principal de­signer of the Ford Tri-Motor air­plane, used to advise aircraft de­signers to "simplicate and add morelightness." It is good advice for poli­ticians today, but how are they tofollow it?

As they know too well, any at­tempt to reduce the expenditures of

716 THE FREEMAN

one department will be contestedvehemently by that department'sclients: Agriculture, farmers; Con­sumer Affairs, consumer associa­tions; Regional Development, everyregion within hailing distance of thecapital; and so on and so on. In short,their profligacy in the matter ofpromises to particular kinds of elec­tors has come to haunt them: every­one has been promised somethingand no one will withdraw the claim.

The device that was concocted toserve common needs has puffed it-

Adherence to Principle

self up into a multitude of state cor­porations and departments of state,many of which are duplicated insubordinate jurisdictions. Shrinkingit is a task beyond the powers of afew; it must be undertaken by all.

Just as the state grew from a com­mon need, so must its contraction bemade a common purpose. Throughinflation, all are suffering now. Ifthe expenditures of all the depart­ments were cut, all would endurethe illusion of suffering for a time,but how could any complain? ,

IDEAS ON

LIBERTY

IT is only in the moral realm that socialism's antagonists-freedom'sdevotees-can find any common ground for concerted or unified effort.Where we can make no impression at all over the personal loss of 30cents, or any multiplication of small change, we can win agreement onthe point that there is no difference in principle between the forcibleextortion of 30 cents and the forcible extortion of one million dollars.One is misappropriation as well as the other. The distinction is one ofdegree, not of kind. To violate the principle, even minutely, is to com­promise the amount but not the principle. The principle is surrendered,regardless of amount. To forswear allegiance to honesty and integrity­the principle here at issue-is to destroy the moral underpinnings with­out which no good society can endure....

Moral standards for individuals, fairly well established by all theworld's moral and ethical systems, find no reasonable sanction for mod­ification by individuals acting concertedly, whether organized as gov­ernments or labor unions or trade associations. No new rights come intoexistence by collectivizing two persons or a million of them.

LEONARD E. READ, "How to Reduce Taxes"

Walter Block

THE BENEFITS OFSPECULATION

WHENEVER housing prices rise wehear a chorus of complaints blamingthe speculator. Speculators have al­ways been vilified for high and ris­ing prices.

This view is incorrect. In fact, theopposite is true: speculation holdsthe rise of prices to less than wouldhave prevailed without it. To seethis clearly, let us consider the un­controversial example of "widgets."Then, having established the basicprinciples· for the classic case, wecan apply them to the special andmore sensitive issue of land andhousing prices.

Suppose that in the absence ofspeculation, the future supply ofwidgets is as in the Biblical story:seven fat years followed by sevenlean. Given similar demand in the

Dr. Block is Senior Economist, The Fraser Institute,626 Bute Street, Vancouver, B.C., Canada V6E 3M1.

two periods, the years of ample sup­ply would result in low prices andthe era of short supply in high prices.

Enter the speculator. What willhe do? He will try to buy when pricesare low and sell when they are high.His initial purchases will, to be sure,raise prices above the low levels thatwould otherwise obtain in the firstperiod, as his additional speculativedemand is now added to the demandto buy widgets for consumption pur­poses. But his subsequent sales willreduce prices from the high levelsthat would prevail, apart from hisefforts, in the second time interval.This is because speculative sales,when added to other sales, must de­press prices further than all othersales would have done by them­selves.

The speculator will be seen bypeople to be selling at high prices inyears 8 to 14. People will thus blame

717

718 THE FREEMAN December

him for these escalated prices, eventhough prices would have been stillhigher in his absence.

But the speculator does far morethan merely iron out prices over time.By dampening price oscillations, heaccomplishes something of crucialimportance: 'the stockpiling of wid­gets during the years of plenty, whenthey are least needed, and the dissi­pation of the widget inventory dur­ing times of shortage, when they aremost useful.

Furthermore, the speculator's ac­tions in the market signal to all otherbusinessmen that an era of shortsupply is expected in the future. Hispresent purchases raise widgetprices, and hence the profitability ofproducing them now. This encour­ages others to do so before the leanyears strike. The speculator is theDistant Early Warning System ofthe economy.

But, as in the days of yore whenthe bearers of ill tidings were put todeath for their pains, modern daymessengers-the speculators-areblamed for the bad news they bring.There is talk of prohibiting their ac­tivities outright, or of taxing theirgains at 100 per cent confiscatoryrates. Such moves, however, deprivesociety of the beneficial effects ofspeculation.

There is only one possible fly inthe ointment. If the speculatorguesses incorrectly and see years ofplenty ahead when belt tightening

is really in store for the economy,chaos can result. Instead of stabiliz­ing prices and supplies of widgets,the speculator will destabilize them;instead of hoarding during the fatyears and reducing inventories dur­ing famines-and leading others todo so as well-he will encourageneedless saving under adversity andwasteful profligacy in good times.

The Market Guards AgainstUnlirmited Profit or Loss

The market, however, has a fail­safe mechanism to prevent just thissort of disaster. The speculator whoguesses wrong will buy high and selllow-and incur losses, not profits. Ifhe continues to err, he will go bank­rupt, and usually very quickly.Professional speculators who havesurvived this rigorous market testof profit and loss can be relied uponto forecast the future with far greateraccuracy than any other conceivablegroup, including bureaucrats, poli­ticians, marketing boards or swamis.

Now let us consider the effect ofspeculation on land and housingprices.

As in the case ofwidgets, the spec­ulator is observed to be selling athigh prices, to be holding land offthe market until yet higher pricesare reached. But if we carefully traceout the effects of such activities, wecan see that the only time the spec­ulator could have raised prices iswhen he buys-and that he bought

1981 THE BENEFITS OF SPECULATION 719

when prices were low, before the in­crease in demand. We can likewisesee that the only result of specula­tive sales is to decrease prices. Nomatter how expensive the level atwhich the sales take place, priceswould have been higher still in theabsence of this additional land andhousing supply.

The speculator can function as adistant early warning line in thismarket as well. His initial housingpurchases can encourage the con­struction of additional housing: athigher home prices, more profits canbe earned in building, lumber, ce­ment, wiring and so on. By defini­tion, additional land cannot be cre­ated (barring reclamation from thesea, as in the case of Holland) butspace can be converted to housingfrom other uses, such as farmingand industry.

Now let us consider several objec­tions to the view that the speculatormakes a positive contribution to thepublic good.

1. But the speculator's initial pur­chases start the upward price cycleeven in the "fat years." Of course thespeculator's initial purchases startthe upward price movement duringthe "fat" years, when prices are low(and decreases prices when he sellsduring the "lean" years, during thetime that prices are .high). This isprecisely the main effect of specula­tion: to dampen down the price oscil-

lations, or cycles, that would other­wise prevail in its absence. Decreas­ing price variation must inevitablyimply raising low prices, while de­creasing high ones. To blame thespeculator for this is like blamingapple pie for tasting so good. That'sthe whole point of the enterprise.

2. If the speculator hadn7t scoopedup the housing at that early point inthe cycle and held on to it7 exactly thesame amount of housing would al­ready have been available when thelean years arrived. This objection ig­nores the point, made above, thatthe speculator serves as a sort ofDistant Early Warning System. Bymaking his initial purchases duringthe "fat" years, when prices are low,the professional speculator may wellencourage imitators. These peoplemay want to "ride along" with thespeculator, and earn profits by add­ing to, the housing stock.

Moreover, there is another reasonfor dismissing the claim that "ex­actly the same amount of housingwould be available." The speculator,it must be remembered, is by as­sumption one of the few people whoforesees the lean years ahead. Surelywe may expect more housing to besaved (through better upkeep,maintenance, more investments inrepairs, upgrading) by people suchas the speculators, who expect hous­ing to sell at a premium in the nearfuture, than by people who do not.

720 THE FREEMAN December

3. When the speculator finally sells,during the "lean" years, he will sellat homeowner prices instead of spec­ulator prices-it being given thatspeculators can usually hold out fortheir desired price longer thanhomeowners who need to sell quickly.If any proposition is more likely, itis the very opposite. For the specu­lator is more likely to be a personwith his eye strictly out for the "mainchance." Who has ever heard of aspeculator sitting on a piece of landand refusing to sell for any price, be­cause the house on top of it "was inthe family for years" and has "sen­timental value"? In land saleshomeowners can usually hold outfor longer time periods than specu­lators, who are ever on the searchfor yet another profit opportunity,and unwilling to keep their fundstied up in anyone venture for a longtime.

4. The speculator keeps land idle.This is wasteful, and deprives theeconomy of a much needed impetus.We can answer this objection in sev­eral ways. On a somewhat superfi­ciallevel, it (usually) exposes the in­consistency ofthe person who makesit. For most people who oppose spec­ulation also favor conservation. Butidle land is by definition land beingconserved. If a person favors conser­vation, and thinks that speculationkeeps land "idle," he cannot logi­cally oppose speculation.

On a more fundamental level isthe fact that land speculation servesseveral useful social functions.

The Functions of SpeCUlation

First of all, speculation in an un­hampered market tends to put landinto the hands of the most capableproperty developers. Many people donot realize that property develop­ment requires a great amount ofability. They feel, somehow, that itis only a matter of renting (or sell­ing) to the highest bidder.

Even were that the case, land de­velopment would still be a task call­ing for a great degree of skill. Howelse can we account for the economicimportance of auctioneers and bro­kers of all kinds, whose "only" job isto ensure that sales are indeed madeto the highest bidder (and that allbids are as high as possible in thefirst place)? How else to account forthe graft, corruption and otherwisepoor records attained by city gov­ernments which have taken uponthemselves the responsibilities of"contracting out" municipal servicesto private firms (in this case, tryingto ascertain the low bidder)?

But real property developmentcalls for far more than the ability torent or sell to the highest bidder.Right at the offset is the choice be­tween renting and selling. Ifrentingis decided upon, there are an indefi­nitely large number of alternatives,including duration of the lease, se-

1981 THE BENEFITS OF SPECULATION 721

curity, financial terms, services pro­vided, and so on. A wrong decisionin any of these dimensions can leadto lower profits through an ineffi­cient use of property.

Land is valuable not only for whatvalue it can create in the presentbut for what may be accomplishedwith it in the future. Prescience isdenied mankind, at least this side ofheaven. Therefore, the best futureuse of idle land is never known forsure. (Does anyone believe thatpresent settlement and buildingpatterns would have been as theynow are had we somehow been ableto know what the economic condi­tions of 1981 were to be like 10, 30,or 50 years ago?)

This is the reason speculators oft­times keep their land "idle": they donot as yet perceive the future courseof events as clearly as they thinkthey someday might. They forgo thepresent rents they might otherwisehave obtained, in the opinion thatthe gains to be made by being flexi­ble (keeping land idle and unencum­bered) are likely to be higher thanthose alternatives. The speculator,in other words, fears that a betteruse for this land might make itselfknown later, right after he commitsit to a poorer use; and that the costof clearing up this mistake (demol­ishing a building, buying out a ten­ant's lease) might be greater thanthe additional rents he could havecollected from the better use. In

weighing these alternatives, thespeculator attempts to determine themost valuable use the members ofsociety place on his land.

An Optimal Building Rate

Do the opponents of speculationreally wish no land to be "idle," forthese precautionary purposes? If so,they cannot be motivated by a desireto satisfy consumer sovereignty. Forthere is an optimal building rateover time-that is, an optimal rateat which land is withdrawn from"precautionary balances"-devia­tions from which can reduce wel­fare. This rate is determined by con­sumer (and landowner) preferences,by interest and time-preference rates,by the prices of substitute and com­plimentary factors of production, andso on. Perhaps in some conceivablecircumstances this optimum ratemight call for the immediate discon­tinuation of all "idle" land, as de­sired by the opponents of specula­tion. But even under thesecircumstances, speculators wouldthemselves be led "as if by an invis­ible hand" to sharply reduce "idle"balances of land. Thus, there wouldbe no need to oppose the operation ofthe unhampered marketplace evenin these circumstances.

Let us close with the observationthat speculation is very much morewidespread than its opponents seemto realize. Not limited to land, spec­ulation certainly applies to other or-

722 THE FREEMAN

ganized markets such as stocks,commodities, currencies, metals andso on. But this is just the tip of theiceberg.

Speculation occurs even in themost ordinary of transactions. Ev­ery time the housewife goes groceryshopping she is speculating. Ifpricesare falling, she might have beenbetter off to defer her purchases; ifthey are rising, she might have donewell to buy twice as much. Everytime the worker upgrades his skills,he is speculating that the value of

The Speculator's Role

the additional wages he may earn asa result will be greater than thevalue to him of dollar expenditures,efforts and psychic costs he ex­pended in obtaining the new train­ing. Every time a child buys a toy heis speculating that he won't see an­other toy he likes still more-afterthe money is gone.

We may even say that speculationis at the very core of human action.The opposition to speculation, then,is at root an opposition to humanfreedom. Ii

IDEAS ON

LIBERTY

IN POPULAR THINKING, the speculator is a bold, bad man who makesmoney at the expense of others. Many people believe he gains his live­lihood by luck, gambling, or inside manipulation. There are, of course,a few dishonest speculators who lie and cheat, as do some in all occupa­tions, but the honest speculator is a serious specialist who serves man­kind. He constantly strives to obtain a better understanding offuturemarket conditions. He then places this better understanding at the ser­vice of all interested parties. Whenever his predictions are wrong, it ishe who loses. When he is right, he and everyone who trades with himbenefit. For if they did not expect to benefit, they would not trade withhim.

The service of a speculator is to smooth out some of the gaps betweensupply and demand and· some of the extreme ups and downs in prices.He tries to buy when and where a commodity is plentiful and the priceis low and to sell when and where the commodity is in short supply andthe price is high. When he does this wisely and successfully, he tends toraise extremely low prices and reduce extremely high.prices.

PERCY L. GREAVES, JR., "Why Speculators?"

John Semmens

THE ROADTO RUIN

IN our private lives it seems thatcrises are relatively rare eventsbrought on by extreme circum­stances and unforeseen situations.In the realm of public policy, how­ever, crises seem to be the normrather than the exception. We haveinternational crises, domestic crises,monetary crises, fiscal crises, energycrises, crises of confidence, ad nau­seam. The government apparentlyhas the capacity to turn the mostprosaic and mundane circumstancesinto crises.

The "crisis" of the '80s will be theneed to rebuild America and makeher great again. Dire consequencesare predicted if we fail to meet thischallenge. A subsidiary "crisis" tothe more general need to rebuild

Mr. Semmens is an economist for the Arizona De­partment of Transportation.

America is a "public sector in ruins."Within the public sector, few thingsare as threatened with ruination asour highway system. In state afterstate, the cry has gone out that ourroads are crumbling, that withoutdrastic action (a doubling or triplingoftaxes) we won't be able to get fromhere to there. Our economy will col­lapse and savagery ensue.

Why has the highway finance is­sue reached a crisis stage? Exami­nation of the nature of the highwayproduct and how the government hassought to provide it will reveal aclassic example of public sector fail­ure. The tragedy is that the failurewas foreseeable and predicted bymany critics of government wasteand mismanagement.

We will be able to make more senseof the issues in highway financing if

723

724 THE FREEMAN December

we realize that highways are invest­ments. The decision to build a high­way will have consequences verysimilar in nature to the decision tobuild any other capital facility. Toinsist, as some do, that since high­ways are publicly owned they areexempt from normal investment de­cision criteria will be destructive tothe general welfare.

Regardless of whether a facility isowned and operated as a public orprivate undertaking, the economiclaw of scarcity still applies. This lawof scarcity is a common-sense recog­nition of the finite nature of our ex­istence. In the final analysis, thereis only a limited amount of timeavailable to us to devote to effortsaimed at serving a multitude ofneeds. Time consumed in acquiringor manufacturing the resources toserve a portion of our needs is notavailable to spend in efforts to serveother needs.

Recognition of this finite limit isimportant if we are to rationallymanage our time and effort. Of ne­cessity, anyone need or problemcannot be considered in isolationfrom all other needs or problems.This might appear to make for anunwieldy mess, since it is unlikelythat anyone person or group of per­sons could conceivably consider allneeds or problems simultaneously.Fortunately, society has evolved themarket institutions that serve tocalculate the best uses of scarce re-

sources for the constantly changingneeds and problems of a diverseworld.

The Function of Prices

The price system of the market­place yields us a "best estimate" ofthe current and future values ofvar­ious resources in meeting humanneeds. This price system applies bothto the commodities that might beemployed in implementing our plansto meet our needs and to the capitalrequired to purchase the commodi­ties. By comparing the prices wemust pay with the revenues we an­ticipate from our planned invest­ments, we can determine whetherwhat we intend to do is financiallyfeasible. Inasmuch as the price sys­tem is a reflection of a continuousstream of voluntary choices, reli­ance upon its verdicts will alsoproduce investments which are so­cially desirable.

Unfortunately, utilization of themarket and its price system has notbeen well developed in the publicsector. Past decisions in public high­way construction were made on thebasis of other factors. The result hasbeen the creation of a roadway in­frastructure which is becoming in­creasingly out of balance with themeans to finance it. We cannot justbuild all that highway officials saywe must build without massive in­creases in the amount of resourcesconsumed by this activity. Our needs

1981 THE ROAD TO RUIN 725

for roadways must compete with amultiplicity of needs for every sortof good or service. To devote re­sources to highway construction willmean, of necessity, that these re­sources cannot be devoted to otheruses. In order to employ resourcesfor the maximum benefit, it is nec­essary to determine how highwayscompare with other investments interms of the benefits produced.

The cost of errors in the expendi­ture of resources on highway facili­ties is considerable. Once time, ef­fort, and money have been convertedinto a roadway, they are irretriev­able. Decisions on highway con­struction are cast in concrete. Thisirretrievability factor raises the riskof highway investment. Roads whichdo not return as much in value asthey cost to build and maintain causetotal economic output to decline.

The long-term effects of lower eco­nomic output are reduced welfarethroughout society. There would befewer employment opportunities,more poverty (as well as the socialills associated with poverty), fewerresources available to meet otherhuman needs in the areas of health,housing, education, and the like, in­cluding other transportation needs.

Measuring the Value ofPublic Investment

It is not enough to assert that roadsare "essential" to a community's well­being. A lot of things are "essential"

to this well-being. How are we to al­locate scarce resources betweencompeting "essential" goods or ser­vices? Given that wants are vir­tually unlimited, it is obvious thatthere won't be enough resources tosatisfy all demands. Consequently,society will be forced to choose whichwants go unfulfilled.

In a market economy, society's in­vestments are made based upon theperceived return to be earned. Thatis, if the decision-maker believes thathis gains from an investment deci­sion will exceed the costs incurredin pursuing that decision, he willimplement the investment. If he isright, he will enjoy profits which canbe used for future investment orconsumption. If he is wrong, he willsuffer losses. If the losses are severeenough, the resources will be de­pleted and no future decisions or in­vestments will be possible.

In the public sector, the connec­tions between decisions and out­comes are more indirect. Establish­ing the costs and benefits for thepurpose of estimating a future re­turn on investment is more complexand difficult. The responsibility forthe decision-making may be ob­scure. The profits or losses are dif­fuse and ambiguous. The short-termpolitical impact of the decision willbe more prominent in guiding publicpolicy than the longer term invest­ment returns. Nevertheless, theseproblems and complexities do not

726 THE FREEMAN December

relieve society of the consequencesof bad decisions made in the govern­ment sector.

The simplest approach to evalu­ating an investment is to match cashinflows to cash outflows. Ifmore cashis coming in than going out, the ac­tivity is sustainable. If the reverseis the case, namely more cash on theway out than on the way in, the ac­tivity is unsustainable. Unsustain­able activities may be rescued in oneof two ways: reduce expenditures orincrease revenues.

Private businesses might resolvea cash flow problem by either cut­ting out losing product lines, or in­creasing prices, or both. The publicsector could well take heed of thisapproach..There are a few barriersthat must be overcome, though, be­fore a rational public policy can beadopted. First to go must be the no­tion that access to the road systemis some sort of inherent right towhich persons or corporations areentitled. Roads are material goodsthat cost real resources to construct,operate, and maintain. Individualsor businesses have no right to de­mand access to highway serviceswithout paying the costs of that ser­vice.

A second barrier to be overcome isthe idea that it is not possible tofairly assess highway users for thecost of the services they require.Granted, the public sector has littleexperience with pricing and mar-

keting its products. This is not tosay that it should not be done.

A third barrier to be overcome isthe notion that the value ofroad ser­vices can or should be determinedindependently of the use and feescollected for that use. It has beenstated that user fees do not captureall of the benefits enjoyed by roadusers. In this respect, roadways areno different than any other eco­nomic good. Everything exchangedin a voluntary transaction producesbenefits above and beyond the reve­nues collected by the seller.

Uncaptured Benefits

The problem of uncaptured bene­fits is not unique to highways, or tothe public sector for that matter. Toargue that higher taxes for highwaypurposes are justified because of thenon-revenue-producing benefits oc­casioned does nothing to establishwhat priority, if any, highways areto have over any other use for re­sources. The fact that highways arepublic facilities often conveys theerroneous idea that this in itselfmakes them especially productive interms of non-revenue-producingbenefits. There is no basis for as­suming that public sector invest­ments do, while private sector in­vestments don't, produce thesebenefits. Yet, many analyses con­ducted by government economistsimplicitly make this assumption.

Since there is such widespread

1981 THE ROAD TO RUIN 727

confusion surrounding this issue, anexample may be most illustrative. Afrequently cited example of a road'snon-revenue-producing benefits isthe reduced travel time for emer­gency vehicles. Cutting an ambu­lance's transit time by a few minutesmay save a life. The value of this lifeis not reflected in the user fees col­lected from whatever highway taxesmay be paid by the beneficiary of thelife-saving event.

There can be little argument withthe proposition that in instances likethe aforementioned example, thebenefits exceed the revenues pro­duced. What isn't answered is howthe benefits of better roadways com­pare to the benefits produced by theother components of the life-savingevent. Isn't the phone call whichsummoned the medical help worthmore than the 10 cents it may havecost? Isn't the medical equipmentthat may be used-cardiopulmon­ary resuscitation machines, surgicaltools, and the like-worth more thanthe cost? Isn't the vehicle doing thetransporting worth more than thecost? The list of other factors can bequite extensive. In the case of eachcomponent, it can be justly arguedthat the benefits to the person servedexceeded the revenues captured bythe manufacturers of the compo­nents.

The difficult question is how do wecompare the non-revenue-producingbenefits of each component? Ifwe ig-

nore the non-revenue contributionsof every component other than thehighway system, we will distort theinvestment picture. Universal ap­plication of a methodology whichcomputed non-revenue-producingbenefits for public sector invest­ments only would result in a costlytransfer ofresources from their mostproductive uses to a series of largelyarbitrarily selected public sectorprojects. This would reduce socialwelfare. The best road system in theworld would be useless if vehiclemanufacturers couldn't obtain re­sources.

Arizona: A Case StUdy

Investigation of the Arizona StateHighway System in terms of returnon investment demonstrates the follyof ignoring the market in highwayinvestment decisions. Over 60 percent of the mileage on the State Sys­tem does not generate enough reve­nue to cover the cost of upkeep. Thatis, nearly 4000 miles of roadway op­erate at a loss. These are roads un­der state jurisdiction. The situationappears to be even worse for countyand local roads.

The investment performance ofvarious portions of the State High­way System shows wide disparitiesin the.returns generated vs. the costsincurred. Some segments cover theircosts many times over. On the otherhand, many segments won't evengenerate enough revenues to cover

728 THE FREEMAN December

a fraction of their anticipated costs.Even if taxes were doubled, over 45per cent of the system's mileagewould not generate enough revenueto cover the cost. If taxes were qua­drupled, nearly 30 per cent of theState System would not cover thecost of upkeep. Finally, there aresegments where the expenses are sohigh, or the revenues so low, thatthey can't even cover 10 per cent ofthe cost. Over 780 miles of the Ari­zona State Highway System falls intothis category. Roadways in this cat­egory include the fantastically ex­pensive urban freeways and por­tions of rural highways that see littleuse.

The Market Is the Answer

The profit/loss profile of the high­way system is a reflection ofpast de­cisions in highway investments. Thecrazy quilt pattern of viable and non­viable road segments serves as anindictment of the previous highwayplanning process. The schemes, themechanisms that have been used inthe name of the "public interest" or"general welfare" have been a com.,.plete flop. The resulting highway in­frastructure serves transportationdemand worse than a random sys­tem of roadway funding would havedone.

Contemporary public debate hasshunned the issue of government re­sponsibility. The mismatch of high­way expenditures and demand that

has produced clogged urban streetsand nearly vacant rural roads isportrayed as an accident, or a resultof OPEC manipulations, or J apa­nese auto manufacturers-any­thing but what it is: the failure ofgovernment in the provision of ma­terial goods and services.

It is easy to take the products ofmodern capitalism for granted. Itwould not be so easy to live withoutthese products. If more and more re­sources are diverted to the publicsector, because the total return oninvestment (with non-revenue ben­efits added) in the public sector ap­pears better than the purely finan­cial returns calculated for privatesector firms, human welfare wouldbe reduced.

It is not really feasible for us toattempt to measure the non-reve­nue-producing benefits of every pos­sible use of resources. Fortunately,it is not necessary to do this. Com­parability between alternative usesof scarce resources can be achievedby restricting analysis of benefits tothe revenue-generating services forwhich users are willing and able topay. This puts the onus on the publicsector. to exert more effort in ascer­taining appropriate pricing systemsin order· to capture a larger portionof claimed benefits as cash inflow.

The fact that new pricing systemsmay be unprecedented or difficult toinitiate is no argument against thelegitimacy or the advisability of de-

1981 THE ROAD TO RUIN 729

vising them. The advantages of de­veloping a more market-orientedpricing system and using it to fundsustainable highway investments arepersuasive. The foremost advantageis that it would most fully employthe device of allowing consumerchoice. Consumers would have theoption of using-and paying for whatthey use. This would move from apolitically determined decision­making environment toward a moremarket determined environment.

Looking in the Wrong Place

Greater customer satisfaction couldbe anticipated. Cash flows would bemore stable-responding to the de­mand and use of the facilities, ratherthan to the political popularity ofthe road system. The continuousexpression of market demand viauser purchases of highway serviceswould simplify the task of decidingwhat services to supply. Govern­ment would be more assured that itis providing value for the fees it col­lects. ,

IDEAS ON

LIBERTY

No number or concentration of experts on road construction or of wiz­ards on finance can find the solution to the highway problem until thesearch is conducted in the area in which the solution lies. The evidenceis clear that the wrong place to look for the solution to the highwayproblem is in the area of government. That practically all highways areowned by some particular form of government-federal, state, county,or municipal-is the problem and not the solution.

Government is not creative, although misguided and misunderstand­ing citizens and elected servants have time and time again mistakencompulsion for creation.

The proper role of the government should be to defend our nationfrom outside attack, as a soldier, and defend us from lawlessness fromwithin, as a policeman. Both of these tasks are very important, butneither is creative in nature. The company striving to develop a newvaccine for the elimination ofcancer surely would not assign the projectto the plant security police. Nor should we assign the development ofhighways to political policemen. We have too often hooked up coercivepower to a creative field, and the results have ended inevitably in fail­ure. When the hand of government is inserted in a problem requiringinitiative, it becomes a dead hand-and the failure can be predicted.

JOHN C. SPARKS, "The Highway Dilemma"

George C. Leef

ProgressIs

Difference

PROGRESS IS DIFFERENCE. SO wroteHerbert Spencer, the great Englishphilosopher, scientist, and defenderof individual liberty a century ago.Spencer's insight is simple-onemight even say obvious-yet pro­found. He lived in an age, as do we,which took progress for granted, andvery few people ever stop to analyzethe essential nature of that which istaken for granted. Spencer did. Whathe is telling us is that if people arenot at liberty to try something dif­ferent, something out of the ordi­nary, if they have always to followthe traditional or approved course ofaction, then we would never dis­cover any improvements at all.

Without difference, our products,services, and institutions wouldnever have advanced beyond thelevel of our most primitive ances-

George Leef is Assistant Professor of Economics,Northwood Institute, Midland, Michigan.

730

tors. Indeed, Spencer would pointout, the physical advancement of thehuman species itself from a compar­atively small-brained, ape-like crea­ture to its present state has comeabout entirely due to the beneficialeffect of differences. Changes whichimproved our chances for survivalwere incorporated; those which didnot were selected against. That isthe way natural selection works.

Unfortunately, as I said before,we live in an age which has seen somuch progress that progress hascome to be taken for granted. Thedanger in this is that we seem to belosing sight of the fact that progressis not a dependable, eternal givenlike the sun rising in the east. Forthere to be progress, there must befreedom to try new approaches. Thisexplains why the communist blocnations have such low standards.ofliving and never invent anything

PROGRESS IS DIFFERENCE 731

which is useful to man in his striv­ing to live his life comfortably. Un­der tightly controlled and centrallyplanned societies, deviations fromthe standard are not permitted. Un­wittingly (in most cases), the advo­cates of increased government own­ership and regulation (which is defacto ownership) are taking us downthis same path. The leftist intellec­tual fad of governmentally-enforcedstandards would put the creativityof human beings in a strait jacket.It would stamp out progress.

Differences Outlawed

Several examples will help to con­firm the continuing relevance of Mr.Spencer's observation on the needfor liberty to be different. Considerfirst the phenomenon of buildingcodes. One finds them in virtuallyevery locality; they tell the builderin minute detail how he must con­struct his building. The reason givenfor the enactment of such laws isthat they protect the purchaser orany other occupier of space in abuilding against its collapse or othermishap due to the employment ofimproper methods or materials. Toaccomplish this objective, whichcould be achieved without any coer­cion through contracts and the in­vocation of tort law when necessary,the government sets up a standard.Failure to comply in any respect withthis standard gives the building in­spector the power to forbid further

work on or use of the structure untilthe violation has been remedied.

Most people think this entirelygood and proper. Protection againsthazards always sounds beneficial, butwe must look not only at what isseen, but also at what is unseen. AsBruce Cooley writes:

What (building codes) actually do is"protect" the consumer from any con­struction practice, faulty or not, whichdiffers from those spelled out in thebuilding codes. And in the process theymake housing more expensive. One vet­eran builder, Sol Sylvan of Kennewick,Washington, puts it this way, "[the codes]tend to become treated by the officialswho enforce them as religious dogma."This, he argues, limits the introductionof innovations in building materials anddesigns.! (Emphasis mine.)

Thus, by prohibiting differences inbuilding, we prohibit the use of hu­man ingenuity which could lead tobetter and less costly housing. Aswith all regulation by government,imposing conformity in order to pre­vent some harmful acts serves to fil­ter out a large number of beneficialbut nonconforming acts.

Another illustration of how pro­hibiting difference gets in the wayof progress can be seen in the regu­1ation of railroads in the UnitedStates. That the railroads have beenregulated almost to death is wellknown. Here is a specific example.The Federal Railroad Administra­tion is a part of the Department of

732 THE FREEMAN December

Transportation. Among other du­ties, the FRA oversees railroadsafety, and therefore has the powerto approve or forbid the use of ad­vanced railroad technology.

In 1976, the Bi-Modal Corpora­tion, of Greenwich, Connecticut, be­gan development of a vehicle whichcould be either pulled as a trucktrailer or as a freight car, dependingupon whether its inflatable tires orrailroad wheels were down. Bi-Modalnamed its creation the "Road­Railer." The advantages of theRoadRailer are obvious: comparedwith the standard "piggyback" train(trailers riding atop flatcars),RoadRailer trains reduce weight andwind resistance, thus conserving fuel.When tested, RoadRailers passed thestress tests of the Association ofAmerican Railroads.

But then the FRA entered the pic­ture. The safety tests and potentialcost savings did not matter in theleast to the bureaucrats. Theyrefused to approve the RoadRailer.Why? The official line went as fol­lows: All railroad equipment mustconform to the specifications of theRail Safety Act, passed in 1893 andlast amended in 1910. Since the RailSafety Act was passed before the in­vention of the RoadRailer, the lattercould not possibly meet the require­ments. Unofficially, the reason fordisapproval may well have beenpressure from existing equipmentsuppliers who feared loss ofbusiness

to the RoadRailer, perhaps com­bined with the usual animosity whichbureaucrats have for the entrepre­neur.

Eventually, the FRA's obstruc­tionism was by-passed. A special actof Congress amended the Rail SafetyAct to permit the employment of theRoadRailer. However, the Govern­ment's hostility to difference de­layed its introduction by two years,and the FRA's aversion to innova­tion-progress-in railroad tech­nology remains as strong as ever.2

Medical Education Controlled

A third example of this phenome­non of governmentally-imposed con­formity stifling progress is found ineducation, specifically medical edu­cation. At one time, medical schoolswere completely free of state regu­lation. The focus was on the outputof the school, namely the compe­tence of the physician, rather thanupon the school's curriculum.

All of this changed after the fa­mous Flexner Report of 1910. Thismost unscientific study found manyof the medical schools in the UnitedStates to be "substandard." Whenthe state legislators heard about thisalleged problem, they swiftly setabout remedying it. How? By estab­lishing standards recommended bythe American Medical Association.The AMA's interest in the matter isnot difficult to see. Fewer medicalschools and longer, more expensive

1981 PROGRESS IS DIFFERENCE 733

training periods mean less competi­tion, hence higher earnings for thosein the profession. Of course, the ra­tionale presented to the public wasthat the standardization of medicaleducation was for their protection.

What effect did this have on med­ical education in the United States?By now, it should be easy to predictthe answer. With the imposition ofrigid specifications, medical schoolsbecame hidebound and conserva­tive. As Professor Reuben Kesselstates, "There was a hiatus of overforty years in the search for bettercurricula and training methods, andin the utilization of the talents ofscientists outside of medical schoolsfor the training ofphysicians."3

Innovations-in anything-mostoften come from newcomers to thefield who must do something differ­ent in order to compete with thosealready established in the field. Butgovernment standards prevented thisin medicine. Any new school whichdared to deviate from the orthodoxyrisked loss of certification. Progresswas arrested for over forty years, asProfessor Kessel points out.4

The cult of standardization en­forced by the power of the govern­ment has become deeply entrenchedin the United States. Examples suchas those discussed above could bemultiplied almost endlessly. There

is no need for that, though, as theprinciple at work here should bequite clear. Progress is impossibleunless people are free to be differ­ent. This is an inescapable reality,and it applies to every aspect of hu­man existence.

Those people who clamor for morecontrol and regulation of our livesare necessarily advocating an end toexperimentation and innovation. Weowe our present lofty standard ofliving to the large measure of free­dom enjoyed by our ancestors, and ifwe are to overcome the problemswhich now beset us, we too musthave the liberty to use our greatestasset-ingenuity. The world is farfrom perfect. Progress is a necessity.And progress we will have, as longas people are free to be different. ,

-FOOTNOTES-

l"The Shortage in Housing," Libertarian Re­view, August, 1981, p. 39.

2For the complete story of the RoadRailer,see William D. Burt's article, "The Plot to TakeOver America's Railroads" in Reason, March,1981, pp. 20-28.

3Reuben Kessel, "The AMA and the Supplyof Physicians," Law and Contemporary Prob­lems, Spring 1970, p. 270.

4For a fine discussion of the entire spectrumofproblems caused by governmental regulationof medicine, see John C. Goodman, The Regu­lation ofMedicine: Is the Price Too High?, CatoInstitute, 1980.

Raymond Polin

GEORGE MASON:Father of theBill of Rights

Copyright U.SP.S.

Commemorative postage stamphonoring George Mason.

THOMAS JEFFERSON has been justlyhonored, in the main, as the authorof the Declaration of Independence,one of three accomplishments thathe chose to be inscribed on his tomb­stone: "Here was buried ThomasJefferson, author of the Declarationof American Independence, of theStatute of Virginia for religiousfreedom, and father of the Univer­sity of Virginia."

It is indicative of the priority ofvalues held by Jefferson that heasked to be remembered in finalityby a legacy of principles of freedomand an institution of higher educa­tion. No mention was made by himthat he had attained the very high-

Dr. Polin is Professor of Government and Politics inthe Graduate School of Arts and Sciences·of St.John's University (New York). His latest work, ModernGovernment and Constitutionalism (Chicago: Nel­son-Hail, 1979), includes attention to concepts of lim­ited government and stability, his principal area ofacademic interest. His current research deals withthe roots of the Declaration of Independence.

734

est political offices of his state andnation: Governor of Virginia, Secre­tary of State of the United States,and successively Vice-President andPresident of the United States.

But how much credit is justly dueJefferson for composing the Decla­ration? How original and how com­plete was his authorship of this doc­ument? Did he create or invent it, ordid he copy, recall, or borrow in goodpart?

Jefferson's role as the author ofthe Declaration seems securely es­tablished and likely to endure. How­ever, there is little or nothing in theDeclaration in concept or languagethat had not been previously writ­ten by Spanish and Italian Jesuitsof the seventeenth century, JohnMorin Scott (1730?-1784) of NewYork, James Otis (1725-1783) ofMassachusetts, Filippo Mazzei(1730-1816) of Italy and Virginia,Richard Bland (1710-1776) of Vir-

GEORGE MASON: FATHER OF THE BILL OF RIGHTS 735

ginia, Thomas Paine (1737-1809) ofEngland and Pennsylvania, andGeorge Mason (1725-1792) of Vir­ginia. What is more, Jefferson wasmost probably familiar with all ofthese prior writings with the possi­ble exception of the polemical piecesby Scott that were broadcast at thetime of the Stamp Tax controversyin 1765. Jefferson himself has beencandid enough to write in later yearsin a letter of May 8, 1825, to HenryLee: "I did not consider it as anypart of my charge to invent newideas altogether and to offer no sen­timent which had ever been ex­pressed before."l

A Necessary ConnectionIt does not diminish the honor that

of right belongs to Jefferson, there­fore, if we call attention to· the con­tribution of others to the Declara­tion ofIndependence and accord themtheir just recognition in turn. Also,we gain increased understanding ofthe relationship between the Decla­ration and the Constitution of theUnited States and subsequentamendments if we see their "neces­sary"connection. For we may re­gard the original Constitution, theBill of Rights, and especiallyAmendments XIII, XIV, XV, andXIX, as "necessary" to implementa­tion of the. ideas stated in the Dec­laration.

And this is where proper recogni­tion of the role of George Mason also

becomes "necessary" to an improvedperspective of historical develop­ment and justice to the memory ofMason. For not only did Mason makean important immediate contribu­tion to the Declaration of Indepen­dence, but he also anticipated ingeneral the structure and principlesof government contained in the Con­stitution of the United States andthose amendments which most addedto freedom and equality before thelaw in America. We may also ob­serve that Thomas Jefferson was notat the Constitutional Convention inPhiladelphia in 1787 or in Virginiaduring the struggle for ratification,but George Mason was a leading ac­tor during both events.

Robert Allen Rutland says of Ma­son's participation during the Con­stitutional Convention: "He was afaithful attendant at the sessions,speaking to the point on practicallyevery topic of importance."2 In anyevent, Jefferson and Mason indis­putably viewed each other as hon­orable, kindred spokesmen and werethe warmest of allies, pleased withand supportive ofeach other. It wasa .friendship based· on the strongestof foundations-mutual respect-andended only with the death of Masonbut a week after a farewell visit byJefferson to Mason at Gunston Hall,his beloved plantation home.3

The Declaration of Independenceprobably would have .been quitesimilar in use of concepts, language,

736 THE FREEMAN December

and line of argument even had Ma­son's Virginia Declaration of Rightsnot been available to Jefferson. Per­haps the same may be said of theBill of Rights and Amendments XIII,XIV, and XV. However, we are ableto trace a direct causal connectionbetween the Virginia Bill of Rightsand the First Ten Amendments. In­deed, a careful reading of the Vir­ginia Bill indicates that its influ­ence on the contents of the Declara­tion of Independence is much lessthan its contribution to the Bill ofRights of the Constitution of theUnited States. Also, the Bill ofRightsmay be of more practical and endur­ing value to the American system ofgovernment than the Declaration ofIndependence.

The Declaration embodies a credoof lofty principles and sentiments­but it is the Bill of Rights that is amatter of everyday law and habit bywhich Americans live. The Bill ofRights fulfills the aspirations of theDeclaration of Independence as acontinuing effective limitation on thepower of government and as a pro­moter of individual and group free­dom and opportunity. Is not thiscombination the essential nature ofthe American system of governmentand society?

Therefore, it is really of minorconcern whether it be Mason or Jef­ferson who is to be held responsiblefor the phrase "the pursuit of hap­piness" that appears in the Decla-

ration. For example, William Safirewrites in a column entitled "WhatGovernment is For," that Jeffersondeparted from Locke's phrase "life,liberty and property" because, asSafire states it: "A disciple of his,Thomas Jefferson thought that hewould give that phrase an inspira­tionallift, and our Declaration of In­dependence hails 'life, liberty andthe pursuit of happiness.' That eu­phemism started the trouble."4 Theusually well-informed Satire hasstrayed into areas dealing with his­tory and political theory where helacks expertise and has thereby il­lustrated the need for many of us tobecome more familiar with thebackground as well as the wordingof the Declaration.

The Origin of the Idea

It is not difficult to set straightwho was primarily responsible forinclusion of the words "the pursuitof happiness" in the Declaration bypointing out that they were, in ef­fect, contained in the earlier Vir­ginia Bill ofRights that was adoptedon June 12, 1776, and that even be­fore that date Philadelphia newspa­pers had reprinted its draft text (e.g.,the Pennsylvania Evening Post onJune 6, Pennsylvania Ledger on June8, and Pennsylvania Gazette on June12). Jefferson was not asked to draftthe Declaration until June 11 andprobably did not begin his task ofwriting until June 12.5

1981 GEORGE MASON: FATHER OF THE BILL OF RIGHTS 737

The first article of Mason's Vir­ginia Bill states: "That all men areby nature equally free and indepen­dent, and have certain rights, ofwhich, when they enter into a stateof society, they cannot, by any com­pact, deprive or divest their poster­ity; namely, the enjoyment of lifeand liberty, with the means of ac­quiring and possessing property, andpursuing and obtaining happinessand safety."6 By comparing the textsof the Virginia Bill ofRights and theFirst Ten Amendments-and, inci­dentally, the contributions of itsframers in 1776 to the Declarationof Rights for the State of Pennsyl­vania and ofJohn Adams to the draftof the Massachusetts Declaration ofRights for its Constitution of 1780­we see clearly recognizable relianceon George Mason's thoughts andwords.7 Most important of all, thefollowing provisions that are presentin the· First Ten Amendments arecontained in the Virginia Bill ofRights as well, at times in the verysame words:

Amendment I: Freedom of religionand of the press.

Amendment II: A well-regulated mi­litia. (Mason goes well beyond the Con­stitution, e.g., by specifying "that, in allcases, the military should be under strictsubordination to, and governed by, thecivil power.")

Amendment IV: No general war­rants, but only those specifying the par­ticular person, place, and thing and is­sued only upon probable cause.

Amendment V: No man to be de­prived of liberty or property without dueprocess of law, or compelled to be a wit­ness against himself.

Amendment VI: In all criminal pros­ecutions the right of the accused to aspeedy trial in the State and district andto be informed of the nature and cause ofthe accusation; to be confronted with thewitnesses; and to have compulsory pro­cesses in his favor.

Amendment VIII: "Excessive bailshall not be required, nor excessive finesimposed, nor cruel and unusual punish­ments inflicted." (E.g., Mason: "9. Thatexcessive bail ought not to be required,nor excessive fines imposed, nor crueland unusual punishments inflicted.")

The influence of Mason and histenets goes far beyond the Consti­tution's Bill ofRights, however. Thus,we may note the following basic pro­visions that are present in the orig­inal articles of the Constitution andare also specified in Mason's Vir­ginia Bill of Rights: separation ofthe branches of government, a re­publican form of government, andperiodic election to legislative andexecutive offices.

It is a matter of conjecture whyJefferson and his colleagues-whodid make changes in his draft-didnot include property or restore it. Infact, the word property does not ap­pear in· Jefferson's Rough Draft orthe final version, but we do not knowwhat was contained in the earlierdrafts that have been lost. Perhapsthis omission was an oversight, and

738 THE FREEMAN December

perhaps not. Perhaps consciously orsubsconsciously property was omit­ted because material things werelower in their scale of values thanthe independence, self-government,and personal freedom for which theyproclaimed "we mutually pledge toeach other our Lives, our Fortunesand our sacred Honor."

Opposing on Principle

Even the pragmatic AlexanderHamilton in A Full Vindication ofthe Measures of the Congress (1774)had written with disdain of the eco­nomic aspects of the tea tax: "Howridiculous, then, is it to affirm thatwe are quarreling for the triflingsum of three pence a pound on tea,when it is evidently the principleagainst which we contend."8 It isstill the general rule that America,although rich in material accom­plishments and· possessions, consid­ers things of the human spirit, in­cluding its pursuit of happiness, astranscendent. However,· cognizanceshould be taken here that· personalfreedom, safety, and happiness areusually inseparable from enjoymentand protection of legitimate prop­erty rights.

The role of Thomas Jefferson andhis Declaration of Independence assources of continuing inspiration isa familiar one. Less familiar but noless important for America is therole that George Mason and his Vir­ginia Bill of Rights played in fitting

into place the capstone of Americanconstitutionalism. It is not JamesMadison who is the original authorof and prime mover for the First TenAmendments to the Constitution ofthe United States: it is George Ma­son. George Mason refused to signthe Constitution at Philadelphia inSeptember of 1787 because it failedto incorporate a Bill ofRights for thepurpose of imposing limitations onthe new federal government and be­cause it failed to end slavery. Heresolutely sat on his hands.

Mason went home to brave thewrath of George Washington andmany of his· countrymen by arguingin company with Patrick Henry thatratification ofthe Constitution shouldnot take place until a Bill of Rightshad been added to limit the power ofthe federal government and to pro­tect the rights and freedom of statesand individuals. To his great credit,although Madison adhered to his po­sition .that ratification should comefirst, he came to see the merits ofMason's demand for a federal Bill ofRights and the need to forestall anew convention. Madison thereforewas to be the leader in Congress ofthose working for adoption of a na­tional Bill of Rights in fulfillment oftheir ratification campaign prom­ise.9

Until his end, Mason continued tohate slavery and to rue the failureof .the Constitution to root it outfrom the new nation. But Mason ap-

1981 GEORGE MASON: FATHER OF THE BILL OF RIGHTS 739

proved of Madison's version of hisVirginia Bill and lived to see theFirst Ten Amendm~nts go into ef­fect on December 15, 1791.10 It wouldtherefore be appropriate if, just asThomas Jefferson is rememberedevery Fourth of July· in connectionwith America's Declaration of Inde­pendence from Great Britain, GeorgeMason were to be more widely asso­ciated in the popular mind with theBill of Rights that carried Indepen­dence a step further to "secure theBlessings of Liberty to ourselves andour Posterity" purposed in the pre­amble of a somewhat incompleteConstitution. @

-FOOTNOTES-

IPaul LeicesterFord, ed., The Works ofThomasJefferson, 12 vols. (New York: G. .P. Putnam'sSons, 1904-1905), Vol. XII, p. 409.

For discussion of a significant but too-ne­glected essay of 1765 by John Morin Scott thatpresented ideas and language similar to whatlater appeared in the Declaration, see Ray­mond Polin, "Foreshadows of the Declaration ofIndependence in the New York Press," TheFreeman, Vol. 13, No.7 (July, 1963), pp. 14-20.For concise identification and explanation ofthese ideas, see Polin, "The Political TheoryWithin the Declaration ofIndependence and ItsMeaning for Us 'Ibday," The Social Studies, Vol.57, No.4 (April, 1966), pp. 147-154, includingbibliograp~y.

For the writings ofGeorge Mason, see RobertAllen Rutland, ed., The Papers of George Ma­son, 3 vols. (Chapel Hill: University of NorthCarolina Press, 1973).

2Robert Allen Rutland, George Mason, Re­luctant Statesman (Charlottesville: UniversityPress of Virginia, Dominion Books, 1963), p.85.

3Ibid., pp. 99 and 106-107; Helen Hill Miller,George Mason, Gentleman Revolutionary(Chapel Hill: University ofNorth Carolina Press,1975), passim, especially p. 333; and Kate Ma­son Rowland, The Life and Correspondence ofGeorge Mason, 1725-1792 (1892), 2 vols. (NewYork: Russell & Russell, 1964), e.g., Vol. I, pp.272-274, and Vol. II, pp. 363-365.

4New York Times, 2 March 198!.5James Munves, Thomas Jefferson and the

Declaration of Independence: The Writing andEditing of the Document that Marked the Birthof the United States of America (New York:Charles Scribner's Sons, 1978), pp. 10-14.

6In addition to The Freeman, Vol. 31, No. 7(July, 1981), pp. 410-412, the text of the Vir­ginia Bill of Rights is contained in Miller, Gen­tleman Revolutionary, pp. 337-340 (first draft,printed committee draft, and final version).

7Miller, Gentleman Revolutionary, pp. 154­155; and Robert Allen Rutland, The Birth ofthe Bill ofRights, 1776-1791, published for theInstitute of Early American History and Cul­ture (Chapel Hill: University of North CarolinaPress, 1955), pp. 44-47 and 66-74.

8Henry Cabot Lodge, ed., The Works ofAlex­ander Hamilton, 12 vols. (New York: G. .P. Put­nam's Sons, 1904), Vol. I, pp. 3-52, at p. 7.

9Miller, Gentleman Revolutionary, pp. 274­275 and 296; Rutland, Reluctant Statesman,pp. 89-107, Rutland, Birth ofthe Bill ofRights,pp.192-193; Nathan Schachner, The FoundingFathers (New York: G. .P. Putnam's Sons, 1954),pp. 51-52; and Irving Brant, The Bill ofRights:Its Origin and Meaning (New York: New Amer­ican Library, Mentor Book, 1967), pp. 42-59.

IORutland, Reluctant Statesman, pp. 106-110;Rutland, Birth of the Bill of Rights, pp. 190­210, especially p. 210; Miller, Gentleman Rev­olutionary, pp. 321-329; and Rowland, Life andCorrespondence ofMason, Vol. II, pp. 318-365.

Edmund A. Opitz

PERSPECTIVESON RELIGION

AND CAPITALISM

THE TWO MAJOR TERMS in my titleare subject to extravagant misun­derstanding and occasional abuse.Some of this is natural, due to lim­ited knowledge; much of it is willfuland ideological. It is appropriate,therefore, that I try to elucidate atthe very beginning how the term"religion" is to be used in this paper.The meanings I attach to "capital­ism" will be clarified as we proceed.

It is my understanding that reli­gion, at bottom, is not one sector ofhuman experience separate fromother portions of human experience;it is more like a common core. A col­lege or university, for academic pur­poses, may have a department of re­ligion alongside departments ofchemistry, history, mathematics, orwhatever, and this fact may mis-

The Reverend Mr. Opitz is a member of the staff ofThe Foundation for Economic Education, lecturer,writer, and Book Review Editor of The Freeman.

740

lead. In actual living, and in itsdeepest sense, your religion is notone subject among other subjects;your religion is the fundamental wayyou approach, understand, and eval­uate all subjects. It consists of yourfirst principles, the truths you re­gard as self-evident, the basic axi­oms you take for granted, andthrough which you view everythingelse. Your religion colors your out­look upon the universe, affecting theway you look upon life, your relationto other people, your treatment ofthings.

Religion is many faceted; it has itshistory, its doctrines, its exercises,its rituals, its ecclesiastical struc­tures, and so on. But the central coreof every religion is its vision of thecosmos, its understanding of the na­ture ofultimate reality. For the pur­pose of this paper I shall put asideseveral important elements of reli-

PERSPECTIVES ON RELIGION AND CAPITALISM 741

gion and use the term as equivalentto world-view, or Weltanschauung.Everyone entertains some image ofthe entire scheme of things, a men­tal picture of what the totality-inthe final analysis-is like. Some havepictured the universe as an im­mense and intricate piece of clock­work, a mechanism; others regard itas a gigantic organism, or as thegreat ocean ofbeing, or as a feature­less Absolute. Everyone operates interms of some image of the nature­of-things, for to be human is to, be ametaphysician. My own world-viewis that of Christian theism.

A Creative Intelligence

Those who entertain the reli­gious-or theistic-world-view con­duct their lives on the premise thata Creative Intelligence is workingout its' mighty purposes through na­ture, in history, and above all, bymeans of persons. The Divine Intel­ligence is creative, as witness thecontinuing emergence of novelty onthe world scene; the Divine Creativ­ity is intelligent, because whereverwe look we find a deft and ingeniousadaptation of means to ends. Thereis order, beauty, elegance, economyand balance from one end of thisuniverse to the other. Human beingsmay come to a sense of kinship withthis Creative Intelligence by align­ing themselves with the movementand configuration of its thrust.

At the same time we may become

keenly aware that vast stretches ofthis universe appear to be indiffer­ent to us. I refer to the natural or­der, the realm of nature subject tothe laws of physics, chemistry, andthe other sciences. Cause and effectoperate inexorably in nature, inde­pendent of our fears and wishes. Astone falls to earth in response tothe tug of gravity, and we have nochoice but to adjust our actions tothis and other physical laws. Natu­ral forces affect our actions, and nat­ural disasters cause human injuryand sometimes death. The naturalworld piques our curiosity, and weseek to understand it so as to copewith it more successfully. Naturewill never surrender uncondition­ally to man, but nature's stubbornotherness provides a necessary con­dition for the exercise of humanfreedom.

The nature we confront is a non­human Other, and this Other isneutral, so far as we as individualsare concerned; the rain falls on thejust and the unjust alike. But if thiswere not so-if the Other were res­ponsive to the conflicting and theconstantly changing whims of bil­lions of human beings, submissiveto our rituals and incantations-ifthe Other were not largely neutraland/or indifferent it would be cha­otic.

Actually, the Other is an order, avast and comprehensible order con­sisting in discoverable patterns and

742 THE FREEMAN December

recurrences. The neutral orderlinessof nature provides a basis for under­standing and explanation; it affordsa significant measure of predictabil­ity, allowing us to plan our lives andachieve our goals. A neutral orderprovides the necessary condition forexercise of the freedoms and powersproper to human nature. And as wecome into a working relationshipwith the Other a sense of kinshipbegins to develop.

Let me illustrate: A man con­fronts a portion of the Other in theform of a body of water; a pond or astream. He complains because thewater is cold, wet, and indifferent tohim; furthermore, the water is anobstruction, impeding him as hewades through it. But this same wa­ter, to an expert swimmer, is thenecessary vehicle for his freedom asa swimmer. The swimmer does notcomplain about the water's friction,even though it does impede hisprogress through it and slows hisspeed. For him, the· friction of thewater is the same thing as its buoy­ancy, and without the buoyancyswimming would be impossible. Theexhilaration our athlete derives froma vigorous swim begets his belief inthe friendliness of at least this littlesegment of the cosmos-which nowappears to have been constructedjust for his delight. The relation issymbiotic. There is resonance be­tween ourselves and the Other.

The realm of nature out there may

sometimes appear arbitrary, indif­ferent to human values, or even an­tagonistic. But shift perspective evenslightly and we realize that if na­ture were not neutral-that is, ifnature could be bent to the humanwill we would not be free beings. Ifnature were not largely recalcitrantand unyielding, we free beings wouldhave no incentive to cooperate intel­ligently with it, making use of itsforces to advance our purposes-si­multaneously strengthening our ownpowers and refining our skills as wedo so.

Human Capacity for Choice

It is obvious that we human beingsdo not merely react mechanically toexternal stimuli-we are capable ofa creative response to our environ­ment. B. F. Skinner and his beha­vorists declare that human beingsare capable of little more than aPavlovian reaction to a stimulus;they speak for themselves. They don'tspeak for us, for at the very core ofour being we bear the imprint of theCreative Intelligence which is backof all things. We are gifted with freewill, and it is this capacity for choicewhich makes us partakers of theprimordial creativity.

Let me offer you some words of thegreat Russian religious philosopher,Nicholas Berdyaev: "God createdman in his own image and likeness,Le., made him a creator too, callinghim to free spontaneous activity and

1981 PERSPECTIVES ON RELIGION AND CAPITALISM 743

not to formal obedience to His power.Free creativeness is the creature'sanswer to the great call of its crea­tor. Man's creative work is the ful­fillment of the Creator's secret will."

Human nature is threefold; we areimplicated in nature, we are part ofsome society, and we are touched bythe sacred. We human beings, witha portion of our being, are directlygeared into nature. Drop us from aheight and gravity operates on usjust as it does on a sack of grain. Thechemical processes going on insideour bodies differ little from the waythose chemicals interact outside ourbodies. We are largely within thesame network of causal sequenceswhich characterize nature.

We are natural beings, but that'snot all we are. We are also socialbeings, involved in history. Occur­rences in nature are explained interms of causes; actions in historyand society are explained in termsof choices. Society is our naturalhabitat. Society is a spontaneous or­der-as F. A. Hayek has taught us-·emerging out of human choices butnot resulting from conscious humandesign.

Social order-comprising both thewritten and the unwritten law, to­gether with custom, convention,habit and taste-social order mayoccasionally appear to stand athwartthe individual to frustrate his im­mediate intentions. But everyoneknows, on sober second thought, that

our very survival as individuals de­pends on social cooperation underthe division of labor; human be­ings are interdependent. Everyone,therefore, has a personal stake inthe fashioning, the strengtheningand the refining of the strutures of afree society. The free society pro­vides the optimum environment forevery productive, peaceful person.

Participants in a Divine Order

There are natural elements in ourmake-up, and everyone carries aportion of some society in his verybeing. And there is a third thing.Analyze human nature and you dis­cover elements in it which are notreducible to either nature or society,important as those facets of humannature are. We participate in an or­der of reality which is beyond na­ture and beyond society. Call thisthe sacred order or the divine order,if you wish; or call it God-the un­conditioned Creative Intelligence inwhich all contingent existence, in­cluding our own, is grounded.

The word "supernatural" has beenbattered beyond use, and in anyevent, it is completely "natural" forthe person to. bear the marks of sa­credness in his own being. This facthas important political implica­tions. In the 18th century, this cen­tral sacredness in the person-as heis conceived within the theistic world­view-was politically translated. Thesacred in persons found secular

744 THE FREEMAN December

expression as the idea of inherentindividual rights "endowed by theCreator," the rights referred to inour Declaration of Independence.

Given the idea of individual rights,in virtue of what a person genuinelyis in his true being, it is the task ofpolitical philosophy to fashion a le­gal structure designed to protect ev­ery person's private domain, securethe rights of all persons equally, andmaximize everyone's opportunity tochoose and pursue his personal goals.A uniquely religious political phi­losophy oriented toward these endswas called Whiggism in the 18thcentury, and Liberalism during muchof the 19th. Whiggism and Liberal­ism endeavored to protect each per­son in his life, his liberty and hisproperty. The free economy, or capi­talism' is the natural counterpart toWhiggism; you get capitalism in thesecond place when you have Whigg­ism in the first place. Whiggism laysthe necessary political ground workfor the set of economic arrange­ments called capitalism.

The Capitalistic Order

As 19th-century Classical Liber­alism turned into the diametricallyopposed thing called liberalism to­day, the economic order became lessand less free market as governmen­tal regulations and controls progres­sively expanded over the economy.Capitalism-ideally-means sim­ply private property, individual lib-

erty, and the voluntary exchange ofgoods and services between freelycontracting parties.

Capitalism is what happens in therealm of industry and trade whenforce and fraud are eliminated fromthat realm. It involves peacefulcompetition for the privilege of serv­ing consumers better, with a rewardin the form of profit going to anyonethe consumers believe has servedthem well. Capitalism is the onlyproductive economic order, and theonly equitable one; it submits every­one's offering of goods and servicesto the collective judgment ofhis peersand rewards him according to hiscontribution-as his peers assess it.

I firmly believe that a society offree people is impossible if economicactions are fettered and controlledby the government bureaucracy. Thefree market economy, or capitalism,is the only way free people can or­ganize their bread and butter activ­ities-business, industry and trade.This mode of economic activity­capitalism-enjoys a symbiotic re­lationship with the legal system andpolitical structures called Whiggismin the 18th century. Whiggism andcapitalism are the two sides of thesame coin; you can't have one with­out the other.

Whiggery goes back to the 17thcentury-although Lord Acton madea good point when he referred to St.Thomas Aquinas as the first Whig.The Puritan religious movement in

1981 PERSPECTIVES ON RELIGION AND CAPITALISM 745

17th-century England spawned apolitical arm of Dissenters and Non­confonnists in opposition to the courtparty, whose members were con­temptuously called Whiggamores­a Scottish term for horse thieves.Whiggery bore its best fruit on theseshores, in the Declaration of Inde­pendence, the Constitution, and TheFederalist Papers.

Whiggery in America

Whiggery gave rise to politicalstructures designed around the sov­ereign individual person, to securehis rights, protect his private do­main and afford him maximum scopeto pursue his personal goals. Theselegal and political structures-whichare the earmark of a free society­represent the secular projection of areligious vision of man and the uni­verse unique to western civilization.

The introduction of Christianityinto the Classical World oftwo thou­sand years ago had important polit­ical consequences, for this religiontaught that only a part of man issocial, a portion ofhis being is God's.That which is God's is sharplymarked off from that which is Cae­sar's. The realm which is Caesar'sbecomes a mere province in the all­encompassing Kingdom which isGod's.

There are half-gods, false gods,and tribal deities-idols all. Weworship the gods of power, wealth,fame or pleasure-or whatever else

evokes our highest priorities. Somegod you must have. Whatever thingyou value so much that you wouldsacrifice all other values to it; what­ever elicits your ultimate devotion;that which you invest your most ar­dent emotions in-this is your god.The nation state in our time usurpsa god-like role as the arbiter of men'sdestiny. It is a chiefcharacteristic ofthe 20th century that multitudes ofmen and women in the world-widemass movements of our time-secu­lar faiths like Communism, Fascismand Naziism-have consecrated first­rate loyalty and devotion to fifth­rate dictators.

Every human being is capable offirst-rate loyalty and dedication, andlogically we need to match this upwith a first-rate object, the Object ofultimate concern-the one true God.Only the Supreme Being, God, mer­its the utmost devotion and conse­cration of which human beings arecapable.

Religious Premises

If there is to be a society-in thesense of a culture-there must be ameasure of agreement as to the re­lation between God and man, and asto the nature of man and his properend. There must be some agreementas to what constitutes justice, honorand virtue. The source from which asociety derives its understanding ofthese matters is its religion. In thissense, every society is cradled in

746 THE FREEMAN December

some religion, Christian or other­wise. The culture of China is un­thinkable without Confucianism;Indian society is the expression ofHinduism; and Islam is composed offollowers of Mohammed. In likefashion, our western culture stemsfrom the Judeo-Christian tradition;we are a branch of Christendom.

Our own institutions and way oflife are intimately related to the ba­sic dogmas of the Christian religion.From this faith we derive our no­tions of the meaning of life, the moralorder, the dignity of persons, andthe rights and responsibilities of in­dividuals. Ours is a religious soci­ety, but it has its counterpart in asecular state. The Constitution for­bids an official church, an act whichpermits religion to exercise its uniqueauthority directly, unhampered byecclesiasticism.

Capitalism Under Fire

The word "capitalism" itself hasalways been controversial, havingbeen brought into use by Marxistwriters for polemical purposes. Wer­ner Sombart, a Marxist, claims tohave been the first to use the term"canitalism" systematically in hisanalyses published around the turnof the century. The term still has pe­jorative connotations, as many peo­ple use it, including those who pre­pare ecclesiastical pronouncements.

The World Council of Churcheswas launched at a meeting of

churchmen in Amsterdam in 1948.This ecumenical group appointed acommission on The Church and theDisorder of Society, chaired by oneof my former teachers, John C. Ben­nett. The report of this commissionkicked up a considerable stir be­cause it recommended that "TheChristian Churches should reject theideologies of both laissez faire capi­talism and communism ..." Whenthe press asked Dr. Bennett what hehad in mind as the middle groundbetween communism and capital­ism, he said it was British TradesUnion socialism.

Precisely what did Dr. Bennettand his commission think they wererejecting when they turned theirbacks on capitalism? Well, they toldus, by listing the four earmarks ofthe thing they dismissed. I quotefrom their report. (1) "Capitalismtends to subordinate what should bethe primary task of any economy­the meeting ofhuman needs-to theeconomic advantages of those whohave most power over its institu­tions; (2) it tends to produce seriousinequalities; (3) it has developed apractical form of materialism amongWestern nations in spite of theirChristian backgrounds, for it hasplaced the greatest emphasis uponsuccess in making money; (4) it hasalso kept the people of capitalistcountries subject to a kind of fatewhich has taken the form of suchsocial catastrophes as mass unem-

1981 PERSPECTIVES ON RELIGION AND CAPITALISM 747

ployment."Everyone who has had even a lim­

ited exposure to the economicthought of men like Mises, Hayek,Friedman or Hazlitt recognizes theflavor of schoolboy Marxism in theseallegations. If there is a form of so­cial organization which gives eco­nomic advantages to the powerful atthe expense of the rest of us, makesmoney grubbing the highest good,and periodically throws masses ofpeople out of work-then every per­son of good sense and good will wouldoppose that system.. But if you really want to disman­

tle the thing Dr. Bennett and his co­horts ignorantly label "capitalism,"there's only one way to do it, andthat is to labor on behalf of the freesociety on all three of its levels; thefree market economy, the Whig po­litical structures which sustain it,and the theistic Weltanschauung onwhich all the rest depends.

The Rule of Law

Whiggery insists on the Rule ofLaw-one law for all persons alike,because all are one in their essentialhumanness. Equality before the barof justice means maximum libertyfor all persons. In The Wealth ofNa­tions, Adam Smith speaks of his"liberal system of liberty, equalityand justice." People are free to theextent that such ideals come to pre­vail in practice, and the only eco­nomic arrangement compatible with

a free people is the market economy,or capitalism properly understood.

I should like to speak for a mo­ment about the important distinc­tion between principle and practice,or theory and history. Many good il­lustrations of this point are to befound in the history of the Churchover the past nineteen centuries,where we find several instances of awide discrepancy between GospelChristianity and the practices of theChurch in certain eras. The Churchhas occasionally sanctioned tyran­nous political rule, it has lent itssupport to persecutions, inquisitionsand crusades. It has forgotten itsprimary mission while pursuingsecular ends like wealth and power.

In the economic realm, too, prin­ciple is sometimes obscured by mal­practice. The late Wilhelm Roepkeput it this way: "We must make asharp distinction between the prin­ciple of a market economy as such... and the actual developmentwhich during the nineteenth andtwentieth centuries has led to thehistorical form of market economy.One is a philosophical category, theother an historical individuality ...a non-recurrent compound of eco­nomic, social, legal, political, moraland cultural elements ..."

The theory of free market eco­nomics is one thing; the way somepeople used or misused such eco­nomic freedom as was available tothem in 1870 or 1910 or 1960 is

748 THE FREEMAN December

something else again. A listing ofthe misuse or abuse of any specificfreedom cannot be made part of acase against that freedom, for a meremultiplication of instances does notconstitute proof one way or another.The case for freedom of the pressdoes not stand or fall, depending onany evidence you might muster thateditors are idiots and reportersknaves.

It is absolutely certain that free­dom will be misused, simply becausewe are human beings. The fact thatpeople sometimes misuse their free­dom is indeed bad, but to try to cor­rect the misuse of freedom by thedenial of freedom would be infi­nitely worse. If there were a RichterScale to measure social dislocation,the misuse of freedom would be oneor two; the denial of freedom wouldbe seven or eight-disaster.

Take this matter ofacademic free­dom-a principle nobly exemplifiedby many educational institutions.Academic freedom does not justifythe expectation that you will haveEinsteins in the physics depart­ment, Nobel prize winners in chem­istry, or a Whitehead in philosophy.Academic freedom could be justifiedon its own terms even if it could bedemonstrated that the majority ofprofessors had mail order· degrees,turned up tipsy in class, and nevercracked a book. Given these condi­tions on a campus there would begood grounds for a faculty house-

cleaning; but a catalogue of thesebad conditions does not add up to thefirst step in the argument againstthe principle of academic freedom.

Academic freedom is a soundprinciple even if many teachers areincompetent and others betray theirprofession. We defend freedom ofspeech and freedom of the press eventhough we are dismayed by the in­ferior quality of much of the spokenand written word. Freedom of wor­ship is a good thing and we stand forseparation of church and state eventhough some ofthe results are not toour liking. And by the same tokenwe believe in freedom of economicenterprise~even though consumerdemands and producer responses tothem fall short of the Good, the True,and the Beautiful. As do the effortsof some contemporary philosophers,I dare say.

Economic Freedom

Economic freedom is to be cher­ished for itself, just as we cherisheveryone of our liberties. But eco­nomic freedom is doubly importantbecause it sustains all the rest; eco­nomic freedom is the means to everyone of our other ends. Economicfreedom represents our livelihood,and whoever controls our livelihoodhas acquired critical leverage overevery other aspect of our lives aswell.

We stress private property as anabsolutely essential ingredient of a

1981 PERSPECTIVES ON RELIGION AND CAPITALISM 749

society of free people, an ancient bitof wisdom which Alexander Hamil­ton referred to twice in The Feder­alist. In the 79th Paper Hamiltonwrote: "In the general course of hu­man nature, a power over a man'ssubsistence amounts to a power overhis will." Control the economy andyou control people. So it is not sim­ply for the sake of economic freedomand the prosperity it creates that weargue that business, industry andtrade should come within the Ruleof Law and be freed from govern­mental dictates, and bureaucraticregulations.

Incidentally, the free economy doesnot go unregulated - operatingwithin the Rule ofLaw, the economyis regulated by the buying habits ofconsumers. We defend economicfreedom-voluntary exchanges ofgoods and services between freelycontracting parties-because everyone of our more important freedomsdepends critically on private prop­erty and free exchange.

It is my contention that a societyof free people has a free econ(omicorder as an essential element of it.John Maynard Keynes, in back­handed fashion, lends support to mycontention by declaring that his the­ory of economic planning adaptsnicely to a totalitarian political or­der. In a Foreword to the 1936 Ger­man translation of his General The­ory~ Keynes had this to say: "Thetheory of aggregate production,

which is the point of the followingbook, nevertheless can be much eas­ier adapted to the conditions of a to­talitarian state than ... under con­ditions of free production and a largedegree of laissez-faire."

Axioms of a Free Society

Capitalism-the free economy­appeared on the political foundationlaid down during the eighteenthcentury by Whiggism in a periodwhen the cultural climate ofthe Westwas at least vestigially Christian.The intellectual soil of Europe stillbore the marks ofcenturies of tillingby the teachings of the Church.Theism had yielded to Deism in theeighteenth century but Deism wasnot secularism, and Deism did laygreat stress on the three basic axi­oms of a free society: (1) each personis endowed with certain rights; (2)each person is gifted with free will;and (3) there is a moral law bindingon all persons alike.

The eighteenth century's faith inreason really constitutes a fourthaxiom; this was the belief that theuniverse is rationally structured, andso, by taking thought, unaided byrevelation, we could convincinglyprove that human beings possess in­herent rights, free will, and a con­science which attaches them to themoral law. These four items consti­tute the heart of the religious Wel­tanschauung. If your image of thecosmos has three ingredients-rea-

750 THE FREEMAN December

son, rights, free will and the morallaw-you have the proper religiousfoundation for the free society, ofwhich the economic expression iscapitalism.

The nineteenth century broughtabout a complete change in world­view, from Deism to Materialism.The latter finds its explicit and mostfamiliar exposition in the Dialecti­cal Materialism of Marx. The world­view of Marxism has no genuineplace for reason, free will, the morallaw, or the sacredness of persons.The same is true of every other va­riety of Materialism. Materialismsometimes goes by other labels, suchas Naturalism, or Secularism, orPositivism, or Humanism.

Whatever the name, the thing herediscussed is the theory which main­tains that reality is reducible, ulti­mately, to mechanical arrange­ments of material particles. This isthe non-theistic Weltanschauung,logically denying everything thetheistic Weltanschauung affirms: in­herent rights, reason, free will, andthe moral law. Some Materialistsmay assert one or more of these re­ligious axioms, but none of these ax­ioms can logically be grounded· in auniverse consisting ultimately ofnothing more than material parti­cles, electrical charges, or whatever.

We hear much talk these daysabout "rights," but to call somethinga "right" does not make it a right.Privileges, granted or withheld at

the discretion of the state, may becalled "rights," but this notion isworlds apart from the idea of indi­vidual sovereignty in virtue of a sa­credness in the very being of eachperson.

Free Will and Morality

Free will is incompatible withphilosophical Materialism. If man iswholly natural, and if Nature is all­there-is, and if Nature is the realmwhere cause and effect operate in­exorably, then men and women areas much caught up in causal se­quences as water, stones, gases, andeverything else. It follows that freewill is a delusion, determinism afact. "Man is unconditionally sub­ject to the natural conditions of hisenvironment," a leading thinker tellsus. Man does not act; like every­thing else in nature he is acted upon;he merely reacts.

A mechanistic universe has nomoral dimension; there is no rightand wrong per se. But people can'tavoid making moral decisions; hu­man beings are habituated to think­ing in moral terms, or perhaps thehuman mind is so constructed thatit cannot function outside the moralcategories. Those who assert thatthe universe lacks a moral dimen­sion, frequently argue that the so­cial system determines what is rightand what is wrong-which is to sub­ordinate ethics to politics.

Again, one hears it said that each

1981 PERSPECTIVES ON RELIGION AND CAPITALISM 751

person decides for himself what isright and wrong for him. The infer­ence is that the private will of eachperson is his only "authority"-therebeing no external norms or stan­dards universally binding, to whichthe will and actions of every personshould conform. Every man rolls hisown and does his own thing. Whim,impulse, instinct, inclination, are thespurs of action. "If it feels good, doit," is the contemporary folk wisdomconveyed by bumper stickers.

If the cosmos provides no clues forhuman conduct; ifjustice is of merelyhuman contrivance, representing theinterest of the powerful, then no onehas any moral obligation to do any­thing when he happens to feel likedoing something else. By the sametoken, no one has any warrant fortelling anyone else what he ought todo, or not do. This is what each per­son decides for himself, each gettinghis kicks in his own way, each doingwhatever turns him on. The old cov­enant has been. shattered, the rulebook discarded.

Having reached this point, the ar­gument is hoist with its own petard.The weak doing their thing are atthe mercy of the strong doing theirs.The unscrupulous doing their thingis why good guys finish last. Somepeople get their kicks by preventingother people from getting theirs, andthere is no rule to say them nay.Those who want to live, and let liveare put under the thumb of those

who strive for ascendancy over oth­ers because for these latter the ex­ercise of power "feels good." Youcannot tell those who hanker afterpower that tyranny is "wrong," be­cause they will tell you that wield­ing power is "their thing," whichyou have been at such pains to tellthem to pursue!

The non-theistic world view hasno real niche for the concepts of in­herent rights and free will; it hasdiscarded the norms without whichno genuine ethical decision is possi­ble; it makes reason the tool of classinterest. Materialism is the appro­priate ideology for a totalitarian so­ciety, but the Materialist who seeksto provide a rationale for the freesociety has saddled himself with animpossible task.

The Moral Foundations

Economic arguments for capital­ism fall on deaf ears unless people,on other grounds, have first em­braced a philosophy of man and so­ciety which incites them to seek theirown good while working for the well­being of the whole community, thatis to say, when they have givenproper weight to the argument forthe free society based on ethics, in­herent rights, and free will.

The ethical argument for the freesociety limits governmental powerby surrounding it with moral re­straints. There is not one law formagistrates and another for citi-

752 THE FREEMAN

zens; rulers and ruled are alike un­der the moral law. Statutes mustconform to a higher law, or divinelaw, superior to the enactments oflegislators, discovered by reason andintuition.

The argument from inherent rightsviews society's political agency ashaving the negative function of se­curing each person's private do­main, protecting his life, liberty, andproperty, in order that he might havemaximum freedom to pursue hispersonal goals.

The argument from free will isthat the free society-free economy­Whiggism-Capitalism-provides theonly social arrangements consonantwith the nature of a creature giftedwith the capacity to choose. The factthat each person is in charge of hisown life, responsible for making thecountless decisions required to bringhis life toward completion, requiressocial conditions of maximum op­portunity for choice. Human nature

Alfred North Whitehead

and the free society are complemen­tary, two sides of the same coin. Asociety humane and just needs eco­nomic arrangements to match, andthis means capitalism.

The free economy does not begetitself; the free economy appears onlyafter we have the free society. Andthe free society emerges only aftergenerations of exposure to the ideathat there is a sacredness in personswhich, in the political and economicspheres, demands liberty and justicefor all. It is a mandate of our betternature as well as a requirement ofour religion, that we work toward asociety where every person has thewidest possible scope to exercise hiscapacity as a freely choosing person,guiding his life by reason, withinthe moral law.

Is it not true-as Thomas Jeffer­son reminded us-that "The God whogave us life, gave us liberty at thesame time." ®

IDEAS ON

LIBERTY

RELIGION is the vision of something which stands beyond, behind, andwithin the passing flux of immediate things; something which is real,and yet waiting to be realized; something which is a remote possibility,and yet the greatest of present facts; something that gives meaning toall that passes, and yet eludes apprehension; something whose posses­sion is the final good, and yet which is beyond all reach; somethingwhich is the ultimate ideal and the hopeless quest.

Todd S. Hultman

,... .. ~

~.~

t~~~4l~~~f(ij"!I-~ .....

Who Bearsthe Tax Burden?

ONE of the least understood conceptsin economics concerns the effects ofthe corporate income tax. Many saythe burden of this tax falls totallyon the shoulders of the corporationssince they actually "pay" the tax.Others see this as a consumer taxsince everything the corporationearns comes ultimately from theconsumer. While both statementsmay be partially true, neither givesthe complete picture. To gain a bet­ter understanding of the effects ofsuch a tax, consider the followingexample:

The small island country of Koalaboasts a relatively free market, pri­vate property order. There are fivecorporations on the island whichgrow and sell pineapples. Assuming

Mr. Hultman assisted with the 1981 Summer Seminarprogram at FEE. He is a senior at the University ofNebraska at Omaha.

all pineapples to be similar, thesebusinesses, in conjunction with theircustomers, have settled on a price of$1.00 per pineapple. This price hasnot been determined by the costs ofthe pineapple growers, but has beendiscovered as the market-clearingpoint satisfactory to both sellers andbuyers. It is the price at which sup­ply equals demand.

Now suppose the government ofKoala imposes a $.50 per pineappletax on these corporations. Some claimthat since the tax is charged to thesebusinesses, they bear the cost. Oth­ers argue that since everything thesebusinesses earn ultimately comesfrom the consumers, the consumersbear the full burden of this tax. Whois right?

Assume the former are right andthe sellers still charge only $1.00per pineapple. Since the tax has

753

754 THE FREEMAN

driven up costs, thus reducing andpossibly eliminating their profits,some firms must close or move tomore profitable areas. This reduc­tion in the number of sellers resultsin higher prices for buyers since thesupply of pineapples has dimin­ished. Thus, consumers bear at leastsome of the cost of this tax.

Now suppose the latter argumentis correct. This means that the busi­nesses would charge $1.50 and re­main unaffected by the tax. How­ever, many buyers leave the marketat this price, deciding they wouldrather do without pineapples or growtheir own. If this weren't so, sellerslong ago would have raised theirprices to $1.50.

As buyers leave, the sellers' reve­nues fall. Sellers soon find they arebetter off bearing part of the taxburden by allowing prices to fall inorder to retain more customers. Thefact that all sellers have raised pricesdoesn't mean they have been pro­tected from the effects of the tax:some buyers still leave the market.

Liberty and Taxes

Because of this tax, the resultingprice will be somewhere between$1.00 and $1.50. Depending on thenature of the market, the buyer willbear part by paying more than $1.00and the seller will bear part by re­ceiving less than $1.50. Buyers whocan't afford the higher price andsellers who can't afford the cut inincome will be forced out of the mar­ket.

Those who view the corporate taxas either a tax on business or a taxon consumers are right in part, butfail to grasp the entire picture. Be­cause of the high degree of interde­pendence in the developed market­place, no governmental act can affectjust one group: the well-being of onedepends on the continued well-beingof all others. Thus, the corporate taxdoesn't fall exclusively on busi­nesses or consumers, but on all thosewho wish to cooperate peacefully fortheir mutual benefit. Rather thanbeing a tax on a specific group ofpeople, this disruption of peacefulexchange is a tax on cooperation. i

IDEAS ON

LlBERT'-

THE VOTERS of one period should not tax those of a later period.·Those ofthe later period are not represented in the instant taxing body, andhence today's taxation of the citizens of tomorrow distinctly violates theprinciple of taxation by representation of those who pay the taxes. Thismeans that to increase .its expenditures government should not incurdebt, because the burden of its redemption is thereby imposed on futuretaxpayers.

BRADFORD B. SMITH

A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN

Is Public EducationNecessary?

As EDMUND OPITZ has said, wherewe once had public (State-con­nected) churches and private schools,the situation is now completely re­versed. Whether the public schoolsare engaged in imposing a new faith,that of secular humanism, on an un­suspecting populace is a matter ofmuch discussion. Such an imposi­tion is surely happening in someplaces. But families and churcheswill combat it. The greater dangerin public education is that State­supported schools must fail to giveanti-Statist philosophies (in eco­nomics and political science) an evenbreak. Who, in a public school, wouldrecommend Hilaire Belloc's TheServile State as alternative readingin a course? I wouldn't hope for any­thing better than a clash of opinionabout Statism in a public school class,but I'm still waitingto see it.

Leonard Read once said that thestruggle to separate school and Stateshould be high on the libertarianagenda of the future. The recent up­surge in private schools is an indi­cation the battle is already on. Butdeclining scores on Scholastic Apti­tude Tests (SAT) have had more todo with the change than any in­crease in philosophical understand­ing. We have been waiting for a longtime for a book that would correctlyassess the totalitarian potential in auniversal "free" (i.e., tax-supported)public school system that relies oncompulsion to recruit its students.But now the book is here.

Samuel L. Blumenfeld, the authorof a previous book called How toStart Your Own Private School-andWhy You Need One, has gone backdeeply into history to write the storyof the "Prussianizing" of American

755

756 THE FREEMAN December

education in the early NineteenthCentury.

His new book has a sharp title­Is Public Education Necessary? (De­vin-Adair, P. O. Drawer A, OldGreenwich, Conn. 06870, $12.95).The big point that he makes is thatthe public school system was fas­tened upon us by a band of fanaticswho were primarily concerned withimposing their elitist power on apublic that had already achieved al­most universal literacy by patroniz­ing the private academies ofthe time.

Almost from the beginning Amer­ica had some tax-supported publicschools. The Boston Calvinists be­lieved in a back-stopping arrange­ment that would give indigent stu­dents a chance at making their publicBoston Latin School, which offeredthe classical training necessary toentering Harvard. But private aca­demies were the general rule in mostof the states in the early nineteenth­century years.

Literacy levels were higher thenthan they are now. The general sys­tem was peculiarly American. InPennsylvania, for example, the lawprovided for tuition grants to helppoor children enter the private aca­demies. But most people paid fortheir own education. This would havebecome the "American way" if ithadn't been for the Boston meddlerswho were breaking from their his­toric Calvinism to proclaim that hu­man nature was perfectible and that

it was the business of the State totrain the young mind in the ways ofperfectibility.

Harvard University became theforcing house of the new anti-origi­nal-sin doctrine when it was takenover by the Unitarians in 1805. TheUnitarians were not averse to usingthe State to combat Calvinist influ­ence. They sent their promisingyoung men to Germany to study atGottingen. It was there that GeorgeTicknor and Edward Everett be­came converts to the Prussian sys­tem of State-directed compulsoryeducation. With the help of an en­thusiastic study of Prussian and He­gelian educational philosophy byVictor Cousin, a Frenchman, Tick­nor and Everett made State-domi­nated public education a Unitarian"must."

Mr. Blumenfeld does not allegethere was any conscious impulse to­ward socialism among the HarvardUnitarians. They had not yet yieldedHarvard Power to Galbraithians. Butit seems significant to him that theOwenites-the followers of RobertOwen-should also be working toimpose compulsory State educationon Americans in the 1830s. The Ow­enites had socialist ends in view, butthey were willing to let the Unitar­ians' Horace Mann do the prelimi­nary work in accustoming theAmerican public to the idea that theState could best impose standards ofvirtue on the youthful mind by

1981 IS PUBLIC EDUCATION NECESSARY? 757

training all the teachers in so-callednormal schools. The Owenites, alongwith Josiah Holbrook of the Lyceummovement, were willing to wait forthe day when socialism itself mightbe defined as the national way ofvirtue.

Horace Mann, who combined zeal­otry with a prodigious faculty for po­litical manipulation, had his way alltoo easily with a country that hadnot had the opportunity to see howPrussianism could mutate into Bis­marckism and, at the last, into Hit­lerism. The Unitarians' belief thatthe State could be the inculcator ofan anti-Trinitarian Christian mo­rality was rudely shattered whenAmerican education, with SupremeCourt blessing, went totally secular.By then it was too late even to savethe day for voluntary prayer in theschools.

Mr. Blumenfeld's book is a blowin a good cause. It will help thegrowing private school movement.But it will take far more than a sin­gle book to separate school fromState. Public education is a tremen­dous vested interest: Mr. Blumen­feld says it represents an annualcash flow of $80 billion. There aremore than two million educators whoare committed, through their Na­tional Education Association andother organizations, to increase thevolume of the flow.

Up to the moment, local control ofpublic education in the fifty states

has prevented nationalization of thesystem in the ultimate Prussianmanner. But the existence of a cab­inet-rank federal Department of Ed­ucation could be an omen if thepresent plans to abolish it aren'tcarried through.

For myself, I don't expect to livelong enough to see the work of Hor­ace Mann undone. But I do expect tosee a dramatic increase in competi­tion between the public and the pri­vate school. And, with the publica­tion of such books as Is PublicEducation Necessary?, LeonardRead's hoped-for crusade to separateschool and State will at least getinto a strong uphill second gear. ,

EQUALITY, THE THIRD WORLD,AND ECONOMIC DELUSIONby P. T. Bauer(Harvard University Press, 79 Garden 51.,Cambridge, MA 02138),1981293 pages - $17.50 cloth

Reviewed by Roger R. Ream

PROFESSOR PETER T. BAUER of theLondon School of Economics is notan orthodox development economist.Rather than following the fashionand advocating the massive transferof resources from developed coun­tries to Third World governments,Bauer is the foremost critic of such

758 THE FREEMAN December

foreign aid. It appears that many ofhis proposals are beginning to getthe consideration they merit.

His latest volume is a collection offifteen essays on a variety of topics.Some are revised and extended ver­sions of articles which have ap­peared elsewhere. Bringing themtogether in one volume, Bauer offersa superb overview of the major is­sues in development economics.Anyone concerned with this subjectshould study the ideas presented inthis book.

Bauer begins by underminingmany of the popularly accepted jus­tifications for massive income trans­fers to less developed nations. "In anopen and free society," he writes,"political action which deliberatelyaimed to minimize, or even remove,economic differences would entailsuch extensive coercion that the so­ciety would cease to be open andfree. The successful pursuit of theunholy grail of economic equalitywould exchange the promised reduc­tion or removal of differences in in­come and wealth for much greateractual inequality of power betweenrulers and subjects. There is an un­derlying contradiction in egalitari­anism in open societies." Indeed,economic equality is a chimera.

Unfortunately, among main­stream development economists it iswidely assumed that the economicpositions of people are properly theconcern of official policy. As Bauer

comments, "Political power enablesrulers forcibly to restrict the choicesopen to their subjects. But posses­sion of wealth does not by itself con­fer such coercive power in this cru­cial sense.... In any case, wealth assuch does not imply coercive power.Indeed, those who are rich are vul­nerable to envy and to criticismsfounded on an unreasoning pre­sumption in favour of economicequality. These attitudes have attimes led to the persecution and evendestruction ofproductive or prosper­ous groups, often ethnic minorities.Possession of wealth offers no sureprotection against such dangers."

Not only have the successful his­torically been victims of this envyand egalitarianism, the intendedbeneficiaries-the poor-also suf­fer. In many Western nations, thestate provides for the necessities oflife and the unexpected occurrences.Social security for old age, socializedmedicine for ill-health, food stampsand aid to dependent children forpoor, all these are financed by taxa­tion. "As a result many people's post­tax income becomes like pocket­money which is not required for ma­jor necessities and hazards of life be­cause these are paid for by taxeslargely levied on themselves. Thispolicy treats adults as if they werechildren. Adults manage incomes;children receive pocket-money. Theredistribution of responsibilities im­plied in the operation of the welfare

1981 OTHER BOOKS 759

state means the reduction of the sta­tus of adults to that of children."

This analysis of the effects of thewelfare state within a country ap­plies to income transfers on a globalscale, known as foreign aid. There isa condescending attitude implicit inthe policies recommended by ortho­dox development economists. AsBauer describes this outlook, "Thepoor are seen as helpless victims oftheir environment, people at themercy ofexternal forces and withoutwills of their own. The implicationis that they are without the primaryhuman characteristic ofresponsibil­ity.... Poverty is thus a conditioncaused by external forces and not bypersonal conduct."

Bauer presents a convincing casefor the proposition that "economicachievement depends on people's at­tributes, attitudes, motivations,mores and political arrangements.... Moreover, policies ofmany ThirdWorld governments are plainlydamaging to economic achieve­ment." Here, a recommendation ofBauer's has recently gained a lim­ited degree of acceptance by theWorld Bank. Bauer proposes that inallocating aid, donors "should fa­vour governments which within theirhuman and financial resources tryto perform the indispensable tasksof government, but who refrain fromclose control of the economy-briefly,governments who govern rather thanplan. This would promote liberal

economic systems, minimize coer­cion, reduce political tensions andfavour material progress."

Bauer shatters the misdirectedattempts to promote Western guiltfor Third World poverty. "The Westhas not caused the relative povertyof the Third World," Bauer writes."The opposite is the case. The con­tacts established by the West haveresulted in improved living condi­tions, longer life expectation andmuch wider choice for hundreds ofmillions of people in the ThirdWorld.... Indeed, millions of peoplewho would otherwise have died sur­vived because of Western tech­niques and ideas, notably medicineand public security which came withcolonial rule."

The concept of exploitation is an­other chimera. The material progressin the developed West is not causedby depriving the Third World of itsresources. In truth, "Western con­sumption is more than paid for byWestern production. This produc­tion not only finances domestic con­sumption but also provides the cap­ital for domestic and foreign invest­ment as well as foreign aid."

The West is not totally blamelessfor the plight of Third World coun­tries. Bauer identifies several areasof fault. In particular, Western ac­tivities since the Second World Warhave done much to politicize eco­nomic life in the Third World. Thepoliticalization of economic life is

760 THE FREEMAN

one of the primary inhibiters of eco­nomic progress. "In a subtle way,aid tends to perpetuate ideas andmodes of conduct adverse to ma­terial progress." Chiefly, Bauer ob­serves, "Aid promotes the delusionthat a society can progress from in­digence to prosperity without the in­termediate stage of economic effortand achievement."

Bauer is perhaps at his best whendestroying the prevailing myths indevelopment economics. However, healso presents proposals for the re­form of official aid, "while lookingforward to its eventual terminationand doing [the] best to bring thatabout." Ideally, he would leave mostaid to voluntary charities, for theyare "usually more interested in as­sisting the poorest and most dis-

tressed than are Third World rul­ers." The West must also reduce itsbarriers against Third World ex­ports, a move which is unlikely tofind much support among protec­tionist-minded businessmen in thiscountry.

It is evident that Professor Bauerhas a genuine concern for the poorof the Third World. Unfortunately,his thoughtful analysis and boldpolicy suggestions have been largelyignored by mainstream develop­ment economists. But they are be­ginning to gain consideration. Thesad fact is that until they begin toset the tone for discussions of ThirdWorld poverty, much unnecessarysuffering will continue to be en­dured in the underdeveloped world.

@

HANDSOME BLUE LEATHERLEX

FREEMAN BINDERS

$4.00

Order from:

THE FOUNDATION FOR ECONOMIC EDUCATION, INC.

IRVINGTON-ON-HUDSON, NEW YORK 10533