theFreemanVOL. 35, NO. 10 • OCTOBER 1985

Something Better-A Page on Freedom, No. 24 Brian Summers 579

Individual free choice is the essence of the market.

Liberty and the EntrepreneurEach is vital to the other.

Perry Gresham 580

Free Enterprise: The Key to Prosperity Clarence B. Carson 584Enterprise in behalf of freedom and free men.

Human Nature and Human Action E. Barry AsmusDonald B. Billings 600

Alternatives to government management of our lives.

Routing the FabiansSigns of a return toward laissez-faire.

Kenneth McDonald 603

African Famine: The Harvest ofSocialist Agriculture David Osterfeld 607

Socialist policies have led to the tragedy of famine.

Railroad Deregulation Henry W. VanderleestKaroline Bota 610

A case study of marketing in a deregulated environment.

Catch the Little Foxes! John K. Williams 618Beware the minor flaws within us that curb our freedom.

Philanthropy and Freedom Dennis L. Peterson 627The market process encourages cooperation and service.

Book Reviews: 634"The Essence of Hayek" edited by Chiaki Nishiyama and Kurt R.

LeubeIIMarxism" by Thomas Sowell"The Essential Royster: A Vermont Royster Reader" selected by Ed­

mund Fuller

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

tffi\ the

®FreemanAMONTHLY JOURNAL OF IDEAS ON LIBERTY

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

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Contributing Editors:

Robert D. lovePaul L. PoirotBeth A. HoffmanAmy S. VanlaarRobert G. AndersonHoward Baetjer Jr.Bettina Bien GreavesCharles H. HamiltonEdmund A. Opitz (Book Reviews)Brian SummersJoan Kennedy Taylor

THE FREEMAN is published monthly by theFoundation for Economic Education, Inc., anonpolitical, nonprofit, educational champion ofprivate property, the free market, the profit andloss system, and limited government.

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A Page on Freedom Number 24

Something Better"Do you want to go downtown tonight to see a movie?"

"No thanks. There's a better movie I want to watch on TV."My friend made a choice. After weighing the pluses and minuses, he chose

movie A over movie B. He went to see the movie he preferred.This is the essence of the market economy. In a free market, entrepreneurs

offer goods, services and jobs. We, in turn, choose what we consider to bethe best offer. In the eyes of others, of course, we may be wrong. But it isour decision, and we bear the consequences.

When given a choice, people always select what they prefer. This is atruism. They go with the best anyone has to offer. That is, until somethingbetter comes along.

Something better came along for many immigrants when they entered theUnited States. Here were jobs, land, goods and services. Here was freedom.In America, workers were free to compete for jobs, and employers were freeto compete for workers' services. Merchants were free to offer their wares,and consumers were free to take their pick. People were free to seek some­thing better.

Entrepreneurs the world over continue to offer consumers more and betterproducts. Consumers, when they are free to choose, select those productswhich best suit their needs. Workers continue to move to freer economies,in search of better jobs and a better life. In the last two years alone, theU. S. economy has created 7 million new jobs, while absorbing a steadystream of immigrants.

This, then, is the choice we face. Do we continue to let entrepreneurs hereand abroad offer us goods and services, so that we may freely decide whichproducts best suit our needs? Do we continue to serve as a haven for peopleseeking a better life? Or do we close our society, shackle our economy, anduse the force ofgovernment to prevent people around the world from seekingsomething better? (fl

-Brian Summers

THE FOUNDATION FOR ECONOMIC EDUCATION, INC.IRVINGTON-ON-HUDSON, NEW YORK 10533

579

Perry Gresham

Liberty and theEntrepreneur

WHEN FIRMS are failing and peopleare out of work, there is clamor forgovernment action to reduce foreigncompetition and to subsidize falter­ing industries. An unfortunate in­clination to run to government ob­scures the real hope for solution tothese problems. What is reallyneeded is enough liberty for entre­preneurs to do their work.

Francis Amasa Walker, EconomicsProfessor at Yale and later Presidentof M.I.T., met the "iron law" theo­ries of Malthus, Ricardo and Millhead on. He demonstrated withstunning clarity that new opportu­nities do not derive from dipping intosome imagined "wage fund" or fromexploiting the workers. Walker iden­tified the entrepreneur as the sig­nificant factor in economic develop­ment-especially in times such as hisor ours.

Dr. Gresham is President Emeritus and DistinguishedProfessor, Bethany College, Bethany, West Virginia.

580

David Birch and his M.1.T. col­leagues startled America by theirstudy of nearly six million firms re­ported in Dun and Bradstreet. Theyconcluded that small companies,each with fewer than one hundredemployees, created eighty-two percent of the new jobs in the UnitedStates economy during the period1969-76. These small companies arethe realized insights, dreams andformulated plans of action on thepart of entrepreneurs.

The Complex Motives of theEntrepreneur

The entrepreneur in America canbe truly classified a rare bird. He dif­fers from the conventionally definedbusinessman in many ways. The en­trepreneur's motives are not merelyto avoid loss, turn a modest profit ifpossible, defend the organization,maintain a position, and win ap­proval for exemplary conduct. The

LIBERTY AND THE ENTREPRENEUR 581

entrepreneur is possessed above allwith drive, insight and ingenuity.

Adam Smith assumed the eco­nomic motive to be "a drive to betterone's own condition." Ludwig vonMises refined this viewpoint as "anattempt to substitute a more satis­factory state of affairs for a less sat­isfactory one." The entrepreneur,however, has more complex motives.

The will to power is a basic factorin human psychology, and many eco­nomic motives derive from this will­the entrepreneurial drive included.Possessions often bring power andposition. George Gilder, however, re­minds us that individual economicmotives need not be altogether self­ish. Henry Ford not only soughtprofit, but hoped to provide trans­portation at low cost for the peopleof America. John and George Hart­ford, who created the Great A&P TeaCompany, sought to better their con­dition, but also to supply the Amer­ican people with better food for lessmoney. The old service club slogan,"He profits most who serves thebest," is true.

Emulation, nevertheless, is aprime factor for each entrepreneu­rial venture. When other people aremaking substantial profits, the en­trepreneur wishes to do the samething.

Risk Factors

The speculative aspect of entrepre­neurship has been emphasized by

Ludwig von Mises in his great book,Human Action. Israel Kirzner, in histimely book Competition and Entre­preneurship, acknowledges the spec­ulative character of business inno­vation, but points out that the wiseentrepreneur is alert to the fact that"opportunity for profit does exist."He goes on to say, "All human actionis speculative; my emphasis on theelement of alertness and action hasbeen intended to point out that, farfrom being numbed by the inescap­able uncertainty of our world, menact upon their judgments of what op­portunities have been left unex­ploited by others."

One of the neglected philosophicalaspects of economics has been the ac­knowledgment and understanding ofthe principle which the philosopher,Charles Sanders Peirce, called Tych­ism. The very smallest particles ofthe universe exhibit a random per­formance which can be actuarily de­scribed for purposes of rough predic­tion, but cannot be assumed toexhibit the kind of absolute causa­tion that made many of the laws ofscience and, to a lesser extent, thesocial sciences seem capable of flaw­less prediction. The economic deter­minism of Karl Marx must go theway of all absolute determinism. Theword "Tychism" derives from Tyche,the goddess of chance. The Latinname for this fair mythologicalmaiden is "Fortuna." She is, indeed,the goddess of the entrepreneur.

582 THE FREEMAN October

Some people have native capacityto take risks. As Gilder points out inhis The Spirit of Enterprise,"whether sorting potatoes or writingsoftware, they are movers and shak­ers, doers and givers, brimming withvisions of creation and opportunity.They are optimists who see in everypatch of sand a potential garden, inevery man a potential worker, inev~ry problem a possible profit."These are people who take thepIunge to create new enterprises,build new businesses, revitalize oldones. They struggle, flounder, workday and night, sometimes succeedand often fail; but they are resilientand they keep coming on.

The Compleat Entrepreneur

I shall not attempt to describe thecompleat entrepreneur as IzaakWalton made glamorous "the com­pleat angler." I shall, however, out­line a few characteristics of the nu­merous entrepreneurs who arebuilding America out of the ruin ofsome of our traditional beleagueredand subsidized industries.

Kirzner correctly identifies alert­ness to new opportunity as the prin­cipal factor in entrepreneurship. Theperson who fails to see an opportu­nity is disqualified. A wise old Af­rican observed, "Anybody can see aseed in an apple; the wise person cansee an apple in a seed."

Only optimists transform the econ­0my. The optimism must be disci-

plined, and cannot give way togloom. The turn of mind which set­tles for Murphy's Law is doomed. Tobuild upon my earlier figure ofspeech, the pessimist is a person whocan see a bellyache in an appleblossom!

Boundless energy is a great aid toan entepreneur. Very few people suc­ceed in life without sizable reser­voirs of energy. The pioneer whostarts a new business may very wellwind up working at it all hours ofthenight. Entrepreneurs make moneythe old-fashioned way: "they earnit!" Lack of fiscal discipline encour­aged by government and somewhatby huge corporations is the enemy ofbusiness innovation and successfuldevelopment. The young Turks whohave learned their habits from bu­reaucracies, whether public or pri­vate, may argue the maxim, "You'vegot to spend money to make money."My experience is that most who urgethis action are more adept at thespending than the making. The en­trepreneur who starts in his base­ment then mortgages his house andworks on a shoestring is much morelikely to succeed than is the personwho takes out a huge loan and at­tempts to live up to his presumedstatus as a businessman.

The entrepreneur, moreover, mustbe able to face failure and be re­sourceful enough to learn from it.Some of the most successful compa­nies in America are the result of

1985 LIBERTY AND THE ENTREPRENEUR 583

early entrepreneurial failures. Theimaginative and creative businessperson learns by failure, as well asby success.

A talented entrepreneur musthave a better-than-average sense oftiming. When Shakespeare wrote"There is a tide in the affairs of men,which taken at its crest, leads on tofortune," he provided the maxim forthe modern American entrepreneur.My friend Richard Cramer exempli­fies the possible accomplishment ofa genius entrepreneur who acts atthe right time and in the right place.I quote a paragraph from his letter:

I left IVAC Corporation in May 1972 andfounded IMED Corporation in Septemberof 1972. I brought with me from IVAC,etc. engineers and marketing people whohad been with me all the way back to mystart in 1962. IMED proceeded to con­tinue to develop products in the IV con­trol area and developed the first trulyvolumetric IV pump, which allowed, inturn, the development and use of a widerange of IV solutions, and the expandeduse of IV therapy in patient care. IMEDgrew very rapidly and very profitably byconcentrating on these nurse related in­struments, that positively affected thestabilization and recovery of patients. In1982, I sold IMED to Warner Lambertcompany for $465 million cash. This, in­cidentally, was the largest sale of a pri­vate industrial corporation in UnitedStates history.

The cybernetic revolution is ofcon­siderable benefit to the aspiring en­trepreneur. The ease with which rel-

atively inexpensive computers canaid in the prediction of outcomes isof great importance to the daring in­novator. Ford and Carnegie had todo it the hard way.

The Social Economic Climate

Our present business climate hasnegative aspects for entrepreneur­ing. The inevitable competition maybe fierce; business and union monop­olies have erected formidable bar­riers to progress, but the brave andthe daring succeed!

The greatest enemy of the entre­preneur is government intervention.The do-good motives which promptpoliticians to pass laws and erectbureaucracies not only restrain thepioneer, but mobilize formidable ob­stacles in the form of unnecessaryregulation and discriminatory tax­ation. The daring, innovating entre­preneur is well-equipped for thestruggle, but the government holdsa frightening advantage: it has amonopoly on violent force!

Noone, however, can thwart theinsight, initiative, imagination,drive and determination ofa true en­trepreneur. While economists are de­scribing the impossibility of theproject, and the government is reg­ulating against the success of the en­terprise, and the unions and associ­ations are mobilized to thwartprogress, the truly intrepid are win­ning fortunes and providing employ­ment for unnumbered multitudes. @J

Clarence B. Carson

FREE ENTERPRISE:The Key toProsperity

FREE ENTERPRISE is widely ac­claimed in the United States. Poli­ticians, generally, declare in favor ofit; editorialists frequently laud it;Chambers of Commerce have writ­ing contests about it; even automo­bile stickers praise its virtues. Yetmuch of our enterprise is restrained,restricted, hampered, regulated,controlled, or prohibited. As an oldsaw has it, "What you do speaks soloud I can't hear what you are say­ing." By our practice, we say that webelieve in free enterprise-except . ..Except for public utilities. Except forthe railroads. Except for mail deliv­ery. Except for medical services. Ex-

Dr. Carson is an experienced observer and analyst ofpolitical and economic affairs. He is a specialist inAmerican history with his Ph.D. degree from Van­derbilt University. He is the author of several books,and is currently at work on a five-volume text, A BasicHistory of the United States.

584

cept for housing, financing, and realestate transactions. Except for largecorporations. Except for education.Except for interest rates. Except forfarmers. Except for small business.Except for industrial workers. Inshort, a case could be made thatAmericans believe in free enterpriseexcept in whatever activities theyhappen to be considering.

It may be helpful, then, to considerfree enterprise in terms of itself, mi­nus all the partisan exceptions. Theapproach here will be to pose fivequestions: What is free enterprise?What are the objections to free en­terprise? How may the objections beanswered? What are the practicaladvantages offree enterprise? Is freeenterprise necessary to freedom? Theanswers to these should providesome perspective on free enterprise.

FREE ENTERPRISE: THE KEY TO PROSPERITY 585

What is Free Enterprise?Free enterprise is a way of going

about meeting our needs and wantsby providing for ourselves or byfreely enteringintotransactionswithothers. The opposite of free enter­prise is hampered, restricted, con­trolled, or prohibited enterprise. Theenterprise itself must be conductedin an orderly fashion within theframework of rules, but if the rulesinhibit entry or hamper activity theybecome restrictions on enterprise. Itis clear enough, for example, thattraffic at an intersection must beregulated in its flow hut that rea­sonable rules promote rather thaninhibit the effective use ofthe street.On the other hand, if a city made arule that taxicabs were to be limitedto those presently in operation itwould be equally clear that enter­prise was being hampered. In a sim­ilar fashion, if a city adopted a ruleforbidding any taxi to use the streetswithin its boundaries, that type ofenterprise would be prohibited.Thus, government may be an ad­junct or an obstacle to enterprise.

Free enterprise does not exist in avacuum; it must be institutionallysupported and protected. One ofthese institutions is government.Government is necessary to prohibitand punish the private violation ofthe rights of those who peacefullyuse their energies and resources ina productive way. Government isnecessary also to punish fraud and

deception, to settle disputes whichmay arise, and to regulate the useof public facilities such as highways.Another basic institution for free en­terprise is private property. For en­terprise to be free, those who engagein it must be free; that entails hav­ing property in themselves and whatthey produce. Enterprisers musthave title to their goods in ordereither to consume them or trade withothers. Real property in land andbuildings is essential to have a placeto produce and to market goods andservices. Private property not onlysupplies opportunities for the indi­vidual to provide for himself but italso places inherent limits on his ac­tivity. He can only rightfully sell andconvey to another what is his in thefirst place. Private property also setsbounds to enterprise by restrictingthe owner to the use of what is hisown or to that which the rightfulowner authorizes others to use.

A third ingredient of free enter­prise is free access to the market. Amarket is any arena within whichbuyers and sellers meet to effecttheir transactions. Under free enter­prise neither buyer nor seller is pre­vented from making transactions bygovernment decree or privatethreats or use of force.

The motor of free enterprise, in­deed, of all enterprise, is individualinitiative. Individuals provide theenergy for the making of goods andproviding of services. They conceive,

586 THE FREEMAN October

invent, design, engineer, produce,and market goods through their en­deavor. The great spur to produce isthe increase of one's goods or theprofit he may make by selling them.Here again, the importance of pri­vate property and free access to themarket may be seen. If men cannotkeep as property what they produce,if they cannot market it, their in­centive to produce is lessened orremoved.

The great regulator of free enter­prise is competition. Competitionamong sellers keeps prices down andtends to assure that the customerwill be served. Competition amongbuyers provides a market in whichthose goods that are wanted can besold at a profit. Prices are the resultof this competition. Although anyowner may offer his wares at a priceacceptable to him, he can only sellwhen he has found a buyer willingto pay his price.

What Are the Objections to FreeEnterprise?

There is no doing without humanenterprise, for without it we wouldall be impoverished and our survivalin doubt. The main question we havein regard to it is whether it shall befree or hampered. Reformist andrevolutionary intellectuals havelaunched a massive assault over thepast century against the market,private property, the profit motive,and other facets of free enterprise.

The thrust of their efforts has beento discover fatal flaws in the system,which they usually describe as cap­italist, and to propose that govern­ment either supervise or take overthe operation of the economy. Theycan be classified in one of two broadcategories: meliorism or socialism.

Meliorism is the view that what iswrong with free enterprise can becorrected by government interven­tion. It holds that government cancontrol, restrict, limit, regulate, tax,and redistribute so as to better thelot of the people and avoid the worstdifficulties which they believe areinherent in free enterprise. Melior­ists are hardly enthusiastic aboutprivate property and individual en­terprise, but they do not usually at­tack them head on.

Socialists do directly attack prop­erty, private enterprise, the profitsystem, and what they call capital­ism. They propose to abolish themwith governmental (or collective orpublic) ownership of the means ofproduction of goods. Socialism di­vides roughly into two camps: dem­ocratic socialism and communism.Democratic socialists are distin­guished by a gradual approach to so­cialism because they are tied to pop­ular elections and must move as theelectorate will. Communists are rev­olutionaries who move toward so­cialism swiftly and by drastic mea­sures once they come to power. Theyare characterized by one-party rule,

1985 FREE ENTERPRISE: THE KEY TO PROSPERITY 587

and by totalitarian control over thelives of the people.

While socialists and melioristshave a barrage of objections to freeenterprise, the following points arecentral to their argument.

One of their arguments which hasbroad appeal is that free enterpriseproduces cutthroat competition, oftendescribed as dog eat dog, or ruggedindividualism. The charge is thatsome people compete so vigorouslythat they drive competitors out ofbusiness or buy them out. While thisis made to sound as if it were a spe­cial variety of competition, it isreally a plea for government inter­vention to limit and restraincompetition.

Competition as War

A related objection to free enter­prise is that competition amounts toindustrial warfare, that it pits menagainst one another in the quest formaterial possessions. Those who ad­vance this notion say that free en­terprise depends upon and calls forththe baser human motives, that it ismaterialistic, that it makes selfish­ness into a virtue, and that it fosterscompetition rather than leading mento cooperate with one another. Thisconception of competition war hasserved over the years as the majorpropellant of government interven­tion by way of antitrust legislation,fair trade laws, and other regulatorymeasures.

An -objection heard frequently isthat the consumer is taken advan­tage of and deceived by advertisingand a great variety of marginallydifferent products and services. Ac­cording to John Kenneth Galbraithin The Affluent Society, all kinds offrills are produced which people donot really need but are induced tobuy by advertising. Ralph Nader hasmade a career out of protecting cus­tomers from themselves. The thrustof the consumer protection move­ment has been to try to replace theancient rule of letting the buyer be­ware with government prescriptionsabout how goods may be sold.

Although those who raise objec­tions to free enterprise are often am­biguous about the merits of free en­terprise, one of their objections isthat under this system there is im­perfect competition. This is thecharge that businesses do not com­pete with one another with suffi­cient vigor. Instead, they say, com­panies engaged in the same businessconspire with one another to raiseprices. Or, as a result of competition,one company drives all others outand proceeds to charge what thetraffic will bear.

In the middle of the nineteenthcentury Karl Marx claimed that inindustrial capitalist countries therewas a trend toward monopoly wherea single company would dominate awhole industry. Indeed, he held thatlarge companies would grow larger

588 THE FREEMAN October

until they had a whole industry un­der their sway. This argument cropsup again and again in many differ­ent guises. The term "oligopoly" wasdevised to describe the situationwhen several giants control an in­dustry. The thrust of these argu­ments in the United States has beento press for breaking up large con­centrations of industry.

Some objectors to free enterprisehold that one of its least desirabletraits is that it results in unequaldistribution of goods and services.The most commonly repeated phraseis that the rich get richer and thepoor get poorer. Many lack the ..barenecessities, while others have morethan anyone could consume or use.Those who make these chargesagainst free enterprise may not be­lieve that goods should be exactlyequally distributed, but they do ar­gue that everyone should haveenough, at the least, to meet theirbasic needs.

Probably, the most devastatingcharge against the free enterprisesystem is that it is responsible for thebusiness cycle. Business activity doesapparently go in cycles, with periodsof prosperity alternating with reces­sions and depressions. The mostcommon claim of reformists is thatbusinessmen claim too large a shareof the proceeds from their products,that there is a resulting decline inconsumer demand, leading to reces­sion or depression. The way to pre-

vent this, they say, is for govern­ment to soak up the excess in taxesand distribute the wealth more orless directly to those who will spendit for consumer goods.

How May Objections to FreeEnterprise be Answered?

Many of the objections to free en­terprise arise either from misinfor­mation about economics or the hopethat somehow the requirements ofeconomy can be evaded-itself a mis­conception regarding economics. Oneof the best ways to answer them,then, is to call up some of the basicprinciples of economics.

Economics has to do with scarcity.The character of economics is indi­cated by the conventional uses ofwords related to it. For example,one dictionary defines "economical"as "avoiding waste or extrava­gance; thrifty." It "implies prudentplanning in the disposition of re­sources so as to avoid unnecessarywaste...." "Economy" refers to"thrifty management; frugality inthe expenditure or consumption ofmoney, materials, etc." Economicscan be defined as the study of themost effective means for persons tomaintain and increase the supply ofgoods and services at their disposal.Goods and services are understood tobe scarce, and economics has to dowith the frugal management of time,energy, resources, and materials soas to bring about the greatest in-

1985 FREE ENTERPRISE: THE KEY TO PROSPERITY 589

crease in the supply of goods and ser­vices most desired.

There is every reason to believethat man is naturally inclined to useas little energy and materials to pro­duce as many goods as he can fromthem. In short, he is predisposed tobe economical. If this were not thecase, it is easy to believe that hewould long since have perished fromthe face of the earth. But this eco­nomic penchant gives rise to a prob­lem rather than resolving all prob­lems. There are two ways for anindividual to augment the supply ofgoods and services at his disposal.(1) He can provide them for himself.(2) He can acquire them from others.Again, there are two ways for an in­dividual to acquire them from oth­ers. (1) He can acquire them by ex­change (in which we may wellinclude free gifts). Or (2) he can takethem from someone who possessesthem.

It is this latter option that raiseshob in determining what is eco­nomic. Strictly speaking, robberycould be quite economical for an in­dividual. By stealing, an individualcan greatly increase the supply ofgoods and services available to himwith only a very little expenditureof energy and materials. A bank rob­ber may, for example, spend half anhour using a twenty-dollar gun andenrich himself, say, to the extent of$20,000.

That might indeed be economical

for an individual, but it is not so forsociety at large. Economics has to dowith the increase of the supply ofgoods in general, not just the indi­vidual's gain. The bank robber aug­ments his personal supply at the ex­pense of those from whom he hasstolen. Moreover, he may reduce thegeneral supply further by the threathe poses to trade and the loss of in­centive men have to produce whenthey are uncertain that they will beable to keep the rewards of their ef­forts. For these reasons, theft shouldnot be considered economical.

Even so, the example of the bankrobber is not frivolous. All redistri­bution schemes are proposals to useforce to take from those who haveand give to those who have not. Ifgovernments do such things, it isstill theft, albeit legal theft. And itseffect on the general supply wouldreasonably be the same as any otherkind of theft.

The Problem of Scarcity

The economic question, then, isunder what system is the supply ofgoods most apt to be replenished andincreased? Is it one in which there isfree access to the market, in whichmen receive the fruits of their laborfor their own use or disposal, inwhich individual initiative is fullybrought into play, and in which sell­ers and buyers are in competition?Or is it one in which access is con­trolled, in which property is con-

590 THE FREEMAN October

trolled by government or held incommon, in which individual initi­ative is discouraged, and in whichcompetition is restrained? If we un­derstand that the basic problem isscarcity, these are the questionsabout enterprise that need to be an­swered. The problem is really one ofproduction, and with that in mindthe objections to free enterprise dis­cussed earlier can now be answered.

The attack on competition, be­cause of the rigors involved in it andbecause there are losers, is really anattack on effective production. Suchattacks gain widespread supportquite often because of the desire toavoid the requirements of competi­tion. Anyone can see the advantageof competition when it is among oth­ers. After all, competition bringsdown prices, increases the varietyand quality of goods, and increasesdemand as well as supply. But com­petition is not nearly so attractivewhen we have to engage in it, es­pecially once we have made ourmark in production. It is not onlynecessary to get there by competi­tion but also to stay there by chang­ing and improving products, offeringsuperior service, and the like. Theargument against cutthroat compe­tition is really not an argumentagainst free enterprise but an ar­gument against having to competeby those who have jobs, have arrivedat a position, and want to retain itwithout further competition. When

government restricts entry to anyfield, it is the "have- nots" who aremost apt to be kept out. The mainopportunity for men to improve theircondition is by way of free access tothe market. Free enterprise offersready entry to all comers and pro­vides what assurance there can befor continued replenishing of goods.

Cooperation and Competition

Competition is not a kind of war­fare. To the extent that it pits menagainst one another it does so bystimulating them to excel. Wheneach man is doing his best all maybenefit: those who participate byproducing and excelling, the rest ofsociety by what is produced. Thereare no necessary victims in compe­tition. Of course, not everyone canexcel or even compete at the samelevel. But any man is a winner whodiscovers that way and level atwhich he can effectively produce andserve. Most people cannot run thefour-minute mile. That does notmean that we put weights on thefaster racers in order to enable theslower runners to keep up. People dowell to compete at their own levelsof ability.

Competition does not prevent oreven downgrade cooperation, either.Under free enterprise people mustand do cooperate in many ways toprovide us with the amenities of life.Industrial production today requirescooperation of a very high degree.

1985 FREE ENTERPRISE: THE KEY TO PROSPERITY 591

The assembly line is the epitome oforganized cooperation. The makingand selling of automobiles, for ex­ample, requires the cooperation ofallsorts of entrepreneurs, financiers,service providers, manufacturers,assembly line workers, transporta­tion workers, designers, engineers,and mechanics.

On a less grandiose scale, we usu­ally take for granted that anyone ofa hundred items will be availablewhen we want it. I may decide, forexample, that I need a new box ofpencils. I go to the nearest storewhich carries sundries and discoverthat the store not only has pencilsbut a considerable variety of them aswell. How did this happen? Did thestore know that I was about out ofpencils and that they should stocksome in case I should come by? Notat all, yet a lot of foresight had goneinto providing them for my conven­ience. Not only had companiesbrought together in factories thosewho could make pencils but also theneed had been predicted, the capitalset aside for producing them, sup­plies ordered, raw material pre­pared, and the pencils produced andplaced by wholesalers with my localstore. True, businesses in direct com­petition with one another may not doa great deal of cooperating with oneanother, but that may be largely be­cause of the antitrust laws.

The extensive nature of competi­tion is not generally well under-

stood, and certainly not by most whowrite about imperfect competition.Most critics talk of competition as ifit involved only direct competitionamong the suppliers of a particularkind of product. That kind of com­petition is only the tip of the icebergof competition. For example, if Gen­eral Motors were the only maker ofautomobiles in the United States,there would still be competition. TheChevrolet division would still becompeting with Pontiac, Pontiacwith Buick, Buick with Oldsmobile,these with Cadillac, and all of themwith foreign imports.

Varieties of Competition

But competition is much broaderand more varied than the above ex­ample would suggest. New cars arein competition with used ones. Au­tomobiles, as a means of transpor­tation, are in competition withbusses, airlines, trains, motorcycles,trucks, bicycles, horses, and walk­ing. Further, human wants are ex­tensive, and the means for satisfyingthem are numerous and diverse. In­stead ofbuying a car, or a second one,a given consumer may choose to adda room on his house, buy a boat,equip his family room with anamusement center, put his money insavings, or what not-all because hejudged the car he might have boughttoo expensive. That kind of choicecrops up in whatever direction welook.

592 THE FREEMAN October

The number of foods which willsustain life, either singly or in com­bination with others, could hardly becounted. There are many fibers, nat­ural and artificial, from which tomake clothes, all sorts of buildingmaterials, a considerable number offuels, to give a few examples. If theprice of anyone of these is raised sig­nificantly, or the quality declines, al­ternative means are likely to befound to gratify the want. If orangesbecome more expensive, apples maybe substituted. Competition may notbe as broad as the range of commod­ities on the market, but we comenearer to the truth when we view itthat way than when we attempt toconfine it to the makers of a singlecommodity.

Access to the Market

Imperfect competition, rightlyunderstood, is a condition which ex­ists when access to the market ishampered by legal restrictions or theuse or threat of force. Otherwise, theextent of competition may be pre­sumed to be adequate in the market,else new companies could be ex­pected to enter the field. Whethercompetition is adequate or not can­not be determined by counting thenumber of companies engaged inmaking a commodity, by comparingthe shares of the market which com­panies have, by calculating theircosts and comparing them with re­tail prices, or any other such empir-

ical device. The effectiveness of com­petition can only be measured to theextent that consumer satisfactionwith the goods offered him in themarket can be measured. Whenthere is free access to the market,anyone who believes that there issome unmet want is free to enter themarket and supply it. It happens allthe time.

The critics are right when they saythat under free enterprise goods arenot equally distributed among thepopulace. Where there is privateproperty, not everyone has the sameamount of property. If such equalitycould exist, it would depend upondistributing everything equally andthen stopping all transactions orchange at that point. It would haveto mean, also, the stopping of allbirths and deaths, for as soon as animbalance between births anddeaths occurred, a new inequalitywould either exist or an entire re­distribution have to take place. Butbefore such a new distribution couldbe completed the situation would nodoubt have changed again and theeffort to establish equality havefailed.

This is by way of saying thatequality in the distribution of goodscannot be. In no extensive societyhas there ever been equality of pos­sessions; everywhere and alwaysthere has been disparity. The pres­ent writer does not know of a singlefamily, which is surely the smallest

1985 FREE ENTERPRISE: THE KEY TO PROSPERITY 593

social unit, in which each has ex­actly the same amount of posses­sions as every other, nor can he read­ily visualize how it could happen.Give two small children each a toy.One will have his torn up within thehour, while the other may keep hisin good repair for months or years.It is so for adults as well; some man­age well, work hard, take care ofwhat they have received, othershardly at all. The basic question foran economy and society is not one ofthe disparity ofwealth but of the jus­tice of the arrangement under whichit is acquired and maintained.

Market Success

What is a just distribution of goodsand services? Given the differencesin talent, tenacity, prudence, andwillingness to work, it is surely notjustice to distribute goods on the ba··sis of equality, or even need. Underthe free enterprise system men areunderstood to have got what they de­served when they get as propertywhat they have produced and get inexchange for it what the highest bid­der in the market is willing to pay.Does that mean that the case of thehave-nots is hopeless under free en­terprise? Not at all, for free enter­prise offers them the best opportu­nity there is for improving theircondition. When there are no obsta­cles in the way of entering any en­deavor, men can and do change fromhave-nots to haves. There are many

historical examples ofmen who havestarted with nothing and even at­tained great wealth. There are manymore examples of those who havestarted with little and attained acompetence.

There is much evidence to showthat it is government activity, notfree enterprise, which is responsiblefor the so-called business cycle. Thecyclical change from prosperity todepression-recession to prosperitycan be precisely corollated with in­creases and decreases in the supplyof money. Dramatic increases in themoney supply result in expansivebusiness activity and tend to createa boom atmosphere. When the sup­ply of money is decreased or stabi­lized, activity slows, and recessionsfollow. If there is a severe deflation,such as the one that followed thestock market crash in 1929, a deepdepression can be the result. In pre­cise terms, the cycles result fromcredit expansions and contractions.The villain of the piece is govern­ment manipulation of the moneysupply by way of the Federal Re­serve system. The cure lies not ingovernment intervention to hamperenterprise, but in a sound moneythat cannot be manipulated.

What Are the PracticalAdvantages of Free Enterprise?

It is not necessary to rely on theoryalone to determine the superiority offree enterprise over other methods

594 THE FREEMAN October

in providing for people's needs.There is historical evidence thatwhen enterprise is freed from the re­strictive hand of government andwhen property is rigorously pro­tected, production increases alongwith general economic well-being. Itneeds to be understood, however,that much of economic history is arecord of government interventionsand restraints and that there are al­ways some. Consequently, restric­tion is usually a matter ofdegree, notof absolutes. Nonetheless, there havebeen periods in the life of nationswhen enterprise has been freed frommany of the restraints, and theseprovide favorable evidence for freeenterprise.

England in the 19th century is astriking example of what can hap­pen when enterprise is freed. In theearly 1700s there were still numer­ous restrictions and special privi­leges hampering enterprise in thatland. Beginning in 1689, however,the British made almost continuousprogress in the direction of freer en­terprise. By the 1820s, enterprisewas substantially free in Great Brit­ain, though the movement for freetrade is usually thought of as cul­minating with the repeal ofthe CornLaws in 1846. It is worth noting, too,that this freeing of enterprise wasaccompanied by the general estab­lishment of widespread liberty, thelimiting of the monarch, the tolera­tion in religion, and protections of

speech and of the press. These thingsgo hand in hand.

The economic results were not longin coming. It has been estimated thatEngland's industrial output in­creased tenfold between 1820 and1913. Coal production was approxi­mately 10 million tons in 1800, 44million tons in 1850, and 154 milliontons in 1880. Iron production wasabout 17,000 tons in 1740. By 1840it had reached 1,390,000 tons, and afew years later had nearly tripledfrom that. Population increase didnot quite keep up with industrialproduction, but there was unprece­dented population growth as well. Bythe end of the 19th century, English­men were generally better off ma­terially than ever before in history.

When Enterprise is Freed

To show Britain's place of leader­ship in the world, however, it is nec­essary to compare British economicachievement with that of other lead­ing countries. Great Britain's per­centage of manufacturing produc­tion in the world was 31.8 in 1870.By comparison, that of the UnitedStates was 23.3, that of Germany13.2, and that of France 10.3 amongthe leading countries. In 1860, Brit­ain had 23 per cent of the worldtrade, compared with 11 per cent forFrance and 9 per cent for the UnitedStates. In 1880, Britain had morethan 6% million tons of shipping,compared to less than 1% million for

1985 FREE ENTERPRISE: THE KEY TO PROSPERITY 595

the United States, the nearestcompetitor.

The 19th century was in manyways a kind of Golden Age. Therewas a quickening of activity in manynations, and England was surely thecenter from which so many improve­ments radiated outward to the restof the world. The symbol of En­gland's greatness was the RoyalNavy, but the wonders were muchmore the achievements of the mer­chant marine. The ships that pliedthe seas from their home base in thetight little isle carried not only theabounding goods of a productive na­tion but also statesmen, ideas, andmen confident in the superiority oftheir institutions eager to teach oth··ers in the arts of peace. The differ­ence between England and manyother lands was the stability of herinstitutions and the freedom of herenterprise.

In many ways, the emergence ofthe United States in the early 20thcentury as the leading manufactur­ing and agricultural producer waseven more reasonable than the 19th­century achievement of Britain. Af­ter all, Britain had had several cen­turies offairly steady advance on theworld stage before the 19th century.What became the United States, bycontrast, had been a colony until thelate 18th century and had onlyemerged as a nation to be respectedby European nations in the course ofthe 19th century. Yet in less than a

century of independence, the UnitedStates was thrusting toward lead­ership among the producing peoplesin the world. The country had beencriss-crossed with railroads; the wil­derness had been tamed, and thegreat Mississippi basin had becomeone of the most productive areas inthe world. The political institutionsof the United States had been de­signed from the outset to restrainand limit government. The energiesof men were largely released inpeaceful pursuits, and the peopleachieved wonders ofbuilding, inven­tion, and development of manufac­turing, transportation, and farming.

The Destruction of Enterprise

Examples of the repressive effectof government on enterprise areeven more plentiful, but it will bepossible here to give only one ex­ample. Appropriately, the examplechosen will be Britain, since the fo­cus has been upon that land in thefreeing of enterprise. In the earlyyears ofthe 20th century, the Britishgovernment beganto clamp down onenterprise, in what one historian hascalled The Strange Death of LiberalEngland. The impact of this on theBritish was being felt as a generaldecline by the 1930s, but the assaulton enterprise did not reach its peakuntil after World War II.In 1945, a Labour Party came to

power in England committed to en­acting the socialist programs it had

596 THE FREEMAN October

long been advancing. The party didso with great haste, and in short or­der the Labourites completed thewreck of what remained of a oncevigorous and healthy economy. Theeconomy had suffered greatly fromthe interventions of the interwaryears. It was hampered even moredrastically by wartime restrictions.But the measures of the Labour gov­ernment came close to banishing pri­vate economy from the land.

The wreckage was wrought by na­tionalization, controls, regulations,high taxes, and compulsory provi­sion of services. There was a con­certed effort to plan for and controlvirtually all economic activity in theland. The initiative for action wastaken from the people and vested ina bureaucracy. Where industrieswere taken over, they were placedunder the authority of boards whichwere in no position to act responsibly.

Equal Distinctionand Having Less

English socialists had long beencommitted to as near equal distri­bution of goods and services as theycould. Therefore, the Labour govern­ment undertook redistribution witha right good will. They levied steeplygraduated income taxes, taxed "lux­ury" goods at high rates, controlledprices of food, clothing, and shelter,and rationed many items that werein particularly short supply. Theyprovided free medical services,

gave pensions, and otherwise aidedthose with little or no earned in­comes. They distributed and theydistributed.

The more they distributed, the lessthey had to distribute. Not only didsuch shortages as they had knownduring war continue, but otherscropped up as well. One writer says,"By 1948, rations had fallen well be­low the wartime average. In oneweek, the average man's allowancewas thirteen ounces ofmeat, one anda half ounces of cheese, six ounces ofbutter and margarine, one ounce ofcooking fat, eight ounces of sugar,two pints ofmilk, and one egg." Evenbread, which had not been rationedduring the war, was rationed begin­ning in 1946. The government hadfirst attempted to fool the Englishpeople into buying less bread by re­ducing the amount in a loaf. Whenthat did not work, they turned to ra­tioning. Housing, clothing, food,fuel-everything, it seemed-was inshort supply.

By the summer of 1947, the Britishgovernment was making no secret ofits problem. The country was inun­dated with government posters, pro­claiming "We Work or Want," pos­ters whose threat was all bark andno bite. The fact is that when pro­duction is separated from distribu­tion to any considerable extent theincentives to produce are reduced.When this is accompanied by nu­merous restrictions and loss of pri-

1985 FREE ENTERPRISE: THE KEY TO PROSPERITY 597

vate control over property, as it wasin England-restrictions whichhamper people in their productiveefforts-goods and services will be inever shorter supply.

Since that time, Britain has offandon, but slowly, reduced the extent towhich it restricts so as to hamper in­dustry. Democratic socialists inmany lands have lost some of theirenthusiasm for nationalizing prop­erty and have favored governmentcontrol with largely private owner­ship, as has been the case in Sweden.The United States in recent yearshas removed or reduced some of itsregulations, though the central fea­tures of the Welfare State remain.Communists remain unmoved by allevidence, continue to thrust for gov­ernment ownership of all productiveproperty, and cause untold sufferingwith their drastic measures againstprivate enterprise wherever theycome to power. The most recent dra­matic instance occurred in Ethiopia,with its hunger and starvation.

But whatever rulers have or havenot learned from their determinedefforts to establish roadblocks to en­terprise, one thing appears univer­sally to have alluded them. It is this:They still have not grasped that menmust be in control of their own af­fairs if their enterprising spirit is tobe unleashed in constructive efforts.For this, they must have the fullmeasure offreedom, not that portionwhich politicians prate about as

"human rights," thus ignoring orshunting aside the rights to property.

Is Free EnterpriseEssential to Freedom?

Freedom is a seamless cloth, itsparts inseparable from one another.Free enterprise is a part of and nec­essary to freedom within a society. Itnot only provides bread better thanany other system but it also but­tresses and rounds out the structureof political, social, intellectual, andreligious freedom of a people.

Freedom is indivisible. Some ofthose who profess to value freedombut not free enterprise have tried tomaintain that this is not the case.They distinguish between propertyrights and human rights, .and holdthat human rights are superior toproperty rights. Property rights are,however, human rights, rights of hu­mans to the fruits of their labor. Ar­guments about which rights are su­perior are on the same order of thoseas to whether the heart is superiorto the liver or whether the lungs aresuperior to the kidneys, for the factis that human life and activity de­pend on all of these. Just so, freedomdepends on the right to property justas it does to rights of free speech.

The reason for this needs to be ex­plored. There is no human activitythat does not involve the use of prop­erty. We cannot sleep, wake, eat,walk, drive, fly, swim, boat, work, goto church, print a paper, view a

598 THE FREEMAN October

movie, make a speech, procreate, orengage in conversation without us­ing property in some one or more ofits dimensions. If a church cannot beowned by its communicants, theirfreedom to worship is under the con­trol ofsomeone else. If a press cannotbe privately owned, freedom of thepress is an illusion. If governmentcontrols all property, freedom ofspeech is something belonging togovernment, not to individuals.

The Breadth of Freedom

Free enterprise-which embracesprivate property-does not meansimply the right to engage in ma­terial production and distribution. Itmeans the right to engage in everykind of productive activity: not onlythe manufacture of widgets but alsoforming a fraternal organization,starting a charitable organization,publishing a newspaper, organizinga church, and founding a college.Not all undertakings involve profitmaking, but all do involve the useof property and the making oftransactions.

The thrust of government inter­vention in the economy is towardgovernment control ofall life and thedestruction of the independence ofthe citizenry. Not every governmentintervention will in fact result in thetotalizing of intervention, of course.Government may intervene here andnot there, may extend its power fora time and withdraw, may even re-

verse its direction. But the tendencyof men in power is to grasp for more.The tendency ofthose who gain somecontrol over enterprise is to extendit into more and more areas.

Many Western socialists do not ac­cept the totalitarian tendency oftheir doctrines. They cling to the be­lief that freedom can be retained inareas that they consider valuablewhile it is yielded up in the economicrealm. They have nowhere, to myknowledge, submitted their theoryto the test. Their experiments withsocialism have been limited. Theyhave nationalized some industries,expropriated some property, takenover the providing of some services,created bureaucracies to controlsome undertakings, empowered la­bor unions, and drawn up varioussorts of restrictions. They have usu­ally allowed considerable enterprisewithin the interstices of their sys­tems. Such systems are oppressive,do hamper enterprise, do not func­tion very well, but they are not to­talitarian-not yet, anyway. Theyare not full-fledged socialism, either.

The same cannot be said for thosecountries in which there have beenall-out efforts to abolish privateproperty, to control every aspect ofthe economy, to bring all employ­ment under state control, in a wordto institute socialism in its most vir­ulent form, Communism. In thesecountries, freedom is crushed. Sucha country is ruled by terror, the ter-

1985 FREE ENTERPRISE: THE KEY TO PROSPERITY 599

ror administered by secret police, bythe shot in the back of the neck, byslave labor camps, by the arbitrari­ness of all government action, whichis the ultimate terror. Terror is as es­sential to thoroughgoing socialismas sunlight is to photosynthesis. It isessential because man naturally hasto look after himself and seeksmeans to do so, turns whatever hehas into private property, and exertshis imagination and enterprise toprovide for himself and his own. Man

Student Special

forever labors to carve out areas offreedom for himself. By so doing, hesubverts socialist control. The onlymeans for holding him back is terrorand arbitrary government control.

Those who favor free enterprise areworking to maintain or establish hu­man freedom. They are on the sideof the human spirit wherever effortsare being made to crush it. Thosewho stand for free enterprise have anoble cause, for it is the cause offree­dom and of free men. @

Any student, on any campus, who is seriously interested in ideas of liberty,may receive The Freeman each month of the school year, without charge,provided the student makes the request. You are invited to help us spreadthis word. *

Or, if you wish to have The Freeman sent to one or more students orlibraries or fraternity or sorority houses as a gift from you, merely send FEEthe names and addresses and $5.00 each for the school year, Octoberthrough May. We shall faithfully follow your instructions.

* NOTE TO TEACHERS: We want to encourage your use of our materials, butplease do not ask an entire class of students to submit individual requests for TheFreeman. In such cases, we'd much prefer to send a bulk shipment each month.Tell us your requirements, and we'll do our best to cooperate.

E. Barry AsmusDonald B. Billings

Human Natureand

Human Action

"Why should it be," asked WalterLippmann, a famous observer of theAmerican scene, "that in a timewhen men are making the prodi­gious claim that they can plan anddirect society, they are so profoundlyimpressed with the unmanageabil­ity of human affairs?" Especially inthe twentieth century, we have seenmore elaborate attempts throughgovernment to manage and controlthe private actions of individuals,yet, as Lippmann observed, " ... thismore elaborate organization can beoperated only if there is more intel­ligence, more insight, more disci­pline, more disinterestedness, thanexists in any ordinary company of

Dr. Barry Asmus is an economist and national speakerliving in Phoenix, Arizona. Dr. Don Billings is Pro­fessor of Economics at Boise State University.

This article is taken from their book, Crossroads:The Great American Experiment, published in 1984by University Press of America. Reprinted by per­mission of the pUblisher.

600

men. Unfortunately this is the sick­ness of an overgoverned society, andat this point the people must seek re­lief through greater freedom if theyare not to suffer greater disasters."Even the casual observer senses thatgovernment actions to solve prob­lems are not working, and that asgovernment attempts to do more, theless successful it becomes.

Human Action

Much of the reason for this can beunderstood by looking at how, we asindividuals, organize ourselves insociety. The rise, decline, and resto­ration of the market economy is inlarge part about the relative advan­tages and disadvantages of twooverarching principles of social or­ganization. Following the work ofthe German sociologist Franz Op­penheimer, Albert Jay Nock distin­guishes between the "political

HUMAN NATURE AND HUMAN ACTION 601

means" and the "economic means"as social organizers or delivery sys­tems. Which of these institutionsworks better when organizing socialand economic behavior and whichmost closely conforms to the basicnature of man?

The political means necessarily re­quires the use of the coercive appa­ratus of government. It forces indi­viduals to take actions which arecontrary and in opposition to theirown desires and goals. After all, theessential characteristic of govern­ment is its claim to a monopoly righton the use of force in society. As in­dividuals, you and I would be ar­rested if. we attempted to do thosethings which governments do as amatter of course.

The Economic Means versusThe Political Means

The "economic" or market meansrefers to social arrangements inwhich only voluntary transactionsbetween persons are permitted. In amarket economy involuntary orforced exchanges would be criminalacts legitimately subject to appro­priate penalties and government ac­tion. The fundamental distinction isbetween mine and thine. Individu­als would pursue their own goalsthrough the voluntary exchange ofjustly acquired rights in property.

The market means is consistentwith both human nature and thepurposeful action of individuals. In

contrast, the political means oper­ates at cross-purposes to human na­ture and individual choice. Mini­mum wage laws, rent controls, usurylaws, price controls, tariffs, subsi­dized rents, interest rate ceilings,agricultural price supports, Federalloan guarantees, passenger rail ser­vice subsidies, and fixed public util­ity rates are just a few of the waysthat government tries to alter hu­man behavior. In every case it limitsthe number of exchanges that wouldhave normally taken place and nec­essarily involves government forceto ensure compliance. Constrainingthe purposeful behavior of individ­uals reflected in the laws of supplyand demand, government tries tosupersede the market in the name ofthe "public good."

But, the use ofgovernment force torestrict private actions presents im­portant difficulties. Before govern­ment can create a miracle for onegroup, for example farm price sub­sidies for agriculture or rent subsi­dies for current renters, the moneymust first be taken away from some­one else. Taxes are the anti-miracleimposed on people who would ratherspend their money in a different way.This raises a fundamental questionregarding the morality of allowingperson A to meet with person B todetermine how the money of personC will be used to help person D. Theissue is a matter ofjustice in the ac­quisition ofthings (i.e., property) and

602 THE FREEMAN

therefore an important topic ofdiscussion.

There is also the question of eco­nomic efficiency. Does governmentintervention in fact produce the in­tended consequences? Do minimumwage laws really help the poor? Haveprice supports in agriculture helpedthe farmer in the long run? Did pricecontrols on energy solve the "energycrisis" or create it? Although manyof government's actions are sincereand well intended, they have for themost part been disastrous in theirunintended consequences. Govern­ment inherently demands that in­dividuals act contrary to their per­sonal objectives. This creates asituation analogous to the problemof forcing water to run uphill; al­though it can be done, it is verycostly in terms of economic effi­ciency. But more importantly, theprocess involves a continual andgrowing abridgment of liberty.

In contrast, the market means en­courages the spontaneous and mu­tually beneficial exchange of prop­erty which is in perfect harmonywith the purposeful actions of freeand sovereign human beings. AsAdam Smith pointed out more thantwo hundred years ago in his Wealthof Nations, if the organizing princi­ples of society agree with and arecomplementary to human nature,then "... the game ofhuman societywill go on easily and harmoniously,and is very likely to be happy and

Crossroads is an important andcomprehensive presentation ofthe rise, decline, and restora­tion of freedom and the marketeconomy. The authors do anoutstanding job of introducingreaders to the history and na­ture of the American free mar­ket experiment. Copies can beordered from the AmericanStudies Institute, 3420 EastShea, Suite 266A, Phoenix, Ar­izona 85028: Paper $14.25,Cloth $26.75. Please add $1.50for shipping and handling.

successful. If they are opposite or dif­ferent, the game will go on misera­bly and the society must be at alltimes in the highest degree of dis­order."

The mystery, posed by WalterLippmann in The Good Society, re­garding the simultaneous increasein the growth and power of govern­ment and our receding confidence ingovernment's ability to deal with so­ciety's ills, disorder, decay, and ma­laise should be no surprise. Chaoti­cally, we have come to rely on coer­cive institutions of social organiza­tion that operate at cross purposes tothe essential nature of purposefulhuman beings. Every individual hashis or her very own principle of mo­tion. There is no mystery at all;pushing square pegs into round holessimply does not produce socially ben­eficial results. ~

Kenneth McDonald

Routingthe

Fabians

I can still hear Sidney Webb explain­ing to me that the future belonged tothe great administrative nations,where the officials govern and the po­lice keep order.

-Elie Halevy

FOUNDED in England in 1884, theFabian Society's aim was. to spreadthe ideas of socialism gradually bydemocratic means. For almost a cen­tury it succeeded. In Great Britainand North America, under liberaland conservative governments alike,the state's influence spread. As re­cently as the late 1970s, every mem­ber of (British) Prime MinisterJames Callaghan's cabinet was aFabian.

Kenneth McDonald is a free-lance writer and editorliving in Toronto.

Nevertheless it was increasinglyplain to majorities of British andNorth American voters that at­tempts in the Fabian mode "toachieve through state action the co­ordinated control of the economicforces of society" had built up a gov­ernmental apparatus that was chok­ing their economies. The election ofMargaret Thatcher, Ronald Reaganand, later, Brian Mulroney signaleda rejection of Fabianism.

What has not been signaled is thenature of the "ism" that will replaceit. It is not enough to hail the bless­ings of individual enterprise, or freertrade, or even individual freedom.All three stand to be enhanced as thestate assumes a less active role in theeconomy. Desirable though that en­hancement may be, it lacks the ap­peal that wins elections. Nor can we

603

604 THE FREEMAN October

afford the luxury of the Fabians'gradualism in reverse. The acceler­ating burden of debt-servicingcharges alone demands action inyears, not generations.

The political task is to establish aprinciple, to form policies that ad­here to it, and to explain the com­bination to the people.

Suppose that in North America theprinciple were to be that the bestgovernment is that which governsleast, i.e., the antithesis of Fabiansocialism. Policy would then be di­rected toward dismantling the gov­ernmental apparatus. Governmentcorporations would be offered forsale. Any unsold after a stated in­terval would be dissolved. Servicesprovided solely by federal govern­ments would be contracted out toprivate suppliers whose terms ofcontract would stipulate criteria ofservice and performance. Federalgovernments would withdraw fromrevenue-sharing programs of a ser­vice nature (education, health andhospital care), leaving to states andprovinces the options of making upthe difference by direct taxation orcontracting the services out.

Individual Choice

The effect would be to transfer sig­nificant amounts of spending power,and decisions about spending, fromgovernments back to the individualswho contribute to their revenue.

Two consequences would follow.

First, as federal spending fell, bud­gets would move into balance whileproviding for steady retirement ofthe public debt. Second, as states andprovinces assumed full responsibil­ity for matters now subject to reve­nue sharing, the cost of dischargingthat responsibility would be met bydirect taxation supplemented byborrowing on their sole credit.

In short, the governmental appa­ratus, which now absorbs about halfof national incomes and is addingmore to debt every day, would returnto. solvency. State and provincialgovernments, whose seduction intoshared cost programs has also forcedthem to share the debt that the pro­grams have incurred, would regaincontrol of their affairs.

Fabians and other critics would de­nounce the foregoing as a return tolaissez faire and the law of the jun­gle. In fact, however, except for a pe­riod in 19th century England, Fran­~ois Quesnay's laisser passer etlaisser faire (free passage and free­dom of action) has not been tried.

One of many myths about laisserfaire is that it caused the GreatDepression. As Murray ·Rothbardwrote: "Hoover's role as founder of arevolutionary program of govern­ment planning to combat depressionhas been unjustly neglected by his­torians. Franklin D. Roosevelt, inlarge part, merely elaborated thepolicies laid down by his predeces­sor. To scoff at Hoover's tragic fail-

1985 ROUTING THE FABIANS 605

ure to cure the depression as a typ­ical example of laissez faire isdrastically to misread the historicalrecord. The Hoover rout must be setdown as failure of government plan­ning and not of the free market."!

By contrast, the period from theend of the Napoleonic War to 1890saw England's governmental expen­diture fall from 29 per cent of the na­tional product to nine per cent. AsH.S. Ferns described it: "This periodof government expenditure declin­ing in proportion to the total productof the community was one of eco­nomic success measured by almostany indicator one cares to choose:population growth, production percapita, intake of food per capita,house building, technological inno­vation, saving and investment, im­provements in literacy, averagelength of life, etc."2

The irony is that laissez faire cap­italism, which would engage every­one's self-interest to everyone's ben­efit, is hobbled by self-interest inleague with the state. Powerfulgroups use elected governments astheir agents to restrain trade in theirfavor. Industry associations, com­mercial and financial interests, la­bor unions, even the associations ofconsumers who have most to gain

IMurray N. Rothbard, America's GreatDepression (Princeton, N.J.: Van Nostrand,1963), p. 168.

2H.S. Ferns, The Disease ofGovernment (Lon­don: Maurice Temple Smith Ltd., 1978), p. 15.

from laissez faire-all demand spe­cial treatment. The results are seenin oligopolies, cartels, import quo­tas, tariffs, restrictive labor laws andaffirmative action programs. InCanada, goods often pass more read­ily to and from the United Statesthan they do between provinces.

The truth is that all of us are de­manding more from governmentsthan they can provide at the cost weare prepared to pay. We won't paymore taxes-the growth of the un­derground economy bears witness tothat-yet we expect governments tosupply the services below cost. It isthe rising cost of subsidizing the ser­vices, and politicians' reluctance toreduce the subsidies, that has putgovernments into debt.

Invest in the Private Sector

Nevertheless, appeals to self-inter­est may constitute the best hope forchange.

It is a fact that the growing pro­portion of federal budgets consumedby debt charges reduces the propor­tion that is available to fund gov­ernment services. As the debt rises,the taxpayers get smaller andsmaller returns on their investmentin the government that taxes sup­port. If the government raises taxesto meet its rising costs, the taxpay­ers will keep less of their income.Everything points to the taxpayersgetting less value for their money.

It is also a fact, borne out by tax-

606 THE FREEMAN

payers' daily experience, that pri­vate suppliers give better servicethan governments.

Take those two facts together andit is plainly in the taxpayers' inter­est to invest less in the governmentand more in the private sector..Getting politicians to subscribe

openly to the proposition would callfor a self-denying ordinance wherebythey would resist the temptation tospend other people's money and starthelping them to save some of itinstead.

This might be accomplished bylooking upon taxes as an investmentin government services rather thana levy to meet government's ex­penses. Switching from the slow,cumbersome and costly supplier tothe efficient and competitive onewould be simply an act of goodbusiness.

It remains to consider how pow-

erful groups might be resisted intheir claims for special treatment.The remedy is to be found in appealsto the principle of equality beforethe law. "We're sorry, we sympa­thize with your proposal, but wemust treat everyone alike. Govern­ment as it has been allowed to ex­pand is a drag on the economy. Youand everyone else will benefitthrough its withdrawal from activeparticipation."

Thus two principles are involved:the best government governs least;and all are equal before the law.Having established them, the polit­ical leadership would need a rally­ing cry that would convey the mes­sage to the people.

Quesnay's free passage and free­dom of action is ready made. Thereis an exuberant ring to it, a sloganto blow fresh air across the barriersto freedom. I

Upcoming ArticlesNOVEMBER

• Should American Business Give Up Smoking? - Gary North• Living in Two Chinas - Dean Russell• Letters to the Editor

Beginning a new section in The Freeman. We welcome your comments.Send your letters (short ones, please) to Letters Editor, Foundation forEconomic Education, Irvington-on-Hudson, New York 10533

DECEMBER• On the Bishops and the Market - Charles A. Baird• Getting There - John K. Williams• John Witherspoon: "Animated Son of Liberty" - Robert A. Peterson

David Osterfeld

African Famine:The Harvest ofSocialist Agriculture

David Osterfeld is Associate Professor of PoliticalScience at St. Joseph's College in Rensselaer, In­diana, and an associate of The Institute for HumaneStudies.

THE popular explanation of the cur- The United Nations (UN) hasrent famine in Mrica is the drought. listed 24 African countries as threat­But is this convincing? The North ened by famine. These countriesAmerican Great Plains has major - have one crucially important thingdroughts about every twenty years, in common. They have all pursuedthe most severe being the 1934-36 policies which amount to nothingDust Bowl. A major drought was re- short of an assault on agriculture.corded in California in 1977 and the The policies include the following.1975-76 drought in England was la-beled "unprecedented" in its sever- Marketing Boardsity. Yet none of these resulted in fa- The stated purpose ofthese Boards,mine. In fact, the 1977 California which are found in most of the 24harvest was a record high. And food countries including Ethiopia, is toproduction in England increased by insulate the farmer from price fiuc­15 percent between 1975 and 1980. tuations. In fact, the Boards are typ-

Why is it that droughts occur in all ically used to raise government rev­parts of the world but, with a few ex- enue. The farmer is forced to sell hisceptions, famines are confined to produce to the Board which, becauseMrica? it is a government monopoly, need

pay him only a fraction of its actualmarket value. The typical farmer inTanzania receives about 10 percentofthe value ofhis produce. In Kenya

607

608 THE FREEMAN October

it is 15 percent and in Ghana 20 per­cent. Adding insult to injury, thefarmer must then pay taxes on theincome he does receive.

Outlawing Middlemen

The Boards could not operate asrevenue agents if farmers were freeto sell their produce elsewhere. Thus,the private sale of food has been out­lawed or severely restricted in manycountries. In Ethiopia and Tanzania,for example, those caught violatingthe prohibition are beaten or killed.

Protectionism

In order to stimulate local indus­try and to appease a small but po­litically powerful urban elite, pri­vate foreign investment has beendiscouraged and foreign-owned com­panies have been nationalized. Tar­iffs, subsidies and licensing restric­tions have been enacted. Thesepolicies have allowed local manufac­turers to sell their goods at wellabove free-market levels. Thismeans that the African farmer mustconfront artificially inflated priceswith an artificially deflated income.

State Farms

State farms are notoriously inef­ficient. While other socialist coun­tries such as China have been dis­mantling them, African countrieshave been busy creating them.Ghana established large state farmsin the 1960s. Its per capita food out-

put fell 19 percent during the 1970s.Tanzania began its Ujama Programin 1970, resettling some 13 of its 18million people onto collective vil­lages. Its per capita food output fell15 percent in ten years. A food ex­porter in 1970, it imported over $16million worth of food in 1980. Moz­ambique became independent in1975 and promptly created state col­lectives. Within 5 years per capitafood output fell 12 percent. In Ethio­pia state farms comprise 4 percent ofthe land, receive 90 percent of thestate's agricultural investment, but80 percent of them operate at a loss.Yet the ten-year plan calls for a dou­bling of the state farm sector.

Land Reform

Several countries, including Mo­zambique, Zaire and Tanzania, haveimplemented land reform, butEthiopia's is the best known. Con­trary to the way it is depicted by themedia, much of Ethiopia is ex­tremely fertile. It would be thebreadbasket of Africa, agronomistssaid, were its development not re­tarded by feudalism. In 1975 the newMarxist government nationalized allland. Feudalism ended; "EthiopianSocialism" began. Instead of devel­opment, farm output, low to beginwith, declined. Why? The principleof land distribution was to allocateto each family enough land to feeditself but no more. The use of hired

1985 AFRICAN FAMINE 609

labor was prohibited, as was the pri­vate sale of farm produce and ma­chinery. The primary purpose of thereform said the UN, which ap­plauded it as "progressive" and"forward-looking," was to preventthe emergence of "commercial ag­riculture" by making farm plots toosmall for machinery to be economi­cally viable. Thus, the reformchanged little. Under feudalism thefarmer had little incentive to pro­duce. Under socialism he has evenless. Over 60 percent of Ethiopia isarable. But only 10 percent is culti­vated. As one authority commented:"The low rate of land use may be at­tributed to lack of motivation to pro­duce anything beyond subsistencelevels."

It is hardly surprising that thesepolicies produced shortages. Indeed,it would have been surprising iftheyhad not.

The Market Solution

History shows two things quiteclearly: 1) the application of Social­ist measures to agriculture resultsin declining production, food short­ages and sometimes even famine;and 2) the application of Capitalistmeasures to agriculture tends to pro­duce agricultural abundance.

For example, prior to the 1917 Rev­olution, Russia was a major exporterof food. By 1920, however, the areaunder cultivation in the SovietUnion had declined by 50 percent

and yields per acre fell by 40 to 50percent. An estimated six millionRussians died ofstarvation. Millionsmore died in the 1930s as a result ofStalin's collectivization program.Eventually single-acre private plotswere grudgingly permitted. Small asthey are, these plots are about 40times as efficient as the collectivefarms. There is certainly a degree ofirony in the fact that despite its tre­mendous agricultural potential theSoviet Union is now the single larg­est purchaser of US grain exports.

India provides a very instructivecontrast to the Soviet Union. Afterhighly interventionist ifnot socialistpolicies resulted in famine in theearly 1970s, India abandoned pricecontrols on agriculture. By 1977 In­dia not only was self-sufficient, itwas exporting large quantities ofgrain. In addition, it had built up agrain reserve of 22 million tons,which enabled it to manage the se­vere drought of 1979 without theneed for food imports.

The famine in Africa is certainly atragedy. It is all the more tragic be­cause it need not have happened.There is no need for it to happenagain. Anyone with a serious desireto end recurrent famines would dowell to take a look at what resultsfrom an ideological commitment tosocialism. Let the free market op­erate, for wherever farmers havebeen exposed to market incentives,farm output has increased. ~

Henry W. VanderleestKaroline Bola

•

Railroad Deregulation

ON February 4, 1887, Congresspassed the Act to Regulate Com­merce. This legislation also createdthe Interstate Commerce Commis­sion (ICC) whose job it was to ad­minister and enforce provisions ofthe Act. The Act to Regulate Com­merce, along with several subse­quent amendments which sought tostrengthen it, placed the railroad in­dustry securely under the control ofthe federal government. While theoriginal intent of the Act was toabolish the numerous abuses of pub­lic trust by the railroads, the long­term effect was the stagnation of theindustry. For nearly 100 years, rail­roads had little or no flexibility inmarketing their services to shippers.

Dr. Vanderleest is a Professor of Marketing at BallState University, Muncie, Indiana. He is a noted writerand lecturer on marketing transportation services.Ms. Bota is a free-lance writer and resides in Knox­ville, Tennessee.

610

Because of government-imposedprice, service, and revenue con­straints, there generally was littleincentive for railroads to increaseproductivity, to lower costs, or to beinnovative in providing services totheir customers. Regulation in therailroad industry generally stifledcreativity in the marketing area and,for the most part, caused the major­ity of railroads to turn inward andbecome operations-oriented ratherthan marketing-oriented in their ap­proach to doing business with thepublic. The operations-oriented rail­road's approach to selling its ser­vices to shippers typically took theform of, "This is what I can do foryou and this is how much it will cost.Take it or leave it."

On October 14, 1980, Congress en­acted the Staggers Rail Act. This Actthrust railroads into a significantlyless-regulated environment, one for

RAILROAD DEREGULATION 611

which mos~ were unprepared. Thetables were turned and shipperscould now tell railroads, "These aremy needs, what's your best offer?" Ifthe offer was not good enough, ship­pers were usually able to go to an­other railroad or switch to compet­ing modes such as trucks or barges.After being shielded for many yearsfrom the "real" marketplace with itsdemand, supply and competitiveconsiderations, railroads quicklyrecognized that they had to beginsuccessfully marketing their ser­vices in order to survive.

This article examines the impactof deregulation in the railroad in­dustry and how it has allowed rail­roads to develop and implementsound marketing programs in at­tempting to meet their organiza­tional goals. Although the article islimited to the railroad industry, de­regulation in many industries, in­cluding aviation, banking and com­munications appears to be the waveof the future. It is expected that mar­keting will become a key element inthe business plans of many firms ineach of these industries as they alsostrive to compete successfully in aderegulated environment.

Competitive ConditionsPrior to 1980

Despite the constraining effects ofregulation, railroads remained thedominant form of freight transpor­tation in the U .8. until the emer-

gence of the motor carrier industryin the 1930s. In the 1940s and '50sthe number of trucks and their ac­ceptance increased rapidly, provid­ing shippers with a viable alterna­tive for moving their merchandise.Railroads, however, made little at­tempt to meet the challenge motorcarriers were providing. As the dom­inance of railroads continued todwindle, the causes became increas­ingly evident.

First, the Act to Regulate Com­merce gave railroads virtually noflexibility in rate-making. While theintent of early legislation was toabolish railroad rate discrimination,it made it difficult, if not impossible,for railroads to make rate adjust­ments which reflected economic aswell as competitive conditions. As aresult, railroads lost much of thehigh-value, high-rate traffic-such asmanufactured goods, gasoline andproduce-to the motor carrier indus­try. Most remaining rail traffic con­sisted of low-value, bulk commodi­ties such as coal, grain and timber.

In general, the loss of high-valuetraffic to the trucking industry wasdue to service considerations. Whileit may have been cheaper to shipsome goods by rail, the time savedby using motor carriage could betranslated into dollars and cents,thus offsetting the higher cost. Thespeed and reliability of some rail­roads had also been lessened by de­ferred maintenance policies which

612 THE FREEMAN October

were practiced by most railroads atthe time.

Another factor hindering the com­petitiveness of railroads duringnearly ninety years of regulationwas the railroads' inability to aban­don unprofitable lines when neces­sary. Because of the ICC's restric­tions, railroads were often forced toprovide unneeded and unprofitableservice to some areas for extendedperiods of time. Railroads were alsoreluctant to become involved in thecostly and time-consuming battleswith shippers and local groups whenabandonments were proposed.

The extensive amount of redun­dant track mileage, coupled with thecosts of maintaining it, resulted inserious financial difficulties formany railroads. The railroads ar­gued that the elimination of somemain-line track would allow them agreater volume of traffic to travelover the remaining lines, thus re­ducing their operating costs. Per­mission to abandon was granted veryinfrequently, however. When aban­donments were approved, it was gen­erally only after drawn-out deliber­ations had been completed, somelasting as long as four or five years.

Because of the problems and inef­ficiencies resulting from restrictivegovernment regulation, the railroadindustry consistently earned a re­turn on investment considered to befar below that necessary to attractnew capital for plant and equipment

improvements. As a result of infe­rior railroad service, shippers read­ily switched their business to motorcarriers who, although usuallycharging higher rates, generally of­fered higher quality and more de­pendable service.

Key Elements of the Staggers Act

The Staggers Act of 1980 markedthe end of nearly 100 years of re­strictive government regulation ofthe railroad industry.l In short, it al­lows the marketplace to determineprice, quality and type of transpor­tation service offered by individualrailroads, which gives them greateropportunity to compete successfullyagainst each other as well as againstcompeting modes. A brief overviewof the major provisions of the Stag­gers Act which directly influence theability of railroads to develop mar­keting programs, particularly in theareas of pricing and service, is dis­cussed here.

General rate flexibility. Rate free­dom is the most important result ofrailroad deregulation. Railroads cannow make rate adjustments, subjectto certain guidelines, without ICCapproval. Currently, for example,nearly two-thirds of all rail rates areentirely free from regulation.2 Thebalance are still under some ICC ju­risdiction because they apply to spe­cific commodities such as coal beingmoved between two points where

1985 RAILROAD DEREGULATION 613

railroads have virtual market dom­inance, thus leaving the shipper withno alternative carrier choices. Ingeneral, however, pricing is now acontrollable variable in a railroad'sbusiness plan as price changes canbe made in a timely manner in re­sponse to changing economic andcompetitive conditions.

With deregulation, the traditionalpractice of all railroads collectivelyseeking approval from the ICC forthe same percentage rate adjust­ment has also been eliminated in fa­vor of individual railroads settingtheir own rates. As a result, the roleof the ICC has been lessened to rou­tinely publishing and filing rates de­veloped by carriers. Because of thelarge number of rates now availableto shippers, some real bargains ex­ist. Regardless of whether rates areincreased or decreased, the Act stip­ulates that individual railroads maydetermine specific rates for eachshipment, depending upon demandand competitive forces. That com­petitive rates are now very popularis evidenced by the fact that nearly70 per cent of the freight revenueearned by railroads in 1984 is due tonegotiated rates.3

Service contracts. The legalizationof service contracts in which indi­vidual railroads tailor a specific rateand service package to the needs ofa particular shipper also resultedfrom the Staggers Act. The new law

encourages railroads to innovate andexperiment in developing rate andservice packages for individual ship­pers. Before the Staggers Act, rail­roads and shippers were hesitant toenter into contracts because theyfeared antitrust litigation. Althoughthe ICC has no role in the develop­ment of contracts, it must approvethe final agreement between therailroad and shipper. This rarelyposes a problem, however, as mostcontracts are routinely approved.

The duration of contracts can runfrom several months to as long as tenyears or more. Contracts can takevirtually any form as shippers areable to negotiate for specific servicesneeded as well as eliminate any un­wanted services. Railroads usuallybenefit in this situation because theycan set rates that more closely re­flect their actual costs in handlingthe shipper's freight. Some long­term arrangements even specify thatrailroads make major investmentsin equipment and facilities. In gen­eral, contracts allow railroads to in­crease efficiency, particularly in thearea of better car utilization andlong-term revenue projection. Un­certainties in these two areas havecontributed largely to the railroadindustry's weak financial conditionin the past.

Eased regulatory restraints havealso encouraged railroads to offer in­termodal transportation services totheir customers. Prior to 1980, rail-

614 THE FREEMAN October

roads were generally prohibited fromoffering service via other modes.This has changed so that railroadsmay provide shippers "total" trans­portation service using all modes.This situation is well illustrated bythe CSX Corporation which has builta true intermodal transportationcompany around the traditional railoperation by offering a wide rangeof transportation services by allmodes.4 It is expected that the pop­ularity of intermodal transportationservices will continue to increase asthis concept allows railroads to reactto competition from other modes andincrease revenues by moving trafficfrom origin to destination overlonger distances.

Mergers and abandonments. TheStaggers Act has sparked an in­creased interest in mergers. This isbecause one of the objectives of de­regulation is to encourage railroadsto become more self-contained. Be­cause of their high fixed costs, rail­roads have always been most effi­cient on long hauls where stopping,starting and the number of inter­change points are minimal. With ad­ditional mergers, railroads will beable to compete more effectively withother modes and increase revenuesby handling the shipment from ori­gin to destination on one system. In­creased revenues combined with re­duced costs incurred when movingtraffic over longer distances should

contribute to improved earnings forindividual railroads as well as to thegeneral health of the industry.

Abandonment of unprofitable lineswas also facilitated with deregula­tion. Prior to 1980, it was extremelydifficult for railroads to withdrawservice from areas which do not pro­vide profitable volumes of traffic.This resulted in cross subsidieswhere shippers on a railroad's moreprofitable lines were charged higherrates to cover losses elsewhere. Thegoal of deregulation is that railroadsneed only provide service whereenough volume of business exists toprovide a reasonable return for thatservice.

Although it is easier to discon­tinue nonprofitable lines, it is ex­pected that most railroads will at­tempt to avoid abandonments aslong as possible by stepping up theirmarketing efforts to promote use ofthe line in question. If and when aline is abandoned for lack of traffic,however, it remains to be seen if themarketplace will offer enough incen­tive for another carrier to move intothe area and provide service. In a sit­uation where an abandoned line re­mains unattractive to all railroads,the Act makes it easier for the lineto be taken over by other partiessuch as state and local governments.Some states, for example, have en­acted legislation that subsidizes acarrier for keeping a marginal routeoperating.

1985 RAILROAD DEREGULATION 615

Railroads' 'Discover" MarketingEffective marketing is based upon

determining the needs of a marketand attempting to meet those needsmore efficiently than competitors,with the ultimate goal of making aprofit. Before 1980, most railroadswere in a position where it waseither not possible or not necessaryto aggressively seek out business byoffering competitive price and ser­vice packages.

Railroads are now aggressively at­tempting to find new freight. In­creasing profit potential has encour­aged numerous successful effortssuch as "Sprint" and "Slingshot"express trains, "Fuel Foilers," "TankTrains" and other rail service pack­ages designed to meet the specificneeds of rail customers.5 Marketing­oriented railroads no longer dependexclusively on moving additionalbulk cargo to increase business. In­stead, they are putting much em­phasis on seeking general merchan­dise freight, with the goal of re­capturing some of the high-valuetraffic that they had previously lostto the motor carrier industry.

Railroads are also intensifyingtheir sales and promotional efforts.In communicating with their cus­tomers about available services, forexample, many railroads haveadopted traditional consumer goodspromotional techniques such asprime-time radio and televisionspots, billboard advertising and di-

rect mail flyers. These methods com­plement promotional techniquesgenerally used in industrial mar­keting such as trade shows and per­sonal sales calls. Having satisfiedcustomers should enable railroads tomake extensive use of testimonialsin future print and televisionadvertising.

Much railroad promotion now in­cludes direct, head-on comparativeadvertising of rail service comparedto that offered by competing modessuch as motor and water carriers. Arecent Southern Pacific ad in a pop­ular trade publication proclaimsthat:

Truckers are grinding their teeth thesedays ... for a good reason. We're suc­cessfully competing against the trucksnow because we have the freedom to ex­ercise our imagination ... for example,we tailor train schedules to accommodatecustomers, we add trains, we expeditethem, we write on-time delivery guar­antees and we offer price incentives ...our overall package gives us a competi­tive edge over truckers.6

Pricing and service freedoms al­lowed by the Staggers Act havegiven railroads the opportunity tolearn what marketing is all about.Progressive railroads now recognizethat marketing can aid them in re­acting to changing market condi­tions and to competing transporta­tion modes. Marketing-oriented rail­roads believe that marketing be­longs at the top ofthe organizational

616 THE FREEMAN October

chart and are reorganizing to reflectthis belief. Many, such as the IllinoisCentral Gulf and Norfolk Southernare bringing in marketers from the"outside," meaning nonrailroaders,to head up newly organized market­ing divisions. 7 In short, the StaggersAct has created a renewed sense ofurgency to accept marketing prin­ciples' understand them and putthem to use.

On Track to Profitability

Recent data show that railroadsnow account for nearly 40 per centof total U.S. freight tonnage hauledin 1984, up from just over 37 per centin 1980.8 Although representing onlya small increase during the four-yearperiod, it is l).onetheless significantbecause it reversed a downwardtrend in ton miles hauled that beganin the 1940s when railroads, in ad­dition to being saddled with regu­latory restraints, were also beingfaced with new competition from thegrowing trucking industry. Newbusiness freedoms as a result of de­regulation are also primarily respon­sible for the improvement in the rateof return on investment in the railindustry from about 2 per cent toabout 5.5 per cent during this four­year period.9

In general, earnings and stockprices are up for individual railroadsand there have been substantial in­creases in capital spending through­out the industry. Massive innova-

tion and new construction programsundertaken by many railroads haveeliminated considerable deferredmaintenance from mainline track. Itis also likely that new equipmentpurchases will provide railroadswith a 20 per cent increase in equip­ment capacity in 1985.10 It is ex­pected that increased capital spend­ing for improving track and roadbedconditions, modernizing switchingyards, upgrading terminal facilitiesand purchasing additional rollingstock will allow many railroads toprovide a higher level of service totheir customers in the future. Whilerailroads have traditionally been in­different to service considerations,their new profitability is encour­aging them to look at service as animportant aspect of profitableoperations.

Conclusions

After years of deferred mainte­nance, decreasing traffic and inad­equate profitability, railroads aremaking a comeback. Easing of reg­ulatory restraints through deregu­lation has given railroads the abilityto meet changing market and com­petitive situations as well as thefreedom to make business decisionsindependent of government sanc­tion. In short, railroads have beengiven the opportunity to succeed orfail based on the strengths andweaknesses of their managementdecisions in a free marketplace.

1985 RAILROAD DEREGULATION 617

Railroads no longer have the luxuryof operating in a protected environ­ment where they had minimal in­terest in or incentive to optimizetheir operations.

Progressive railroads have re­sponded to deregulation by gearingtheir organizational goals towardmaking rail service fit shipper needsrather than making shipper usagesomehow fit rail service. As a result,each railroad provides its customerswith different combinations of priceand service, depending upon com­petitive conditions. Overall, the fu­ture of the rail industry is bright. Anew spirit is evident which is re­flected in new innovation, productiv­ity and improved profitability. Afterfour years of deregulation, evidenceshows that the industry's healthhas improved and survival seemsassured.

It is expected that the same resultswill be seen in other industries thathave been recently deregulated.Deregulation requires that a firmbecome marketing-oriented as it isno longer shielded from the harshrealities of the free marketplace bygovernment regulation. Marketingand deregulation go hand-in-hand.As evidenced in the railroad indus­try, without deregulation there is lit­tle need for marketing. In a dereg­ulated environment, however, it iscrucial that marketing become thekey activity in a firm's businessplan. Well-managed firms will thrive

in a market-directed, deregulatedenvironment, while those with amanagerial focus who continue tobemoan the loss of the regulatorycrutch will ultimately fail. @

-FOOTNOTES-

IFor a good. summary of the Staggers Act seeErnest W. Williams, "A Critique of the Stag­gers Rail Act," Transportation Journal (Spring,1982), pp. 5-15.

2Yearbook of Railroad Facts, 1984 edition(Washington, D.C.: Association of AmericanRailroads, 1984), p. 15.

aYearbook of Railroad Facts, 1984 edition,p.31.

4"CSX: Railroading For Fun and Profit,"Business Week (November 30, 1983), p. l00ff.

5"Staggers Rail Act and Its Impact on Ship­pers," Dun's Business Month (January, 1984),p.l000.

6See Dun's Business Month (October, 1984),pp.84-85.

""The Railroads Rise Again," Fortune (No­vember 26, 1984), p. 29.

SYearbook of Railroad Facts, 1984 edition,p.6-7.

9Frank Malone, "Rate of Return Reaches5.5% as Earnings Soar," Railroad Age (Novem­ber 1984), p. 21.

lO"Industry Groups Speak Out for Deregu­lation," Dun's Business Month (January, 1984),p.97.

-REFERENCES-

Altrogge, Phyliss D. "Railroad Controls andCompetitive Conditions," TransportationJournal (Winter, 1981).

"Deregulating America," Business Week (No­vember 28, 1983).

Rakowski, James P., "Regulating Change inSurface Transportation," Appalachian Busi­ness Review (January, 1982).

John K. Williams

Catch the Little Foxes!

A FRIEND of W. C. Fields once dis­covered the comedian diligentlyreading the Bible. Surprised by thisuncharacteristic display ofpiety, thefriend asked Fields what he wasdoing. "What do you think?" re­torted Fields. "I'm looking forloopholes!"

That, I suppose, is one way of read­ing the Bible. There are countlessother ways. One of these ways sim­ply involves seeking out and delight­ing in the images used by the Bib­lical writers. One such image, quaintbut charming, I would bring to yourattention. "Catch us," requests theauthor of The Song ofSolomon, "the

The Reverend Doctor John K. Williams has been ateacher and is a free-lance writer and lecturer basedin North Melbourne, Victoria, Australia. He was res­ident scholar at FEE this past summer.

618

foxes, the little foxes, that spoil thevineyards."!

Most defenders of freedom areaware of, and have thought about,the great and powerful forces whichtoday conspire to spoil the vineyardsof economic and political liberty. Wedo well, however, also to be alert tothe "little foxes"-the sneaking, slyrealities that nip away at and intime devastate the liberties ourforefathers planted and we are calledto tend. When we look, we discoverthat the number of these "littlefoxes" is alarmingly large.

The Little Fox of Snobbery

A strange phenomenon has re­cently become widespread in mycountry. It is fashionable to deploreand sneer at fast-food chains and so-

CATCH THE LITI'LE FOXES! 619

called family restaurants. Liberalsgiven to haunting those tribal ritu­als called "cocktail" or "sherry" par­ties become quite animated at thesegatherings when the conversationturns to the actual or threatened ar­rival of a MacDonald's outlet or Den­ny's Restaurant in their fashionablesuburb. Noisily, they lament the al­legedly plastic smiles, plastic food,and plastic architecture of theseestablishments.

Some liberals have gone further,writing articles and penning littlebooks bewailing the evils of fast­food and family restaurants. Itwould seem that these twentieth­century phenomena have become, formany liberals, the apotheosis of cap­italism, the very epitome of thesocio-economic system they deplore.Hence, while unable to take the lib­eral mentality as seriously as ittakes itself, I invite you briefly toponder this loathing of institutionswhich seem, at least on the surface,innocuous.

Strangely, the liberals have at onepoint got something right. Fast-foodchains and family restaurants docapture something of the essence ofthe free market. In and throughthese enterprises the market is doingwhat it always has done: transform­ing luxuries once reserved for a priv­ileged few into commonplace activ­ities taken for granted by the many.

Writes Joseph Schumpeter: "It isthe cheap cloth, the cheap rayon and

cotton fabric, boots, motorcars andso on that are the typical achieve­ment of capitalist production, andnot as a rule improvements thatwould mean much to a rich man.Queen Elizabeth [the First] ownedsilkstockings. The capitalist achieve­ment does not typically consist inproviding more silk stockings forqueens but in bringing them withinthe reach of factory girls in returnfor steadily decreasing amounts ofeffort."2

Not so long ago, dining out wasconsidered-at least in my country­a luxury. The wealthiest frequentlypatronized restaurants. Moderatelycomfortable families dined out onlyon special occasions. Those yet to en­joy even "moderate comfort" dinedout rarely if at all.

The Achievement of Capitalism

But the market worked its magic.Consider what capitalism has done.The pleasurable practice once en­joyed by a few became available tothe many. Tastes once perceived asevidence of refinement-namely,choosing one's meal from a menu andbeing waited upon-were revealed asuniversal and thus "ordinary." Or­dinary folk gained.

Yet some people lost-lost the plea­sure derived from "feel[ing] and act[ing] smugly superior" by displaying"tastes and interests" distinguish­ing them from the masses. So deriv­ing pleasure is, according to the dic-

620 THE FREEMAN October

tionary, the defining characteristicof snobbery. That a snob, so the dic­tionary affirms, is "a vulgar or os­tentatious person," perhaps meritsmention!

Still, people desperate to seem"different" can entertain theirwhims. Accompanying the advent offast-food chains and family restau­rants has been the emergence of ex­traordinarily expensive dining­places boasting a "homey atmos­phere" and "home-cooked food."People of self-styled "refinement"can thus pretend to be dining athome and, during their meal, con­template the rare and special tastesdistinguishing them from themasses. Indeed, affluent liberals to­day tend to regard taking theirfriends to restaurants as somewhatgauche. They thus flock to courses ingourmet cooking and, after a tiringday slaving over a hot stove, inviteone another to home-cooked mealsserved by themselves. They thus re­main "special." Remain "different."Remain "snobs." And nip away atthe free market for robbing them oftheir snobbish privileges.

The Little Fox ofObsessive Democracy

First cousin to the little fox ofsnobbery is the little fox of obsessivedemocracy. The obsessively demo­cratic little fox actually enjoys whatthe snobbish little fox would like toenjoy: tastes and attitudes quite dis-

tinct from those held by ordinarymortals. Yet in the case of the ob­sessively democratic little fox, "en­joy" is a misleading verb. He or shedislikes being different, and yearnsto be simply "one ofthe boys" or "oneof the girls."

Usually, the little fox of obsessivedemocracy is an academic. By virtueof their training, academics fre­quently are elitist in their tastes, inthe literal meaning of that sadlyabused word, "elitist." The aca­demic savors the novels of Dostoev­sky; the masses devour the works ofJackie Collins. The academic listenswith delight to the music of Mozart;the masses spend vast sums upon re­cordings of the noises made by "BoyGeorge." And the obsessively dem­ocratic academic is profoundlydisturbed.

Grounds for being disturbed cer­tainly do exist. While holding thateconomic value is purely subjective,signifying not some property of anobject but a relationship between anappraising mind and an object ap­praised, I see no more reason to as­sume that aesthetic value is subjec­tive than to assume a subjectivetheory of truth. If informed that aJackie Collins novel or a "BoyGeorge" song is really on a par withThe Brothers Karamazov or TheMagic Flute, I shall treat my infor­mant with courtesy, but nothingmore. The informant is sadly mis­guided and, while praying that a soul

1985 CATCH THE LI'ITLE FOXES! 621

might be delivered from barbarism,I shall not meditate at length upona grotesquely perverse point ofview.

Typically, however, the obses­sively democratic academic is notcontent merely to lament error. Nordoes it suffice to instruct the ill­informed and thereby foster thecause of civilization. A glaring dif­ference must be explained away. Theobsessive democrats like to believethat their tastes and interests arereally "natural" and would beshared by all were it not for somedistorting process debasing the val­ues of so-called "ordinary" people.And the free market provides thesought-for scapegoat! It even catersto a demonstrably democratic desirefor villains to hiss! The masses, soobsessively democratic academicsmuse, would agree with them wereit not for the demonic manipulationand destruction of "authentic feel­ings" engineered by profit-seekingentrepreneurs and advertisers work­ing in and through the market.

George J. Stigler puts the matterwell. "It is ... a basic function of theintellectual to define the standardsof good taste more clearly, and topersuade people to approach themmore closely. It is proper to denouncevulgarity of taste, and to denounceit more strongly the more popular itis.... [YJet I say that complaints ofdeficiencies in tastes are misplacedwhen they are directed to the mar­ket place. . . . The market place re-

sponds to the tastes of consumerswith the goods and services that aresaleable, whether the tastes are ele­vated or depraved. It is unfair to cri­ticize the market place for fulfillingthese desires, when clearly the de­fects lie in the popular tastes them­selves. I consider it a cowardlyconcession to a false extension of de­mocracy to make sub rosa attacks onpublic tastes by denouncing the peo­ple who serve them. It is like blam­ing the waiters in restaurants forobesity.' '3

Consumer Tastes and Values

The market place reveals, with un­canny and not undisturbing accu­racy, popular tastes and values. Cas­tigating the market for what it re­veals is lUre denouncing wet roadsfor inclement weather. Yet the ob­sessive democrat, temperamentally,must sustain the illusion that he orshe is really "one of the people." Itis not merely egalitarianism; it isprofound insecurity combined withegalitarianism. Perhaps an elementof guilt is also present, an academicwondering whether a salary deter­mined by the market place for a per­son specializing and delighting inearly Elizabethan literature wouldbe quite as generous as that grantedby an essentially government-fundedschool or college. Be that as it may,the villain has been uncovered. The'obsessive democrat's tastes are thoseof "the people," but of "the people"

622 THE FREEMAN October

as they would be were it not for thedestructive, alienation-producingmarket.

So what, as Lenin once asked, is tobe done? The answer is clear. Tinkerwith the market. A tax on popularnovels here; a subsidy for "worth­while literature" there. Extractmoney from football fans and moviebuffs to underwrite performances ofopera and ballet. Challenge the ruleof radio stations playing recordingsby "Boy George" by "publiclyfunded" radio stations featuringMozart. And, of course, launch vig­orous attacks on the evils ofadvertising.

The little fox of obsessive democ­racy is, I suggested, first-cousin tothe little fox of snobbery. The differ­ences are obvious, but so is the fam­ily resemblance. Each sets aboutspoiling the vineyards of liberty toprotect personal convictions chal­lenged by the choices of countless in­dividuals through the workings ofthe market. One wishes to feel "dif­ferent," possessed of rare and re­fined tastes. The market, transform­ing luxuries "into commonplaceopportunities, reveals that the tastesin question are universal. The otherwishes to be "one of the people," butthe market, dutifully providing thepeople with what they value, revealsthat the tastes of the masses andthose of the obsessive democrat areradically different. In each case, themarket shatters a cherished illu-

sion. Not surprisingly, the market isthoroughly disliked!

The Little Fox of Moralism

The third little fox spoiling thevineyards belongs to a different fam­ily. The little fox of moralism is notthe victim of illusion. Rather, he ismerely confused. His values, whileessentially sound, are impressionis­tic. His knowledge of the workingsof the free market is almost zero. Yet,at least in theory, reason and argu­ment might lead to his becoming aguardian rather than a destroyer ofthe vineyards.

The moralist values the coopera­tive and compassionate spirit. He isanxious to see justice· realized anddestitution abolished. He measuresthe market against these less thanprecise values, and declares the mar­ket wanting. The market is immo­ral. Or so the little fox of moralismbelieves. Sincerely believes. Andwith admirable intentions, he setsabout spoiling the vineyards.

The sincerity and good intentionsof moralists, religious and secular,who attack the free market in a freesociety, need not be questioned.However, a brief perusal of historysuffices to establish the havoc anddevastation wrought by the sincer­est ofpeople from the best ofmotives.G. K. Chesterton somewhere ob­serves that were a lunatic wieldingan axe to be pursuing one in the sin­cere belief that the world would be

1985 CATCH THE LITTLE FOXES! 623

unspeakably enriched by one's de­mise, the lunatic's sincerity-and,indeed, good intentions-do not ob­ligate one to assist him in his hom­icidal endeavors.

The moralist yearns to see desti­tution abolished. Astonishingly, thatyearning leads him to oppose the freemarket. All the evidence availablesuggests that an allocation of scarceresources by political rather than bymarket forces perpetuates poverty.The Swedish economist, Sven Ry­denfelt, recently published a volumein which he examines the perfor­mance of fifteen diverse nations em­bracing socialism. A single storyemerges. "From disillusioned farm­ers to poor harvests, from food sub­sidies to foreign loans from massivedebts to bankruptcy, the socialiststate is doomed."4 The hungry arenot fed; the naked are not clothed;the homeless are not housed. Thesurvival of the unhappy inhabitantsof these nations rests upon the pro­ductivity and generosity of the verycapitalist nations so many moralistsdeplore.

That this is so should not surprise.A small tribal society may well beable to cope with a centrally plannedeconomy. Wants are few and areknown. Skills also are few. Raw ma­terials available to the tribe are bas­ically known. Tribal elders, or thetribe as a whole, can collate infor­mation about these wants, skills, andavailable resources, and direct the

tribe's productive activities by ref­erence to this information.

This cannot be done in a large andcomplex society. People want innu­merably different things. Countlessskills are diffused through millionsof people, and constantly change asnew technologies are devised. Rawmaterials are distributed globally,and are characterized by constantlychanging relative scarcities. No ex­perts could conceivably collate, syn­thesize, and make economic deci­sions by reference to this totality ofinformation. Yet in the absence ofthis information, resources inevita­bly will be misallocated, people fail­ing to use what they have to acquirewhat they want.

The Market Process

But in a free market the requisiteinformation is available. As Fried­rich A. Hayek5

, building on the workofLudwig von Mises, has so cogentlyargued, changing relative moneyprices in the market "encode" therelative data. Suppose, for instance,that the price of one sort of fish in­creases relative to the price of othersort of fish. Fish consumers use themore expensive fish sparingly, andstart seeking for alternatives. Fishproviders, anxious to secure a pleas­ing return for their labors, seek toincrease the supply of the expensivefish or discover a pleasing alterna­tive. Maybe an alert entrepreneurdevises a means of farming the fa-

624 THE FREEMAN October

vored fish. Both consumers and pro­ducers know what they must do toadapt to the new social situation andto improve their personal lot, andhave every incentive to behave in theappropriate wa:y.

Planning is still a reality, but it isplanning by individuals who knowprecisely what their abilities andwants are rather than by alleged"experts" who cannot even begin tocalculate what wants and abilitiesare there to be considered, coordi­nated' and satisfied. Cooperation isthe essence of the exercise, but it isthe uncoerced cooperation of individ­uals who, to improve their own sit­uation, must take account of theirfellow citizen's wants, and whoseproductive activities rest upon andpresuppose the different productiveactivities of their fellows.

Indeed, it is a society coordinatedby political commands that involvesa morally suspect form of "compe­tition" as against "market coopera­tion." Such a society inexorably de­clines into factions competing for theattention and favors of those ex­ercising political power. Each fac­tion seeks a larger share ofavailablegoods in the full knowledge that suc­cess in securing such a share meansless for others. In a market economy,an economy coordinated by individ­uals seeking to improve their ownsituations, the only "competition"obtaining is the competition to dis­cover new and better ways of satis-

fying the desires of others. Doubt­lessly some individuals seek to curryfavors from the politically powerful,but the extent to which success fol­lows these attempts measures thedistance towards socialism the com­munity in question has traveled.

Simply, a desire to alleviate pov­erty, to foster cooperation, and to fur­ther consideration of the needs ofothers, favors not a socialist com­mand economy, but the free marketthat moralists so angrily denounce.

The moralist perceives something"unjust" about disparities of incomeand wealth distribution effected bymarket forces. Yet what in this con­text can the words "just" and "un­just" signify? Absolute equality ofincome and wealth is usually con­ceded to be "unjust," in that it takesno account of different needs, differ­ent wants, and different efforts, anddemands constant coerced redistri­butions to "correct" inequalitiesgenerated as people freely exchangewhat is theirs. What then is re­quired?

The Rule of Law

The answer usually is disarminglysimple: a distribution taking ac­count of all relevant personal fac­tors. Yet what are these factors? Andhow is such a distribution to beachieved? Maybe in a family or evenschoolroom, burdens and benefitscan be distributed related to individ­ual wants and moral deserts, but in

1985 CATCH THE LITTLE FOXES! 625

both the family and schoolroom aparent or teacher knows each indi­vidual involved and can, with mod­erately successful accuracy, deter­mine such wants and deserts. Yet thesmallness of the group involved isthe sine qua non of this state of af­fairs. In a complex society ofliterallymillions, such knowledge is inacces­sible and such a distribution there­fore impossible.

Yet both the words "justice" and"injustice" can still operate. Thinkagain ofthe family or classroom. Theparent or teacher ignoring individ­ual needs and deserts may well beregarded as "unfair" or "unjust," butso is the parent or teacher who has a"favorite" or "pet." In some circum­stances "fairness" or "justice" maydemand a consideration of the per­sonal situation of individuals, but inother circumstances what is de­manded is the impartial enforce­ment of rules applicable to all. Thefirst use of the words "fairness" or"justice" cannot, as argued, be ex­tended beyond the small and inti­mate group to "society as a whole,"but the second use can. Indeed, onlythe second use can. In a large andcomplex society, '~ustice" demandsrule by purely general principles ofconduct, equally applicable to all.The "justice" of a particular distri­bution of income or wealth is deter­mined not by some characteristic ofthe distribution itself, but by the be­havior or procedures generating the

distribution. The question to beasked is whether that behavior de­fied or complied with general rulesof conduct equally applicable to all.If, for example, the behavior gener­ating a particular distribution of in­come or wealth defied rules pro­scribing force, theft and fraud, thebehavior is "unjust" and thus thedistribution is unjust. Conversely, ifthe behavior was voluntary and inaccordance with the rules-if the be­havior, let us say, did not involveforce, theft or fraud-the behaviorand thus the distribution is "just."

Justice and Impartiality

Such a model of "justice," appli­cable to a large and complex society,should appeal to many moralists,particularly members of the Chris­tian clergy. It reflects the impartial­ity of the One Who "maketh his sunto rise on the evil and on the good,and sendeth rain on the just and onthe unjust" (Matthew 5:45). Admit­tedly, it falls short of the "justice"which will be meted out on the LastDay, when He who knows all things,including the innermost secrets ofevery human being's heart, judgeseach, but such justice cannot be em­ulated by finite creatures who do notand cannot know all things, yet whononetheless must create social order.In one sense, "justice" understood asthe rule of purely general principlesof conduct equally applicable to allmay be a "second best," but given a

626 THE FREEMAN

social group larger than the smalland intimate unit of the family orfamily-like body, it is the only formof ~)ustice" available to finite, falli­ble beings. Politicians may speak ofa large modern nation as a "family";some clergymen may cling to a socialideal based upon the small feudalvillage. The reality of a large andcomplex society is, however, ill­served by a model of "justice" ap­propriate only to such rhetoric andnostalgic yearnings.

In sum, the moralist objects to amarket economy, but typically dis­plays a morally culpable ignoranceof the workings of such an economyand of the problem any attempt todevise a socio-economic system mustsolve: how, in the absence of the per­fect knowledge an omniscient beingalone enjoys, to allocate scarce re­sources and move beyond the arbi­trary rule of the powerful.

Truly, the little fox of moralism isa mightily confused little fox. He re­mains confused even when deckedout in a clerical collar or a bishop'sgaiters. He may well be sincere, butthe measure of that sincerity is hiswillingness to listen to a few hometruths and modify his attitudes inthe light of what he hears and con­cedes to be true.

Conclusion

Our list of "the little foxes thatspoil the vineyards" could be ex­tended. Sufficient, however, has beensaid to make our task clear. Our firsttask, as ever, is to toil in the vine­yards our forefathers planted, thatwe may pass on to our children theinheritance that rightly is theirs.

Yet a second task also is ours. De­pending upon our capacities and sit­uation, let us become either amiablebut alert guard dogs sniffing out thelittle foxes spoiling the vineyards, orscarlet-clad hunters riding afterthese foxes in dedicated pursuit.Either way, let us "catch the foxes,the little foxes, that spoil thevineyards." @)

-FOOTNOTES-

lThe Song of Solomon, 2:15.2J. Schumpeter, Capitalism, Socialism and

Democracy (New York: Harper and Row, 1942),p.67.

3G. J. Stigler, The Intellectual and the MarketPlace and Other Essays (Glencoe, Ill.: FreePress, 1963), p. 7.

4S. Rydenfelt, A Pattern For Failure: SocialistEconomies In Crisis (New York: Harcourt BraceJovanovich, 1984), dust-jacket summary.

SF. A. Hayek, "The Telecommunications Sys­tem of the Market," 1980s Unemployment andthe Unions (London: Institute of Economic Af­fairs, 1980), pp. 25-37.

Dennis L. Peterson

Philanthropy and Freedom

EVERY TIME the opportunity arises,I enjoy traveling to nearby Lancas­ter, Pennsylvania, where I can ob­serve the Amish and their farms. Ienjoy seeing their neatly ploughedfields, immaculate homes, horse­drawn carriages, and handmadecrafts. More importantly, however, Iadmire their deep commitment to amixture of self-reliance and com­munity charity. It reminds me ofwhat our nation once was and couldagain become.

It is not their primitive, agrariansociety I advocate. I long for in­creased self-reliance and an indi­vidual concern for our fellow man asopposed to the now predominant de­pendence on government handouts.

Early in our nation's history,Americans-farmers, laborers, mer­chants, and manufacturers alike­understood that charity was the re­sponsibility and privilege of individ­uals and religious organizations.

Mr. Peterson is a free-lance writer in East Greenville,Pennsylvania, anxious to share some of the lessonshe's learned concerning the freedom philosophy.

They never dreamed of relegatingthis duty to any other institution, es­pecially not to government.

Mter the Civil War, however, analmost imperceptible change beganto occur in the attitude of indi­viduals. As the power of the federalgovernment overshadowed that ofindividual state and local govern­ments, the central government be­gan to assume duties once fulfilledsolely by individuals and churches,including those duties involvingcharity.

Perhaps the greatest changes inattitude came during the New Deal.In an attempt to provide "quick fix"cures for the problems of the Depres­sion, government usurped the role ofindividuals in charity and philan­thropy. Government became the pri­mary provider of jobs, homes, andother humanitarian aid. It did nottake long for the American people tobegin looking to Unele Sam for thesustenance of life and industry inAmerica.

Then came the "Great Society"

627

628 THE FREEMAN October

under President Lyndon Johnsonwith its myriad welfare and publicassistance programs. By this time,government assistance had come tobe viewed as practically an inalien­able right of every needy American.

This attitude has since become en­trenched in American life. When­ever workers lose their jobs, familieslose their homes, or farmers losetheir mortgages, there is an imme­diate cry for Federal assistance. Anyhint of freezing the budgets of suchprograms at existing levels brings anoutcry of anguish from social do­gooders across the nation.

Despite such vociferous defense ofgovernment assistance, there areseveral logical reasons for returningcharity and welfare to the privatesector. Government, some people arebeginning to admit, simply cannotafford to continue financing the ever­increasing demands for its assis­tance. Private charity is more effi­cient and more effective than thegovernment dole because it can ap­ply the help where it is neededmost-on a local, individual level­and keep administrative costs down.It is easier through private charityto encourage individual pride and tostimulate efforts toward self-helpand self-improvement, whereas gov­ernment assistance encourages la­ziness and idleness. Private charityis also more personal than bureau­cratic welfarism.

The most compelling reason to re-

turn charity to private hands, how­ever, is because that is exactly whereit belongs. Charity is not the respon­sibility of government. Govern­ment's only legitimate role is de­fender and peace-keeper, not feeder,clothier, and general provider for thepeople.

The General Welfare

When confronted by this proposi­tion' proponents of government as­sistance and welfarism generally as­sert two reasons for legitimizinggovernment usurpation of this duty:the mandate of the general welfareclause in the U.S. Constitution andthe argument that private enter­prise capitalists exploit rather thancare for the needy.

The preamble of the Constitutionstates that the federal form of gov­ernment was instituted to, amongother things, "promote the generalwelfare." This phrase, statists con­tend, gives government a carteblanche to care for the people of thenation. Carried to the extreme, thelogic of this argument encompassesthe provision by government of cra­dle-to-grave social welfare for everyindividual in the country.

Contrary to this erroneous inter­pretation, however, the "generalwelfare clause" means only thatgovernment is empowered to pro­mote, through its peace-keeping au­thority and power, an atmosphere inwhich all citizens are free both to ef-

1985 PHILANTHROPY AND FREEDOM 629

fect their own well-being and to helpprovide voluntarily for the well­being of other less fortunate individ­uals around them. The Founding Fa­thers would be appalled to know thatany other interpretation was madeof this clause.

The idea that capitalists inhu­manely exploit the needy, therebynecessitating government interfer­ence and assistance, has long beenespoused by socialists and Marxists.They enjoy portraying free-marketentrepreneurs as obese, callous mag­nates who violently oppress and ex­ploit the unfortunate laboringmasses. They claim capitalism helpsonly the rich at the expense of thepoor.

Lenin argued, "Capitalists are nomore capable of self-sacrifice than aman is capable of lifting himself byhis own bootstraps."

Jawaharlal Nehru complained,"The forces of a capitalist society, ifleft unchecked, tend to make the richricher and the poor poorer."

Even Roman Catholic bishops re­cently condemned the American freeenterprise system. They apparentlyprefer a government-enforced redis­tribution of wealth, perceiving capi­talists as unfeeling and greedy but asocialistic, paternalistic governmentas the savior of the downtroddenpoor.

While many supporters of the freeenterprise way of life would auto­matically reject Marxist premises as

false, one important point does war­rant our attention: There is alwaysand in every instance the potentialfor such a premise becoming areality.

Thomas Jefferson recognized thedanger when he warned, "Materialabundance without character is thesurest way to destruction."

Grover Cleveland, aware of thethreat of communist ideas to capi­talism, was not blind to the dangerswithin the free enterprise system it­self. "Communism is a hateful thingand a menace to peace and organizedgovernment," he declared, "but thecommunism of combined wealth andcapital, the outgrowth of overween­ing cupidity and selfishness, whichinsidiously undermines the justiceand integrity of free institutions, isnot less dangerous than the com­munism of oppressed poverty andtoil, which, exasperated by injusticeand discontent, attacks with wilddisorder the citadel of rule."

Obsessed by Materialism

There is within every individual anatural tendency to develop an at­titude of selfish materialism whichleads to the complete disregard forthose who, perhaps through no faultof their own, happen to be less for­tunate than the average citizen. Inthe past, genuine concern and com­passion has prompted those with thefinancial means to develop a varietyofprograms that help meet the needs

630 THE FREEMAN October

of such people. Private and religiousphilanthropy and benevolence sawto it that those in need were caredfor.

In many instances, however, therehas developed among the citizens ofthe free world such an obsession withpersonal and material advancementas to seemingly obscure the effortsof private philanthropy. Some indi­viduals have become so wrapped upin obtaining more and more forthemselves that they have thoughtless and less of the needs of others.Their conscience has been seared bythe attitudes of "looking out fornumber one" and "get to the top ofthe ladder as quickly as you can re­gardless of those on whom you muststep in the process."

In direct proportion to the unwill­ingness ofprivate individuals to con­tribute philanthropically, the gov­ernment has eagerly stepped in to fillthe void. With these governmentfunds, however, has come the inevi­table hand of government control.And, contrary to what some wouldhave us believe, government welfarehas not been the gleaming successLyndon Johnson's "Great Society"predicted. If anything, it has onlyencouraged and compounded theproblems.

While self-interest has alwaysbeen at the heart ofcapitalism, it hasalso been accompanied by a feelingof human charity and a sense of so­cial responsibility toward one's fel-

low man. This is shown by countlessinstances of private philanthropy.Andrew Carnegie gave an estimated$350 million to charities. MarshallField provided $8 million for a mu­seum and donated land for the cam­pus of the University of Chicago."There is no happiness in mere dol­lars," he warned. "It is only in thewider public affairs, where money isa moving force toward the generalwelfare, that the possessor of it canpossibly find pleasure, and that onlyin constantly doing more."

Private Charity

But most charitable funds comefrom the average citizen, the oneswho share in the wealth produced bythe wealthy minority. The magni­tude of this giving was brought tolight recently in Philadelphia. In anattempt to evict members of MOVE,a radical antisocial commune, policeaccidentally destroyed the homes of61 families. Individuals, corpora­tions, and community organizationsimmediately began raising funds forthe innocent victims of the tragedy.A radio station solicited $30,000from its listeners in less than a week.A large corporation donated $56,000for emergency relief and challengedother businesses to match it. All ofthis took place-even before govern­ment officials had pieced togetherwhat had happened-because peoplewere genuinely concerned about thewelfare of their fellow men. As a re-

1985 PHILANTHROPY AND FREEDOM 631

sult, some people are beginning toremember that Philadelphia is the"city of brotherly love."

Yet there is still a clear danger thatcapitalism, if left unchecked-not bygovernment interference but by thesuperior moral standards of individ­uals-will degenerate into a statesimilar to that predicted by theMarxists.

This danger, however, is not-asMarxists would have us believe-in­evitable. With the rebuilding ofsound national moral foundationsand the strengthening of individualcharacter, capitalism can continue todisprove socialist propaganda bymeeting the needs and fulfilling thedreams ofevery citizen willing to putforth efforts at self-improvement andresponsible social consciousness.History has repeatedly proven thatnot only the greatest material pros­perity but also the greatest philan­thropy has resulted from commit­ment to the freedom philosophy.

Such high character and moralitycannot be dictated by an omnipotentgovernment; it must arise voluntar­ily from within the individual heartand conscience. It must develop asthe result of an awareness of thetruth and practicality of the GoldenRule: "Therefore all things whatso­ever ye would that men should do toyou, do ye even so to them" (Mat­thew 7:12). It must be the outgrowthof realizing the need for an individ­ual to love his neighbor as himself.

Samuel Smiles, who wrote widelyon the practical aspects of personaland entrepreneurial success, con­cluded, " ... society mainly consistsof two classes-the savers and thewasters, the provident and the im­provident, the thrifty and the thrift­less, the haves and the have-nots."And so it will ever be, even in thebest of free markets. But in a state­planned economy the number ofwasters, improvident, thriftless, andhave-nots is far greater than in a freeeconomy.

The capitalist so quickly con­demned by so many is, in Smiles'words, "merely a man who does notspend all that is earned by work."He then employs the money or timeor resources saved in the acquisitionof even more wealth in order to riseabove a mere existence. He uses it toraise his family's standard of living.And what he believes he can affordto give to others for the fulfillmentof their needs or desires, he contrib­utes as he sees fit.

Philanthropy Begins at Home

To some, this may on the surfaceseem very selfish and self-centered,but it has proven to be without ques­tion the most effective system of en­couraging philanthropy known tohuman history. Leonard Read wrotethat "if material wealth has anymoral purpose at all, it is to free menfrom the restrictions which are im­posed by a subsistence level of liv-

632 THE FREEMAN

ing...." Not only does the success­ful capitalist improve his own lot butalso that of his fellow men throughthe goods or services he provides. Inaddition, his success permits him tocontribute through charity to theimprovement of others withouthindering his own standard ofliving.

Those who decry this system offreephilanthropy fail to offer in its placeany more adequate or more effectivealternative system. While capital­ism admittedly has its problems, instark comparison to any form oftotalitarianism-whether benevo­lent or malevolent-these difficul­ties are negligible. "The inherentvice of capitalism is the unequalsharing of blessings," WinstonChurchill stated, "but the inherentvice of socialism is the equal sharingof misery."

Individual Moral Improvement

The solutions to the needs of ourfellow men lie not in regulation, in­tervention, or government-coercedprograms, but in the moral improve­ment of the individual. Along withthis will come to the individual re­alization that one must be not onlyhonest but also generous. This willsometimes require self-sacrifice onour part. Such sacrifice will, how­ever, be strictly voluntary.

The most important form of gen­erosity is the giving of one's self.Success experts Napoleon Hill andW. Clement Stone advised, "Share

yourselfwithout expecting a reward,payment, or commendation. Andabove all else-keep your good turna secret." Do so consistently and thatsecret will not remain one for long.Consumers notice and reward suchgenerosity and good will.

Modern-day capitalists can helpdispel the socialistic accusations ofselfishness by realizing and actingupon the truth that if one wants toget more he has to give more. Assomeone once wrote:

If you want to be rich, give;If you want to be poor, grasp;If you want abundance, scatter;If you want to be needy, hoard!

The story has been told of a manwho opened a butcher shop in a smalltown which already had several suchbusinesses. Despite the fact that hisprices were higher than any of hiscompetitors', his shop became themost frequented shop in town. Whenquestioned about how he did it, thewise man replied, "I give them asmile and twenty ounces to thepound."

The key to success, not only inbusiness but also in life itself, is togive something to others. Some of uscan give money, others offer goods,and still others provide services. Butwe can all give something. We shouldcount that day lost in which we havenot tried to give a little of ourself toor for someone else. This is the es­sence oftrue charity. It is an integralpart of true free enterprise. ~

New!GOVERNMENTAND LEGAL PLUNDERBastiat Brought Up to DateDean Russell

Frederic Bastiat saw a century and a half ago that the law becomeslegal plunder when it goes beyond simple defense of individual rights.Bastiat often presented his lessons in a series of clever and tellingstories which explored and exploded the logic and true effects of theplanned economy. Today his parables on free trade, the broken win­dow fallacy, government schools, natural rights, and the law are justas true as they were in the 1840s.

In Government and Legal Plunder, Dean Russell uses Bastiat prin­ciples as a starting point for his book, and provides contemporary ex­amples of issues that we personally face every day. He shows that wemust limit government's role in society and in the economy, to en­courage individual initiative and human freedom.

120 pages $4.95 paperback (Postage paid on prepaid orders; other-wise $2.00 per order for billing.)

Order from: The Foundation for Economic Education, Inc.Irvington-on-Hudson, NY 10533

A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN

The Essence ofHayek

To represent the full scope of Fried­rich Hayek in a single book, evenwith an allotted 550 pages at the ed­itors' disposal, was surely a formi­dable undertaking. The object, asnurtured by W. Glenn Campbell, thedirector of the Hoover Institution ofStanford University, was to greetHayek on the occasion of his 85thbirthday with a present to be calledThe Essence ofHayek (Hoover Insti­tution Press, $27.50). The editors,Chiaki Nishiyama and Kurt R.Leube, both of whom are former stu­dents of Hayek, had to winnowthrough essays, occasional papers,books, speeches and polemical ex­ercises that are numbered literallyin the hundreds.

Hayek has spent a long workinglifetime in pushing his investiga­tions into many fields outside of for­mal economics. He has been anepistemologist, a student of law, a

634

theorist of government, a student ofscience, an historian and, finally, apsychologist.

In giving us relevant samples ofallthe many Hayeks, Nishiyama andLeube have exercised excellent judg­ment. The book jacket copy, ob­viously written by someone whoknows what Hayek is all about,speaks of the "two fundamentalideas-the limitation of knowledgeand the spontaneous formation ofsystems"-that unify Hayek's work.

Individuals, as Hayek says, can'tknow everything, but the marketcan be trusted to coordinate a thou­sand subjective valuations in a price.Thus "spontaneity" is regulatedwithout the coercion that people, asindividuals, can never stomach forvery long.

As Campbell points out, one ofHayek's earliest interests was psy­chology. Indeed, Hayek once debated

THE ESSENCE OF HAYEK 635

the idea of becoming a professionalin that field. Since Austrian eco­nomics, as developed by Carl Men­ger, Eugen Bohm-Bawerk and Lud­wig von Mises, eschews "macro­economic" preoccupation with sta­tistical aggregates and concentrateson the subjective nature of individ­ual choice, Hayek managed to findplenty of room for the contemplationof human vagaries even within theso-called dismal science.

The Human Nature

It was knowledge of human naturethat made Hayek's The Road to Serf­dom, written in wartime England,the great book that it was and is.John Maynard Keynes, Hayek'sfriendly enemy in the cloisters ofCambridge, had assumed that indi­viduals could be handled in the massby a dedicated bureaucracy once agroup consensus could be estab­lished. In wartime, with an enemyat the gates, this can be done. Butwhat is possible in a war crisis is notpossible in times of peace. Humannature will out. Individuals havethousands of varying desires of theirown, and they make their separateplans accordingly. If a master plan­ner presumes to thwart them, re­sentments will multiply to thebreaking point. The central plan­ners, to carry out their assumed mis­sion will feel constrained to bring inthe strong-arm boys to knock recal­citrants into line. So the "worst"

must eventually get on top. Aplanned society is not possible with­out a bureaucracy of thugs. Orwellhad not yet written 1984 whenHayek presented his analysis of sta­tist controls to Keynes, who, inpraising The Road to Serfdom as a"grand" book, uttered a feeble pro­test that people ought to respect thejudgment of a disinterested elite.

To Hayek, words have conse­quences. Most idea people-the"scribblers" who, in Keynes's the­ory, have usually to wait a genera­tion to see their doctrines picked up­are not normally action-oriented.But Hayek, in addition to being ascribbler, has also been a great"doer." Where would England'sMargaret Thatcher be today if An­tony Fisher, a British RAF pilot whomade some money as a chickenfarmer by outguessing the control­lers, hadn't gone to Hayek to seekadvice about a possible career in pol­itics? John B. Wood, in a book calledThe Emerging Consensus put out bythe Institute of Economic Affairs inLondon, gives us an anecdotal re­cital of how Fisher's visit to Hayekin 1945 resulted in the "spontaneousformation of systems."

Hayek told Fisher to play politicsat one remove, urging him to use hismoney and influence to change theclimate of opinion in an Englandthat needed a whole new line ofthought. Taking Hayek with highseriousness, Fisher decided to set up

636 THE FREEMAN October

a research organization in London.He found his director in the ener­getic Ralph Harris, who doubled assecretary and, later, as president ofthe Mont Pelerin Society, which hadalso come into being to advance thefreedom philosophy because of theword spread by Hayek. The pam­phlets, books and research materialput out by Ralph Harris's Instituteof Economic Affairs played a greatpart in the education of MargaretThatcher, who acknowledged it bymaking Harris a member of theHouse of Lords.

Changing Opinion

John Wood says the Fisher-HarrislEA is a "good illustration of the so­cial philosophy with which it is nowidentified, namely, that most crea­tive developments in society resultfrom harnessing the spontaneousforces generated by individuals."The words could be adapted to de­scribe Leonard Read's FEE in Amer­ica. Tony Fisher has more recentlybeen exercising his spontaneity bystarting new research institutions incities around the world. One ofthem,the Fraser Institute of Vancouver,has been credited with killing rentcontrols in Canada and helping tosend a conservative majority to thecapital in Ottawa.

As a "doer," Hayek was responsi­ble for a notable Mont Pelerin meet­ing that was devoted to exploding themyth that the industrial revolution

in Britain has impoverished two orthree generations of British work­ers. Hayek's contributory essay,"History and Politics," reprinted inThe Essence of Hayek, is a most ef­fective refutation of the notion,spread by Marx and Engels, that asteady proliferation of the toolsavailable to workers can only resultin their degradation as the capital­ists seize the product. The industrialrevolution enabled many more peo­ple to come to birth in England, andto achieve steadily improving stan­dards of living.

Hayek, in another notable essayreprinted here, insists that he is an"Old Whig," not a conservative. Oneof the traits of the conservative at­titude, he says, "is a fear of change,a timid distrust of the new as such."If Hayek is speaking of some of theTories who make things difficult forMargaret Thatcher, he is, of course,correct. But the term "Whig" wouldnever be understood in America,where the Whigs in nineteenth cen­tury history were the supporters ofgovernment largesse.

Hayek is fearful of the political fu­ture as long as "the ordinary rep­resentative cannot say 'no' to anylarge number of his constituents,however unjust their demands, andstill hope to retain his seat." Hayekwrote these words in 1976. They stillhold in 1985. But Reagan has readHayek, and that, conceivably, couldmake a difference. We shall see. ®

1985 OTHER BOOKS 637

MARXISM: PHILOSOPHYAND ECONOMICSby Thomas Sowell(William Morrow and Company, Inc., 105Madison Ave., New York, NY 10016),1985281 pages _ $15.95 cloth

Reviewed by Kenneth L. Marcus

THOSE who would defend freedomagainst its opposites must avoid thepat generalizations and hackneyedmisconceptions that have coloredboth apologies for and attacks uponthe work ofKarl Marx and FriedrichEngels. In his slim, tightly wovenbut thorough exposition, ThomasSowell cuts through the labyrin­thine rhetoric of Marx and Engels toprovide a scholarly but concise andaccessible interpretation of Marxiantheory.

Reserving criticism for his finalchapter, Dr. Sowell simply and sys­tematically presents the philosophy,economics, historical theory and po­litical strategy of Marxism. He em­phasizes that Marx must be under­stood in terms of his dialectics, thusavoiding the pitfalls of earlieranalysts.

Dialectics refers to the process bywhich things change and develop."What Marxian theory derived fromHegel," Sowell tells us, "was that theway to understand the world was notto see it as a collection of things but

as an evolving process. An acorn ora caterpillar could not be understoodas a fixed and isolated thing, with­out seeing that it was a transitorystage of an ongoing process thatwould eventually turn one into anoak tree and the other into abutterfly."

Marx was essentially interested inhuman development and wanted toestablish the social environmentwhere human beings might best re­alize their potential. Under the "ex­ploitative" conditions of capitalismand the division of labor, Marxclaimed, people can develop them­selves only partially. Standing allday in a factory and working in frontof a machine does not encourage aperson to develop and express his orher personal creativity.

Marx's theory of history tries toexplain the transformations ofwholesocieties. Changing technologiesbring changes in economic relation­ships and ultimately in politicalstructures and ideologies. Society isnot completely determined by itsmodes of production, but economicdevelopment provides the tenden­cies which society will follow.

Capitalism is viewed as a neces­sary stage in socio-economic devel­opment, but one which will eventu­ally be "negated" or replaced. Itoffered wider potentialities for man­kind than earlier systems and pro­vided a rapid increase in production,but it leads to continual, periodic

638 THE FREEMAN October

crises which will ultimately hastenits development into a higher formof society.

The form the revolutionary move­ment would take was seen by Marxand Engels as crucial to the devel­opment of the post-revolutionary so­ciety. A democratic regime would bepossible only if the bourgeois rulewere overthrown by a mass move­ment of workers, but a small con­spiracy of professional revolution­aries would imply dictatorial ruleafter the revolution.

Dr. Sowell sees the modern prac­tice of communism as being, in asense, a betrayal of Marx's thought,but not one which should have beenwholly unpredictable. For one thing,Marxism is, in Sowell's words, "amighty instrument for the acquisi­tion and maintenance of politicalpower." And it is not entirely clearwhether Marx himself would nothave committed the atrocities of aJoseph Stalin or a Pol Pot.

Nevertheless, Dr. Sowell, whohimself now holds a distinctly free­market outlook, remembers the at­traction which Marxist doctrine onceheld for him and continues to holdfor countless students and intellec­tuals. He tells us, "What Marx ac­complished was to produce such acomprehensive, dramatic, and fas­cinating vision that it could with­stand innumerable empirical con­tradictions, logical refutations andmoral revulsions at its effects."

Dr. Sowell, too, is dramatic andcomprehensive, and his book isclearly written and devoid of jar­gon. It is ideally suited as an intro­duction to Marxism, but it delvesdeeply enough to recommend itselfto more learned scholars. The lastchapter spells out the tragic flaws inMarx's reasoning and is especiallyworth reading. Dr. Sowell has pro­vided a valuable work which will en­able us to base our acceptance offreeenterprise and our rejection of com­munism on careful study anddeliberation. ®

THE ESSENTIAL ROYSTER:A VERMONT ROYSTER READERselected by Edmund Fuller(Algonquin Books of Chapel Hill, P.O.Box 2225, Chapel Hill, NC 27515), 1985345 pages • $18.95

Reviewed by Robert M. Thornton

REVIEWING this collection of essaysand lectures is difficult becauseRoyster-former editor of The WallStreet Journal-writes wisely and el­oquently on so many subjects­George Washington and Martin Lu­ther, our duty to posterity and re­spect for the Constitution, foreignpolicy and the military, inflation andthe State, politics and politicians(from FDR to RR), public moralityand education, modern technologyand the Promethean Gift, criminal

1985 OTHER BOOKS 639

trials and the use of words. His"purely personal" columns on mar­riage, grandchildren and the cele­bration of anniversaries are a de­light-touching but not cloying,filled with sentiment but notsentimental.

Let me dwell briefly on what Roy­ster says about journalism, his ownfield of endeavor for fifty years andan increasingly controversial sub­ject during the past decade or two.

Our Founding Fathers believed inthe revolutionary idea of freedom ofthe press. They would be surprised,however, and perhaps disturbed by"what has evolved in the succeedingtwo centuries from their views ofwhat constitutes freedom of thepress." Certainly "they did not en­vision a press of very nearly unre­strained license."

Royster quotes Blackstone: "Theliberty of the press is indeed essen­tial to the nature of a free state; butthis consists in laying no previous re­straint upon publications, and not infreedom from censure for criminalmatter when published. Every freeman has an undoubted right to laywhat sentiments he pleases beforethe public: to forbid this is to destroythe freedom of the press; but if hepublishes what is improper, mischie­vous or illegal, he must take the con­sequences of his own temerity."

There, declares Royster, "is thewhole of the law and the philosophyof the press as it appeared to En-

glishmen of the eighteenth century,including our own revolutionists."

Royster believes the Americanpress occupies a unique position to­day and by the word press he refersnot just to "the newspapers of masscirculation but to the whole of thepress in all its multiplicity and di­versity." This "American press," hewrites, "can publish what it will. Itcan seize upon secrets stolen fromgovernment archives and broadcastthem to the world. It can strip theprivacy of councils and grand juries,it can pillory those accused of crimesbefore they are tried. It can heap cal­umnies not only upon elected gov­ernors but upon all whom chance hasmade an object ofpublic attention. Itcan publish the lascivious and thesadistic. It can advance any opinionon any subject, including the opinionthat all our government is corruptand that the whole ofthe social orderproclaimed in 1776 should be sweptaway and another put in its place."

Royster believes that "freedom ofthe press is not some immutableright handed down to Moses on Mt.Sinai. It is a political right grantedby the people, in a political docu­ment, and what the people grantthey can, if they choose, take away."Because he cherishes the preciousright of free speech, Royster warnshis fellow journalists not to abuse itbecause "there is no liberty that can­not be abused and none that cannotbe lost." (t

College division:

1985-1986 FREEDOM ESSAYCONTEST

for high school and college students

Write now for guidelines and information!

Ideas determine the course of human freedom. Here is anopportunity for students to express their own ideas on liberty inFEE's essay contest, Foundations of a Free Society. Essays shouldpresent the positive case for individual responsibility and choiceina free economy.

First prize essays will be published in The Freeman. Awardwinners and runners-up will receive fellowships for a FEEseminar. Cash awards will be made as follows:

Fi rst Prize-$2000Second Prize-$1000

High school division: First Prize-$1000Second Prize-$500

Teachers and professors instrumental in the submission ofrecognized essays will receive a $100 award.

The deadline is January 15, 1986.

Please write: Freedom Essay ContestThe Foundation for Economic EducationIrvington-on-Hudson, New York 10533