the

FreemanVOL. 34, NO.4 • APRIL 1984

Social Responsibility-A Page on Freedom, No.5 Brian Summers 195

Profits are earned through responsible business behavior.

What Killed Ma Bell? Melvin D. Barger 196A bureaucratic structure gives way to competition.

The Public Be Damned .... Again! Thomas E. Schaefer andSid Streicher 205

Both customers and suppliers will gain from competition.

Unionism Revisited Clarence B. Carson 209Correcting some possible misconceptions concerning the nature oflabor union policies and practices.

Does Welfare Diminish Poverty? Howard Baetjer Jr. 219Never use the law to benefit some at the expense of others.

Women, Work and Wages Hans F: Sennholz 225Why women are better served, paywise and otherwise, in a freeeconomy than under socialism.

To Save the World Edmund A. Opitz 239Concerning the importance of keeping the peace but otherwiseletting things alone.

Book Reviews: 249"America by the Throat: The Stranglehold of Federal Bureaucracy"by George Roche"The Economics and Politics of Race: An International Perspective"by Thomas Sowell"Idols for Destruction: Christian Faith and Its Confrontation withAmerican Society" by Herbert Schlossberg"Double Crossing" by Erika Holzer

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

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

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

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A Page on Freedom

SocialResponsibility

NumberS

PROFIT-SEEKING businessmen are of­ten accused ofneglecting their socialresponsibilities. But in a free and openmarket, profit-seeking itself per­forms an important social function.

To see this, we need to understandfree market pricing. In an unham­pered market, the businessman ad­justs his asking price so as to just sellall his products. If he tries to chargemore than this market-clearing price,he loses so many customers to com­petitors that he can't sell all his wares.If he charges less than the market­clearing price, the demand for hisproduct exceeds his supply. Only atthe freely determined market-clear­ing price can the businessman sell asmany items as he wants, and cus­tomers buy as many items as theywant.

The intelligent businessman is wellaware ofthis. He knows that he can'tmake profits by simply raising hisprices because he would soon lose

customers to his competitors. Thereis only one thing he can do-cut costsof production. Thus, the business­man tries to use his men and materi­als in the most efficient manner pos­sible. And, because he must paymarket wages, prices, and interestrates, he tries to minimize the num­ber ofpeople he employs, the amountof capital he uses, and the quantityof natural resources he consumes inproducing his goods and services. Inother words, he tries to practice con­servation.

Thus, in a free and open market,with no government subsidies orotherspecial favors, businessmen earnprofits by using as little as possibleto provide consumers with as muchas possible. The greater the profit abusinessman earns, the more scarceresources he leaves for other peopleto use. What is irresponsible aboutthat? ,

-Brian Summers

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

195

Melvin D. Barger

MA BELL, the world's biggest com­pany and largest private telephonesystem, went to her Eternal Rewardon January 1. Although she wasreincarnated as anew, slimmed­down AT&T and seven regionalholding companies, the successors tothe old Bell System will be vastlychanged from the giant telephonecompany which was such an inti­mate part of American life for mostof this century. The most significantchanges are the separation of AT&Tfrom the Bell operating companiesand the introduction of increasedcompetition in the telephone field.Most of us who believe in free mar­ket economics think the change willbe beneficial.

But before we say a last farewellto Ma Bell, we should at least hold apost mortem to find out the truecauses ofher demise. What killed MaBell? Why did she have to die? Howdid her terminal condition arise?

Mr. Barger is a corporate public relations represen­tative and writer in Toledo, Ohio.

196

Some believe the Bell System wasbrought down by the U.S. JusticeDepartment. The Justice Depart­ment had wanted to break up AT&Tfor a long time and had first at­tempted it with a 1949 civil suit.While that lawsuit had been settledby a 1956 Consent Decree which leftAT&T virtually intact, a secondJustice Department suit filed in 1974was more successful and resulted inthe dramatic divestiture settlementwhich was announced on January 8,1982 and carried out two years later.

Another hero ofthe AT&T breakupis Federal Judge Harold Greene, whopresided o.ver the case and insertedsome of his own convictions in thesettlement-such as the order di­vesting the new AT&T of its lucra­tive Yellow Pages operation. Per­haps it was Judge Greene's un­friendliness that convinced AT&Tmanagement to accept divestiturerather than even harsher terms in afinal ruling later on.

Finally, Ma Bell may have been

WHAT KILLED MA BELL? 197

·partly done in by her critics. The BellSystem had made a lot of enemiesover the years. TV comedians likeJoan Rivers roasted the telephonecompany before audiences of mil­lions, while crusaders like RalphNader lashed out at the system inbooks and articles. None of thishelped a company that craved andneeded the public's support and goodwill.

It's true that all of these forcesplayed a part in Ma Bell's demise.Yet the real cause ofher demise mayhave been her long status as a "reg­ulated natural monopoly." While thisregulation may have appeared to beMa Bell's great strength, it was alsoa weakness that proved fatal overtime. And in the 1960s, a number ofserious problems developed whichAT&T was not equipped to solve un­der the old status.

The Key to the Problem

Perhaps the key to understandingMa Bell's illness and demise is in alittle-known but important book en­titled Bureaucracy, by Ludwig vonMises.1 First published in 1944 andlargely reflecting Mises' experiencewith governmental bureaucracies inEurope, the book shows why bu­reaucracy is necessary for certaintypes of organizations and why itbecomes harmful or ineffective forother types of organizations. Unlikethose who merely denounce bureau­crats, Mises had a sympathetic un-

derstanding of bureaucracy as "amethod of management which canbe applied in different spheres ofhu­man activity." He noted that' bu­reaucratic methods are a necessityfor handling the apparatus of gov­ernment, and that what people con­sider as an evil is not bureaucracyas such, "but the·· expansion of thesphere in which bureaucratic man­agement is applied."2

Mises defined bureaucratic man­agement as "management bound tocomply with detailed rules and reg­ulations fixed by the authority of asuperior body." But business man­agement, on the other hand, ismanagement directed by the profitmotive.3 For a profit-seeking orga­nization, "success" is not whether theorganization closely follows certainrules and procedures, but whether itis profitable.

In the United States, however,many private companies-while stillprofit-seeking organizations---havebeen driven toward bureaucratiza­tion by government interference ofone type or another. The most bu­reaucratic types of private organi,,"zations are those whose prices or ac­tivities are regulated and those whoengage in a great deal of govern­ment business or depend on the gov­ernment for the right to carryontheir business. In a sense, many ofthese private businesses have toserve two masters: they must beprofitable, and yet they must carry

198 THE FREEMAN April

BureaucracyA private business is doomed if its operation brings losses only and no

way can be found to remedy this situation. Its unprofitability is the proofof the fact that the consumers disallow it. There is, with private enterprise,no means of defying this verdict of the public and of keeping on. Themanager of a plant involving a loss may explain and excuse the failure.But such apologies are of no avail; they cannot prevent the final aban­donment of the unsuccessful project.

It is different with a pUblic enterprise. Here the appearance of a deficitis not considered a proof of failure. The manager is not responsible for it.It is the aim of his boss, the government, to sell at such a low price that aloss becomes unavoidable.

LUDWIG VON MISES

out rules and regulations whichmight inhibit their ability to com­pete. They are, to quote Mises, ex­pansions of "the sphere in which bu­reaucratic management is applied."

The Bell System was a victim ofbureaucratized management, al­though it was a privately owned cor­poration and operated on a profit­seeking basis. But its profit-seekingactivities were carefully monitoredand restrained by authorities. Bellwas subject to three of the fourmethods which, Mises noted, gov­ernment authorities apply to inter­fere with the "height of profit" inprivate companies: 1) The profits thata special class of undertakings is freeto make are limited; 2) The (govern­ment) authority is free to determinethe prices or rates that the enter­prise is entitled to charge for thecommodities sold or the servicesrendered; and 3) The enterprise is

not free to charge more for commod­ities sold and services rendered thanits actual costs plus an additionalamount determined by the author­ity either as a percentage of the costsor as a fixed fee. (Not applicable toBell's case was the fourth methoddescribed by Mises, which allows theenterprise to earn as much as it can,with taxes absorbing all profit abovea certain amount.)4

Most private companies· encoun­ter some political interference withtheir profit-seeking activities. Butpublic utilities and defense contrac­tors usually receive the most directcontrols because, to a certain extent,they owe their existence to govern­ment favors. In the case of the BellSystem, this government controlwent back more than 70 years, andit set the company up for serioustrouble when changes came in thelate 1960s.

1984 WHAT KILLED MA BELL? 199

The Leadership ofTheodore N. Vail

Bell's venture into bureaucratizedmanagement started in the 1907­1919 period under the leadership ofTheodore N. Vail, whom Bell peoplerevere as the architect of the mod­ern system: "Alexander Graham Bellinvented the telephone, but Theo­dore N. Vail invented the Bell Sys­tem," Bell people have said.5

What Vail invented was a uniqueway of organizing the system underprivate ownership while gettinggovernment approval of the conceptofa "natural" monopoly which shouldbe operated "in the public interest."A number of competing telephonesystems had blossomed in the earlypart of the century, and in some casespeople served by one system couldnot be connected with people hookedto another in the same area. To Vail,this was wrong and inefficient, andhe apparently did not believe thatmarket forces would solve this prob­lem. Moreover, the most seriousthreat to AT&T was not competitionfrom other companies; it was thethreat of being taken over by thefederal government to be run as anarm of the Post Office. This was avery real concern, and in view of thefact that other major countries endedup with government-owned tele­phone systems which often per­formed badly, we owe Vail a greatdebt for keeping the U.S. telephoneindustry in private hands.

No Friend of the MarketBut Vail was no friend of the free

market or of competition. A distin­guished business philosopher, heproduced a number of essays andspeeches which show that he clearlyfavored using the power of govern­ment to help him reach the goals hesought for the telephone industry."One Policy, One System, UniversalService," was his emphasis, and healso said, in 1911, that a "publicutility giving good service at fairrates should not be subject to com­petition at unfair rates."6

This seemed a reasonable idea ina time when the public was indig­nant about the profits of huge cor­porations and trusts. The concept ofgiving good service and acceptingonly "fair" rates in return se~med toshow remarkable restraint. It alsoseemed reasonable to accept govern­ment regulation. Vail noted in a 1915speech that the telephone was con­sidered a necessity: "Society hasnever allowed that which is neces­sary to existence to be controlled byprivate interest." But he defended themonopolistic aspect of the Bell Sys­tem because of its efficiency and de­votion to service and the public in­terest, and he felt that regulationwould work well provided men "ofthe highest standard" could be ap­pointed to the regulatory bodies forlife, with careful provisions made tosafeguard their independence fromcorporate or political pressures.7

200 THE FREEMAN April

Although Vail's beliefs appearedwise and sound, any present daystudent of business and governmentwould know he was not talking aboutthe real world of commerce and pol­itics. For one thing, "fair rates"sounds marvelous in a speech, but itbecomes elusive when regulatory of­ficials actually try to make rate de­cisions. Few subjects today are morecontroversial than the rates chargedby public utilities, and "rate hear­ings" by state commissions aresometimes the scenes of near-vio­lent demonstrations with frequentheckling and name-calling.

No Government Body Can BeFree from Political Pressures

It is also unrealistic to believe, asVail apparently did, that any gov­ernment body can be free from cor­porate or political pressures. Whathe idealized, of course, was a states­manlike group that would makeprofoundly wise decisions in thepublic interest and without the aimof benefiting or penalizing any partof society. As we know, however, allregulatory bodies are subject topressures of various kinds, to saynothing of the convictions and prej­udices held by individual members.And even lifetime appointments donot make people "independent" asVail wanted them to be. For onething, persons on lifetime appoint­ments always know that their sta­tus, if necessary, can be changed by

public vote, and they are also vul­nerable to other public sanctions.

Still, it is to Vail's everlastingcredit that his prescription for theBell System did work well for manyyears. AT&T built what was consid­ered the best telephone system in theworld. Bell System officials usuallywon cooperation from federal andstate officials and were left free tomanage the telephone business inmost important ways. They carriedout their mission ofservice with greatskill, and they also took care not toflaunt their monopoly position. Thetelephone operator was alwayspleasant and helpful, the servicetruck always arrived promptly, andBell people would go to any lengthsto get systems working again whenthere was storm damage.

Technical Advances

Moreover, the system moved aheadon the technical front, and we cameto expect frequent improvements:rotary dialing that eliminated needfor calling the operator, direct dial­ing of long distance, WATS service,and better telephones. With a sys­tem that covered more than 80 percent of the nation's telephones, Bellcould do extraordinary things to getlong distance calls through whencircuits were busy in certain areas.With service like that, why wouldanybody want a different kind oftelephone system?

But trouble was never far away

1984 WHAT KILL:F~DMA BELL? 201

from the Bell System. One of theprickliest matters was Bell's owner­ship ofWestern Electric, the manu­facturing subsidiary that producedmost of the equipment for AT&T. Aplus-$12 billion-a-year business in1982, Western Electric had long beenunder attack. Indeed,. it was to forcethe divestiture of Western Electricthat prompted the U.S. Justice De­partment's 1949 civil suit againstBell. To AT&T, Western Electric wasa necessary part of its operations andhelped it to assure a high quality ofservice. To others, it was simply an­other manufacturer that was able tomaintain a government-sponsoredmonopoly position because the 22Bell operating companies were cap­tive to it and had to buy most of theirequipment from Western Electric.Some believed that Bell officials ma­nipulated Western Electric's book­keeping, and the like, to produce taxadvantages for the company. What­ever the facts, there was no denyingthat Western Electric held a monop­oly position that simply wouldn'thave existed in a nonregulated en­vironment. This was a festering is­sue with companies that had the ex­pertise and technology to competewith Western Electric, but were de­nied entry to the market.

More serious trouble came for theBell System as a result of its rate­making and costs policies. In 1934Congress passed the Communica­tions Act which gave the newly

formed Federal CommunicationsCommission jurisdiction over AT&T<although state regulatory bodies alsocontrolled the local Bell companies).According to a recent AT&T publi­cation; the Communications Act "putinto law the long-standing AT&Tprinciple of providing universaltelephone service at reasonable cost.One result was to subsidize lowerresidential rates by raising the costof long distance service and businessservices-an action that set off acontinuing controversy in the ensu­ing years."8

The Achilles' Heel

This rate-setting policy, seem­ingly an advantage in the 1930s, be­came the Bell System's Achilles' Heelin the 1960s. It also shows, more thanalmost anything, how far the BellSystem had been able to stray fromthe usual constraints that face busi­ness organizations in the market­place. No business with competitorscan deliberately reduce its prices toone group of customers while mak­ing up the difference by overcharg­ing other groups. This would be cer­tain to bring at least two undesirableeffects: 1) There would be excess de­mand for the underpriced commodi­ties or services, bringing additionallosses to the business, and 2) com­petitors would swoop in to capturethe overpriced part of the business,making the original pricing strat­egy unworkable.

202 THE FREEMAN April

But Ma Bell could adopt such apricing policy because of the tele­phone company's monopoly position,which the government protected.Company officials knew that certainparts of its markets were temptingtargets for potential competitors. Butboth Bell policy and public policy,backed by the police power of gov­ernment, kept raiders out of thesemarkets. More than almost any­thing, this. policy showed how re­sponsive the Bell System was to po­litical moods and trends. The practiceof holding down residential rates andovercharging long distance users wasreally a subtle form of the "soak therich" policies that had come to dom­inate government thinking in the1930s. It is also true that residentialusers, as a group, command morevotes in state and federal electionsthan do long distance and businessusers. What the rate policy reallymeant is that long distance andbusiness users were being taxed, withMa Bell as the collector, to subsidizeresidential service. This gap becamevery large over time. An Ohio Bellofficial said early in 1983, "We'recollecting, on the average, about $12a month for basic local service fromeach residence customer. The gapbetween this $12 price and the $25cost is currently recovered from otherservices priced considerably higherthan their costS."9

This unusual rate-making policymight have continued virtually un-

noticed for a number ofyears exceptfor two developments. One, the FCCin 1968 issued its famous "Carter­fone" decision which opened the wayfor business and residential use ofinterconnecting equipment. Then,aided by new technology, a companycalled MCI was given FCC author­ity to proceed with long distanceservices in a selected market. A 1978federal appeals court decision laterupheld MCI (and others) in servinglong distance customers, previouslya Bell fiefdom.

The Bell System's Dilemma

Critics of the Bell System ap­proved of these moves and there waswidespread agreement that it wasabout time AT&T faced some "realcompetition." Dismayed AT&T offi­cials tried to fight back by accusingcompetitors of "cream skimming,"Le., taking the most lucrative mar­kets and ignoring other telephoneservices. This is the same argumentthe government uses to protect itsmonopoly on first-class mail, and itactually has merit. It really is notfair to place one organization undertight control, with bureaucraticmanagement, and then suddenly ex­pose it to competition from otherfirms who are free to select theirmarkets. Mises would have under­stood the Bell System's dilemma im­mediately: It was following pricing(or rate-making) rules that had beenworked out over time by public au-

WHAT KILLED MA BELL? 203

thorities. Its assignment had been topromote widespread use ofan essen­tial necessity, the telephone. It car­ried out this mission and then,abruptly, FCC and federal court de­cisions brought a radical change inthe rules.

It's hard to say what the long-termeffect of these new rules will be, butit's clear that the Bell System wasalready being devastated by com­petition even before the 1982 divest­iture announcement. A large num­ber of all new business installationswere non-Bell, and MCI and Sprinthave captured part of the long dis­tance market. Competitors' shares ofboth long distance and businessmarkets could balloon to enormoussize unless AT&T is able to counterthis competition.

Lack of Flexibility

Meanwhile, the Justice Depart­ment in 1974 had again filed suit toforce the divestiture that has nowtaken place. AT&T ChairmanCharles L. Brown noted that Bell­which had been barred from enter­ing the computer field by the 1956Consent Decree-faced a "fence witha one-way hole in it"-a hole thatadmitted Bell's competitors but didnot permit the company to competeback. to It's also true that the Carter­fone and MCI decisions were of thesame order. Bound by regulation andexcessive rules, the company simplydid not have the flexibility to strike

back at these new competitors in theway any lean, marketing-orientedcompany is likely to do.

Even without divestiture, giantAT&T would eventually have cometo grief if. it had attempted to con­tinue under close regulation whilenew competitors plucked away at itschoicest markets. For one thing,where would it have found the rev­enues to continue subsidizing resi­dential service? And how could ithave elevated residential rates toreflect their. true cost when thesematters are controlled by state pub­lic utility commissions? The com­pany was in a no-win situation, andBell officials were glumly aware ofit.

What killed Ma Bell? Well, anumber of forces moved against herin the end: competitors, critics, theFCC, the Justice Department andfederal courts. But she 'really passedon because her method of manage­ment-the bureaucratic manage­ment that is useful for public insti­tutions-is ill-~uitedfor competitivebattles. From the sound of their ad­vertising and the restructuringthey're undergoing, AT&T and thenew Bell offshoots are becoming moreattuned to the demands of the mar­ketplace. They'll need to become at­tuned. There are lots ofhungry com­petitors out there who want a pieceof the action, and there will be dra­matic shootouts in pricing, servicesand technology.

204 THE FREEMAN

People who hail the new competi­tion in the telecommunications fieldshould not be too critical of Ma Bellin her era of monopoly. Her perfor­mance and service were marvelouscompared with the performance andservice of government-owned tele­phone systems elsewhere. If thechoice is only between a govern­ment-owned, government-operatedenterprise and a private, profit­seeking enterprise regulated andcontrolled by government, the BellSystem record seems to say that thelatter is better.

The mistake, which both the pub­lic and Bell accepted, was in believ-'ing that anybody should be grantedabusiness monopoly enforceable bylaw. It's true that the early tele­phone industry appeared chaotic andinefficient when two telephone sys­tems in the same area could not con­nect with each other. In short order,however, the needs ofthe customers,merger, or improved technologywould have overcome this problem.And "natural" monopolies, to theextent that they exist, become out­moded. The railroads, for example,once had a monopoly on fast over­land transport; this was quickly by­passed by the trucking industry inthe 1930s. In the same way, the tele­phone companies' natural monopolyon service in a given area may soonbe bypassed by a profusion of newtechnologies.

The 22 Bell operating companies,which will continue to be regulatedunder the umbrellas of the sevenholding companies, may have trou­ble maintaining their position whennew methods of bypassing them aremarketed. AT&T itself, with itsprestigious Bell Laboratories, West­ern Electric, and Long Lines maybecome a strong competitor in push­ing these new technologies. But itsprotected, captive market is gone.

Ma Bell was a grand old lady inher day. We might agree with ArtBuchwald, who called her "the onlymonopoly I ever loved." But wewouldn't really want her back. ,

-FOOTNOTES-

lLudwig von Mises, Bureaucracy (Cedar Falls,Iowa: Center for Futures Education, 1983; N.Y.1969; an unaltered, unabridged reprint of the1944 Yale University Press edition).

2Ibid., p. 44.3Ibid., p. 45;4Ibid., pp. 65-66.5Alvin von Auw, Heritage & Destiny (New

York: Praeger Publishers, 1983), p. 5.6Theodore N. Vail, Views on Public Ques­

tions, 1917. A privately published collection ofwritings and speeches.

7John Brooks, Telephone (New York: Harper& Row, 1975, 1976), p. 144.

8AT&T Communications, a pamphlet pub­lished by the new AT&T to explain the divesti­ture and the services it will offer in the future,p. 6. From AT&T, New York.

9W. E. MacDonald, The New Ohio Bell in theAge ofInformation , Speech before Thledo (Ohio)Rotary Club, February 28, 1983.

10Alvin von Auw, p. 29.

Thomas E. SchaeferSid Streicher

The PublicBe DammedAgain!

• • •

FEW of us non-saints live fully bywhat we preach. We excuse our­selves, of course, by admitting we'rehuman. But there are limits to howfar we can tolerate a gap betweenwhat we preach and what we do.When the gap gets too large, we mustask if we really believe what wepreach.

In the realm offree enterprise, thegulf between American rhetoric andAmerican practice has grown so largeas to force the question: Do we reallybelieve in competition?

-Item: A recent segment of theABC-TV show, "Good MorningAmerica" described cosmetic sur­gery performed in a California phy­sician's office. The procedure is lessexpensive than having it done in a

Dr. SChaefer is Professor of Management at the Uni­versity of Texas of the Permian Basin.

Dr. Streicher is Associate Professor of Mid-Man­agement at Odessa College.

hospital. The reporter quoted a hos­pital administrator who complainedthat loss of revenue from surgeryperformed outside the hospital wouldcause increases in hospital chargesto make up the lost income. Thephysician replied that increasedcompetition should force the hospi­tal to lower, rather than raise, itsprices.

The saddest part of this tale is notthe upside-down view of economicsdisplayed by the hospital adminis­trator. His complaint, as soon as awhiff of competition appeared, typi­fies an attitude. His ignorance is de­plorable, but the mind-set that ledhim to complain is frightening.

Increasingly, in knee-jerk fash­ion, we look to government, not tothe market, to solve our problems.Surely it is logical to turn certaineconomic functions over to govern­ment, or other institutions.How­ever, these practices have been car-

205

206 THE FREEMAN April

ried to such extremes that it isdifficult to see how public interestsare being served.

The Public Be Damned?

In the late 1880s, the New YorkCentral railroad decided to discon­tinue the Chicago Limited, a fast,extra-fare passenger and mail trainwhich ran between New York andChicago. Reporters interviewedWilliam Henry Vanderbilt, son andheir of the Commodore. They asked,"Don't you run it (the train) for thepublic benefit?" Vanderbilt's famousanswer, "The public be damned," wasonly part of what he said. The restof his reply was, "I am working formy stockholders. If the public wantthe train, why don't they pay for it?"

Vanderbilt's question touched bothsides of the supply-demand equa­tion. Had the public wanted that fast,extra-fare train, they would havepaid for it by buying tickets to rideit. The railroad chose to discontinuethe train because it was not profit­able. When alternatives to trainsbecame more plentiful in the formsof trucks, airplanes, and automo­biles, the railroads became less andless profitable, and there were wide­spread changes in railroad opera­tions.

Traditional View Under Attack

The ability to turn a profit tradi­tionally has depended on a firm'sability to compete for the customer's

dollar. Increasingly, however, firms,through government, seek to controlcompetition while masquerading asfriends of the consumer. Their ef­forts often turn out to be anythingbut friendly.

-Item: A spokesperson for theAmerican dairy industry recentlydescribed it as the most efficient inthe world. Compared to what? Pricesupports provided for dairy productsby the federal government have re­moved competition from the dairy­man's world. Producers can produceas much as they want, without re­gard to supply and demand. Whatthe consumers don't buy at the sup­ported price, the government will.Even the Edsel would have been awinner if Ford had had that kind ofhelp in 1958!

-Item: A recent article in the WallStreet Journal, headlined "TruckersAsk U.S. to Forbid Rate-Cutting." A1980 law made it much easier to getinto the trucking business, and in­creased competition soon followed.About 6500 more regulated truckbusinesses operate today than in1979.

The crux of the truckers' com­plaint is "shippers are taking fulladvantage of the overcapacity," andthere is "a feverish scramble to forcethe best deal out of each carrier."This is what the free market is allabout. But the truckers want the ICC

1984 THE PUBLIC BE DAMNED.· ... AGAIN! 207

to restrict rate-cutting. They claimlowered rates violate tariffs filed withthe ICC. For whose benefit? Thetrucking companies will be forced tocompete, and they -don't like it. Asderegulation produces lower pricesfor shippers, truckers will have tofight to stay in business. They don'tlook forward to the experience. Thedairy industry has similar reserva­tions about the prospects of freemarket competition.

-Item: Greyhound Bus Lines isready to discontinue service to sometowns in upstate New York becauseof extremely low passenger traffic.Greyhound cannot justify the ser­vice when so few seats are occupied.The outcry from the affected townsis piteous. Elderly people are quotedto show how they will be immobi­lized if the buses stop running intotheir towns. The State of New Yorkhas been asked to take steps to in­sure that Greyhound does not dis­continue the service. Once again,here is anticompetitive bias at work.

If there is sufficient demand forbus service in upstate New York,somebody will provide it, eventhough Greyhound may not. If aprofit can be made, an entrepreneurwill seek to make it. If no profit canbe made, how can we justify forcingan organization to provide the ser·,vice?

Do we, then, really believe in.competition, or do we merely mouth.

the words and back away when oneof our own vested interests is in­volved? Is it un-American to suggestthat Greyhound be permitted to stopcarrying a few senior citizens onotherwise empty bu~es? Are weagainst Motherhood if we believeElsie the Cow ought to sell her milkon the open market and pull in herhorns when supply exceeds demand?Is it too much to ask that Americanbusinesses serve their clients in acompetitive market?

Real Source of Wealth

The prime source ofwealth for na­tions, as for individuals, lies beyondresources ofoil or iron, com or wheat.Wealth, as demonstrated through­out history, lies in internal worldsof will and idea. As the economistJoseph Schumpeter insisted, the rootof abundance is competition and en­trepreneurial activity. Entrepre­neurs, dedicated to risk-taking andthe building of the earth, may besuppressed. They are now beingsuppressed throughout our land. Buta government which obstructs com­petition writes its own economicobituary.

The attitudes which nourishwealth may be temporarily ne­glected without causing permanentdamage. The spirit of the free mar­ket is so deeply ingrained in ourheritage that no minor force maydestroy it. But people cannot live offtheir capital forever. The broaden-

208 THE FREEMAN

ing circles of anticompetitive atti­tudes which now rage through alllevels of our society threaten theproverbial goose and her golden eggs.We can avoid a reckoning only byencouraging the will to physical andspiritual excellence that resides inthe free soul.

The effort of the California doctorto compete with the local hospital isreally a test case. If the hospital,which sees the government as its realclient, appeals to that client andforces the doctor to retreat, our her­itage will suffer a loss. If the doctorprevails, we will have a small vic­tory in the effort to resurrect those

A Miracle in Process

elemental attitudes which makeAmericans "fighters, dreamers, cre­ators of new worlds."

Let The Market Work

We believe the market systemought to be allowed to work. We be­lieve consumers, whether individualor corporate, will benefit from mar­ket functions. And we believe Amer­ican business will be stronger for it.

The alternative, facing us on ev­ery hand, is a legalized twentiethcentury version of "the public bedamned." But this time, it may betoo late for public action to preventthe damning. i

IDEAS ON

LIBERTY

WHAT happened to the automobile and the ball point pen is illustrativeof what has happened throughout American industry. The speed withwhich comparatively new products have disappeared from the marketto make way for still newer ones has been fabulous if not miraculous. Infact, the word miracle might not be too strong. It is the miracle of amarket where consumers are free to call the shots, where they are freeto inspect every product offered to them and to act on their own judg­ment. It is a market where it is not considered immoral for consumersto act on their own judgment. In short, it is a market that is free.

In such a market, the consumer has every producer and would-beproducer in the world striving to give him more of the things he wantsand at the lowest prices possible. They are not striving toward that endbecause of any special love they might have for the consumer. They arestriving to please the consumer because that is their only route to theirown economic survival. It is the producer's search for newer and betterways of satisfying the consumer that keeps the flow of newer and betterproducts pouring into the market, thereby assuring a wide variety ofgoods available for almost every purpose.

BERTEL M. SPARKS, "The Consumer's Badge ofAuthority"

UNIONISMREVISITED

IN 1980-1981, several articles ofmineon unionism were published in TheFreeman. They were not publishedserially, but rather as separate ar­ticles from time to time. This pastyear, these articles, plus an intro­ductory and concluding chapter, werepublished by Western Goals as a pa­perback book-Organized AgainstWhom? The Labor Union in Amer­ica.

Since the time when I wrote mostof this book, a major change has oc­curred, or become more obvious, inthe status of unionism. Labor unionshave been declining: declining in theproportion of the number of theirmembers to the work force, declin-

Dr. Carson specializes in American intellectual his­tory. He has written a number of books, including theone here discussed: Organized Against Whom? TheLabor Union in AmerIca.

His most recent book, published by Western Goals,Is the first In a 5-volume series, A Basic History ofthe United States. This first volume deals with TheColonial Experience.

Clarence B. Carson

ing in the clout they can exercise overemployers, and declining in popu­larity. Indeed, the proportion ofunionto non-union workers had been de­clining for a good many years. Unionswere still entrenched in heavy in­dustries such as steel, coal, and au­tomobile, but they had not gainedmuch among service personnel or inlighter industries, as more workerswere employed in these. In the late1960s and in the 1970s, unions madeup for some of their losses by orga­nizing government employees, butthat has tailed off in recent years.

As much as I might delight in tak­ing the credit, I doubt that the pub­lication of either the articles or thebook had any appreciable impact onthe decline ofunionism. Although thesun does come up after the roostercrows, we are reasonably sure therooster's crowing has no causal ef­fect on the SUD. There are other moreprobable and direct causes for the

209

210 THE FREEMAN April

decline of unionism. The economicclimate has not been favorable forunions.

Unions Grow in Prosperous Times

Historically, unions have usuallyhad their periods of greatest growthin membership in periods when themoney supply was rapidly increas­ing, with an aura of prosperity pre­vailing. On the other hand, mem­bership has usually declined,sometimes drastically, in periods ofmonetary deflation, or, as these areoften called, depressions. This phe­nomenon is quite understandable.When money is plentiful and pricesare rising and employment is gen­eral, unions are much more easilyorganized and can more readily ob­tain such things as higher wages fortheir members. On the other hand,when money is tight and prices arefalling and unemployment spreads,unions cannot obtain higher wages,many members are unemployed, andemployers turn to the market forworkers when they can; union mem­bership usually declines.

The United States had whatamounts to a monetary deflation inthe late 1970s and early 1980s-adepression, if you will. It was not somuch caused by any actual reduc­tion in the money supply as it wasby high discount rates by the Fed­eral Reserve accompanied by gov­ernment competition for the avail­able money to make up for high

Federal deficits. But the results weremuch the same as a large reductionin the money supply: tight money,high interest rates, widespread un­employment, increasing bankrupt­cies, greatly reduced business activ­ity. The market adjustment to thissituation is to reduce prices, includ­ing wages, in order to shift produc­tion to meet changing demand andto attract customers. There is resis­tance to reducing wages at all times,and resistance is especially strongby labor unions. In consequence,many unionized factories and otherbusinesses have closed or drasticallyreduced their operations in the lastfew years. Unions are under heavypressure to yield on work rules andrestrictions as well as wages in or­der to reopen factories and increasework forces. In any case, all this hascontributed to the current low anddeclining status of labor unions.

The Great Exception

There has been one major excep­tion in our history to the decline oflabor unions in· a depression. It oc­curred during the Great Depressionof the 1930s. In the midst of thatdepression, in 1936-1937, there wasa major increase in union member­ship. Whole industries were success­fully organized. This occurred mainlybecause there was a major change inthe political climate. After a_ falter­ing effort in the first year of the NewDeal, Congress had succeeded in

1984 UNIONISM REVISITED 211

passing a law which empoweredunions to organize and use their tac­tics with government support andlittle let or hindrance from anyone.This was done by the passage of theNational Labor Relations Act in 1935and the subsequent setting up of aNational Labor Relations Board,manned by pro-union appointees.Thereafter, for the remainder of the1930s, union organization proceededvigorously and with considerablesuccess.

This exception serves also as an in­troduction to a broaderand more gen­eral point. The growth and declineof labor unions is not necessarily de­pendent upon inflation-deflation cy­cles. It may also depend upon the poli­tical climate. That, in turn, may de­pend upon public attitudes towardunions. In any case, the growthor decline ofunions depends in someconsiderable measure upon workerattitudes and beliefs about unions.Ultimately, I suspect, the large scaleexistence of labor unions dependsupon both public and worker accep­tance of them as a normal part ofaneconomy. If they are not so acceptedthey will tend to be at most occa­sional and temporary organizations,usually secret in character, and willnot muster political or legal support.

A Changing Climate

Which brings me back to my littlebook, Organized Against Whom? Thebook was written as an effort to make

some contribution to the public un­derstanding ofunionism. The presentdecline of labor unions may havesome further explanation than thefact that the recent depression hastaken its toll. There has been somechange also in the political climate.The most dramatic indication of thiswas in the Reagan Administration'shandling of the air traffic control­lers' strike. When the striking con­trollers who refused to return to workwere replaced, there was surely amessage in the action at least togovernment employees who are for­bidden by law to strike. There arealso indications, as reported both inthe public media and elsewhere, thatpublic sympathy and support for la­bor unions is at a low ebb.

Polls do not reveal, of course, howwell or ill informed either propo­nents or opponents of labor unionsare. Much of the opinion is almostcertainly on the level of remarksmost of us have probably heard overthe years. For example, proponentsof labor unions may say that theyare in favor of the working man. Or,opponents may say that unions haveperformed a valuable service but thatthey have grown too powerful andgone too far. In any case, I take itthat if opinion about unions is notgoing to shift much as the moneysupply does under the auspices of theFederal Reserve it needs a deeperand better informed basis than is in­dicated by such remarks.

212 THE FREEMAN April

Against Whom?Organized Against Whom? fo­

cuses on certain central aspects ofunionism and explores them bothhistorically and analytically. Themost obvious aspect involved is theanswer to the question posed in thetitle: Who are unions organizedagainst? The answer to this ques­tion is crucial both to our under­standing of and sympathy towardunions. Union rhetoric claims thatthey are organized primarily againstcapital, in Marxist terms, or-in thecontemporary formulations-man­agement or employers. Union rhet-.oric also claims that they are orga­nized for and represent laborgenerally, or "the worker." On thecontrary, my conclusion, supportedby both reason and evidence, is thatunions are most basically organizedagainst other workers, that when aunion is recognized by an employerhe is in tacit alliance with it, andthat the most direct results ofunionism are unemployment andunderutilization of workers. If thisthesis is correct and acceptable, theperson who declares that he is in fa­vor of unions because he is on theside of the working man is con­fronted with yet another question:Which working man?

Organized Against Whom? alsofocuses upon the nature and char­acter of the union over the years. Itdoes so not only to clarify who unionsare organized against but also where

they fit, if they do, within the econ­omy and other institutions of soci­ety. Labor unions have an impacton-are organized against-morethan other workers. Over the years,they have contested with govern­ments, management, other unions (inwhat are called jurisdictional dis­putes), and related industries to thosein which they are organized. Beyondthat, of course, they have made liv­ing more expensive for consumersgenerally. As for the contemporaryopponent of unions who gives as hisreason the fact that they have be­come too powerful, the historicalrecord indicates that unions from theearly 19th century down to thepresent have been basically orga­nized to exclude other workers fromcompetition with them for jobs.Whether they are powerful or not,that is the nature of their undertak­ing.

Unions Are an Enigma

It is no easy matter to get at thenature of labor unions. At the onto­logical level, it may be impossible todetermine exactly what sort ofbeingsthey are. They are an enigma: theyare neither simply voluntary asso­ciations of persons nor political or­ganizations. They are neither fish norfowl, so to speak, though they re­semble in some of their features avariety of other organizations.Though they frequently rely on somemeasure of coercion, they are not

1984 UNIONISM REVISITED 213

governments. Though they operatewithin an economy, they are noteconomical in character. They re··semble in important ways some sortof sect, a pseudo-religious sect be··cause of their ideological underpin..nings, and because of the govern··ment support they receive and themanner of their operations they areanalogous to an established church.

It is, I say, quite difficult, if notimpossible, to get at the full natureoflabor unions..Yet it is, in my judg··ment, very important to try to do so,because it is in these terms that wemust decide whether labor unione;can be fitted into a peaceful society,a free economy, and a political sys··tem in which established religione;are prohibited. Granted, I have castmy net more broadly than is com··mon in dealing with labor unions,but I believe the subject warrantsthe treatment.

Some Differences

In an essay called "On Labor" inThe Freeman (December, 1983),Percy Greaves has discussed Orga..nized Against Whom?, and chal·lenged some of my central pointsabout the nature of labor unions.Since I believe that his challengesare based mainly on a misreading ofwhat I was saying by lifting state··ments out of context or some differ··ences about premises, I would liketo examine both his challenges andthe context of my points.

Mr. Greaves says that there "aresome unfortunate contradictions inthe book, as when we read, 'Let meconfess at the outset that I do notknow what labor unions are.' Thenthe author proceeds in chapter afterchapter to tell what they are andwhat they do." But the statementquoted from Organized AgainstWhom? is a topic sentence, and it isimmediately followed by qualifyingand clarifying remarks. To wit: "Iknow many ofthe claims about them,know something of their tactics andmethods, have a fairly clear idea ofhow they originated and developed,but beyond that I am stymied. I knowthat they are some sort of organiza­tion, but the kind, nature, and char­acter of the organization is in doubt.More, I do not understand how andwhere labor unions fit into Ameri­can society." The broader context isthat the statement is made in themidst of an introductory chapterdealing with the enigmatic charac­ter of labor unions and the difficul­ties involved in determining the na­ture of some things. I fail to see thecontradiction in saying that I do notknow the nature of something fullyand then proceeding to get as nearan approximation of a grasp of itsnature as I can. Learning beginsquite often by becoming aware of thefact that we do not know something,and I was inviting the reader to joinme in the quest.

Mr. Greaves misreads my mean-

214 THE FREEMAN April

ing entirely when he takes me to taskfor saying that "Violence is not es­sential to unionism." I used the word"violence" in its common significa­tion, as my dictionary defines it,"rough force in action," for example,"a violent blow, explosion, . .. etc." Inshort, I had in mind assaults on per­sons and property by unions. Now tothe context. The preceding para­graph describes a violent confronta­tion between contending groups of­ten cited as early union activity. Thequestioned sentence appears in thisparagraph:

It should be emphasized, however, thatviolence is not essential to unionism. Itis sporadic and temporary, like the con­tentions between union and manage­ment. What is essential to unionism isthe limitation of the supply of laboravailable and some means to induce em­ployers not to avail themselves of thegeneral supply. Some sort of coercion orintimidation is necessary, however....

And I go on to explain why. Yet Mr.Greaves comments on this as ifI hadfailed to recognize the role of coer­cion in unionism. My point was oth­erwise.

Economic or Political?

His following objections go verynearly to the heart of my thesis. Hequotes me to the effect that laborunions "are not economic organiza­tions," "Nor is the labor union pri­marily a political organization." Onthis matter of whether or not labor

unions are economic organizations,I think he and I are using differentdefinitions or premises. Mr. Greavessays, "If economics is the science ofhuman actions to attain selectedgoals, then attaining union goals byboycotts, strikes and stopping othersfrom working are certainly eco­nomic actions." Perhaps, and so isthe Mafia.

But I prefer my own explanationof my statement, which is "If econ­omy be understood as comprisingthose actions which are aimed atmaking available the greatestquantity of goods and services thatare most wanted with the least ex­penditure of the means of produc­tion..., then labor unions do not fitinto it. Their thrust is in the oppo­site direction, to raise the price oflabor, to restrict the ways in whichthe means of production may be em­ployed, and thus to increase the costof production...; they produce noth­ing; they transport nothing; and theysell nothing. They are dis-economicorganizations." None of this is meantto suggest that unions do not havean impact on economics or that theyhave not depended upon govern­ment support. Mr. Greaves appearsto believe that it does. He says fur­ther, "This book presents many in­cidents illustrating how labor unionshave used both economic and politi­cal means to attain their present po­sition of power." I can only repeatthat I was making judgments about

1984 UNIONISM REVISITED 215

labor unions as organizations, notdenying or minimizing their eco­nomic and political connections.

Religious?

But that does not dispose of thequestion of the economic characterof unionism, at least not for Mr"Greaves, for his above objections wereonly a prelude. He follows them byobserving that perhaps his "greatestdisagreement is with the author'sassertion that 'Labor unions are re··ligious, or religion-like organiza··tions. Their immediate goals areethical in character; their ultimategoals are religious. Their economi(=claims are ethical in character; [thisis so whether they are pressing forhigher payor dealing with particu­lar grievances of their members.]'''Mr. Greaves left out that last depen­dent·clause without indicating thathe had done so, though that mayhave been an oversight. In any case,contrary to Mr. Greaves' descrip­tion, I did not merely "assert" theabove, and that is important. Thequoted statements come at the endof· a fairly lengthy presentation ofevidence and are intended as a sum­mary of the import of this evidence.Moreover, there is an earlier chap­ter in the book which bears upon andprovides some of the evidence forthese conclusions.

Even so, it does not surprise me tolearn that Mr. Greaves, or anyoneelse, might raise some questions

about my conclusions. They are notthe usual terms within which laborunions are discussed, and the con­clusions are in some measure origi­nal, I suppose. If they were simplyassertions they probably should bedismissed out of hand. But they arenot that at all. They are the crux ofan extended effort to do two things.One is to make an historical expla­nation of the framework withinwhich labor unions became acceptedand received political support fortheir undertaking. The other is toget as near as I can to discoveringthe nature of the labor union as anorganization.

In partial rebuttal of my position,Mr. Greaves says, "The aims and ac­tions of labor unions are certainlyneither heavenly nor irrational. Theyare earthy and concrete. Laborunions seek more for their mem­bers." That labor unions often areearthy and concrete and seek morefor their members I would not forone moment contest. Their desire fora greater return. for their labor most,if not all, of us can understand. Nordo we have difficulty in understand­ing how people may organize to useextortion and intimidation to getmore by excluding others from com­petition with them.

Ethical Claims

The difficulty comes in under­standing how such activities maybecome socially and legally accept-

216 THE FREEMAN April

able, and how government may lendits support to them. The difficultyfurther is in grasping what sort oforganization would result from thisrecognition and where it would fitamong social institutions. My read­ing of the situation is this. Laborunions offer ethical justifications fortheir strange behavior. They claimthat their members have beenwronged-an ethical question-andthat they can only receive justice­an ethical matter-by banding to­gether and obtaining it. That the al­leged injustice occurred in the eco­nomic realm does not alter the ethicalcharacter of their complaint. Peopleside with them and union membersfind their justification in the beliefthat they have been or are beingwronged.

Rooted in Socialism

Both the ethical claims and thejustification of unionism are rootedin an ideology, the ideology mostcommonly called socialism. In itsdeeper dimensions, socialism is botha substitute for religion and reli­gion-like itself. It is religion-like inthat it establishes as its goal a kindof heaven on earth; that is, it is uto­pian. This becomes an article offaith,that as men follow collective modesthey are acting toward the realiza­tion of that goal. It becomes the mainpurpose of life. Labor unions are off­shoots ofthe socialist movement, bothhistorically and theoretically. They

are a sect, if you will, within social­ism. Unions claim special politicalimmunities and privileges on thebasis that they are right and justicerequires their activities, and they areaccepted by those who presumablybelieve their claims. There is muchevidence, too, that they are morenearly a religion-like organization,than any other kind, but I will forgothe occasion to present it again, forit is somewhat lengthy.

Mr. Greaves did not deal with orconcede the existence of the evi­dence and the reasons by which it islinked. Instead, he appears at firstto misunderstand my point and thenresorts to a definition to dispose ofmy position. He says that "there isnothing ethical or religious about theuse ofcoercion, be it legal or illegal."If he means that ethics and religionare different categories of being thancoercion, I agree, though I fail to seethe relevance of the statement. If hemeans that coercion is in all circum­stances unethical and contrary toreligion, I disagree. Or if, as I hadsupposed, he thinks that I wassomehow legitimizing unions by re­ferring to their claims as ethical andtheir organization as religion-like, heis mistaken. An ethical claim mayor may not be valid, and a religionmay be false.

This last, however, Mr. Greavesdoes not concede. He says that reli­gions "deal with matters that can­not be logically proved or disproved.

1984 UNIONISM REVISITED 217

Religions are concerned with the ir­rational aspects of life." His argu­ment can be syllogistically summa­rized this way. Major premise:religions are irrational. Minorpremise: unions are rational, or haverational goals. Ergo: unions are notreligious or religion-like. It happensthat I disagree with both his majorand minor premise and do not,therefore, accept his conclusion, butthe important thing is that none ofthat is germane to my position. I didnot conclude that unions are reli­gion-like because they are irratio­nal-whether they are or not. Rather,I based that conclusion on their con­nection with socialism, on the pointthat it deals with such things as thepurpose of life, the end toward whichthings move, and that unions aresectarian-like in their behavior,among other things. Nor did I at­tempt to prove that unionism is afalse religion. Rather, I propose thatits political immunities and privi­leges be withdrawn on the groundsthat they are in violation of the FirstAmendment prohibition against anestablished religion. That is, for meat least, an interesting idea and one,I hope, worthy of consideration.

Lawlessness DefinedThe other objections by Mr.

Greaves can be dealt with sum­marily. He says that "lawlessness isreferred to as the 'state of nature' "in my book. I have been unable to

discover any statement resemblingthat in the book. I did refer to a stateof nature, and described it as "a con­dition that would exist if there wereno government." "Obviously," I alsosaid, "in such circumstances everyman becomes a law unto himself." Istand by that. Mr. Greaves ques­tioned my view that "An ancientunion complaint could certainly bedisposed of if governments neitherrecognized, gave status to, taxed orotherwise noticed private organiza­tions, except as they might disturbthe peace." He thought that wouldin effect "repeal the First Amend­ment." I do not understand him. TheFirst Amendment is a prohibition onthe federal government, not a licen­sing of organizations. It provides forthe free exercise ofreligion, freedomof speech, press, assembly, and theright of petition. No governmentrecognition is required for men toassociate in whatever way they willfor peaceful activities.

He takes me to task for writingthat "Congress is empowered to makelaws regulating commerce." In hisview, I should have made it clear that"The Constitution carefully limitedthat power to 'interstate com­merce',"... The context of my state­ment may help to explain why I didnot do so. I was summarizing thegrounds on which Congress passed alaw empowering unions. As I re­member it, I was paraphrasing thepreamble to an act. In so doing, I

218 THE FREEMAN

was trying to reproduce with as muchfidelity to the original as possible ina summary, neither approving ordisapproving what they had said, noroffering advice on how they shouldhave said it. If I had been describingthe powers of the government my­self, I would most certainly havenoted the limitations, and anyonewho doubts it may consult any num­ber ofmy essays in which I have doneso.

Now allow me to back off a bit. Itis not for a writer to determine howwell or how ill he has conveyed whathe has to say. That is for the readersand reviewers. It takes two to tango,as the song says, and the two in this

case are the writer and the reader.If Mr. Greaves, or anyone else, hasmisunderstood me, the fault mayhave been mine. It seemed to me inthe above that in most instanceswhat I had written had been mis­construed to some extent, either be­cause of my ineptness or because ofdifferences in understanding of thematters under consideration. In anycase, I welcome the opportunity totry to clarify some questions thatarose. I do so because I believe thaton the central points, or most ofthem,Mr. Greaves and I are in agreement,and I would not want any potentialreaders to be turned away becauseof any possible misconstructions ofthe material in the book. i

A BASIC HISTORY OF THE UNITED STATESby Clarence B. Carson

-to be published by Western Goals in five paperbacked volumes of 180pages each.

Now Available:

Volume 1, The Colonial Experience, 1607-1774Volume 2, The Beginning of the Republic, 1776-1825

(Remaining volumes to be announced, as available, later in 1984 andearly 1985.)

Each volume attractively illustrated, indexed, with glossary and sugges­tions for additional reading.

Only $8.00 per volumeOrder from: THE FOUNDATION FOR ECONOMIC EDUCATION, INC.

IRVINGTON-ON-HUDSON, N.Y. 10533

Howard Baetjer Jr.

DOES WELFAREDIMINISHPOVERTY?

DOES government-provided poor re­lief decrease the amount of poverty?That it does is an assumption at theheart of our nation's very largeantipoverty programs. In fact thoseprograms were instituted for thepurpose of making themselves obso­lete. Shortly before passing the So­cial Security Act in 1935, for exam­ple, Franklin Roosevelt declared toCongress, "The Federal Govern­ment must and shall quit this busi­ness of relief. . . . Continued depen­dence upon relief induces a spiritualand moral disintegration, funda­mentally destructive to the nationalfiber." Thirty years later, as he signed

Mr. Baetjer is a graduate student in political scienceat Boston College. This article also has been pub­lished at the college In The Observer.

the first antipoverty bill of the GreatSociety, Lyndon Johnson said, "Weare not content to accept the endlessgrowth of relief or welfare rolls. Wewant to offer the forgotten fifth ofour population opportunity and notdoles.... The days of the dole in ourcountry are numbered."

The assumption that welfare helpsthe poor also explains why so manypeople today reject in practice theappealing old notion of classical Lib­eralism that government should playno favorites: that the force of lawshould not be used to benefit somepeople at the expense ofothers. Whilethey recognize and perhaps regretthat welfare does involve the forceof law to benefit some (those consid­ered poor) at the expense of others

219

220 THE FREEMAN April

Howard Baetjer Jr. comes from Stevenson,Maryland. He received his undergraduate

(everyone else), they feel the princi­ple is justifiably violated since wel­fare diminishes need. But is this as­sumption true? Does welfare, whenall is said and done, really help solvethe problem of poverty?

There is good reason to believe thatit does not. What is worse, there issubstantial evidence that welfareimpedes progress against poverty. Inour country, worst of all, welfareseems to have increased poverty.What follows is a brief summary ofthe thinking and evidence that leadto this surprising conclusion. Wewould do well to consider it seri-

degree from Princeton University in 1974.From 1974 to 1978 he taught English andcoached the football team at St. George'sSchool in Newport, Rhode Island. In 1978he went to Scotland to study English liter­ature at the University of Edinburgh, gain­ing a master's degree in that subject in 1980.

Experience with government interven­tion in Britain turned Mr. Baetjer to the causeof liberty. So, after a year back at St.George's, he left teaching to write the firstdrafts of his essay, The Golden Rule ofLaissez-Faire, an argument on moralgrounds for limited government and a freesociety. Since the fall of 1982 he has beenenrolled in a master's program in politicalscience at Boston College, concentratingon political philosophy. He will receive hisdegree at the end of May.

Howard recently has joined in the workof FEE as a full time staff member. He plansto continue studying, writing, lecturing, andpracticing liberty in the effort to draw othersto the free market way of life.

ously, for if it is true, our nationalantipoverty policy is doing greatdisservice precisely to those it is in­tended to help. In the words ofWal­ter Williams, professor of economicsat George Mason University, "com­passionate policy requires dispas­sionate analysis" of policy effects.Analysis of welfare shows it to be aproblem for poverty, not a solution.

Three Guidelines for Analysis

As one considers the problem ofpoverty, one should keep three basictruths in mind. The first of these isobvious, that is: poverty is finally

1864 DOES WELFARE DIMINISH POVERTY? 221

overcome only when people are self­supporting. It is not enough that theybe living for the moment at an ac­ceptable standard if they remain de­pendent, just as one is not cured of adisease when he is taking medicinethat eliminates his symptoms. Thusan essential objective of any anti­poverty program must be to maxi­mize self-sufficiency.

The second basic truth becomesclear only after some thought, thatis: prosperity depends on produc­tion. Unless physical goods areproduced in the first place and thenreplaced as necessary, there can beno prosperity for anyone. If this stockof goods is not constantly increased,higher levels ofwell-being overall areimpossible. Other things being equal,the more goods there are in theworld-food, shelter, medicine, elec­tric light, shoes, water heaters, andso on-the more there is to go aroundand the less poverty there will tendto be. (Of course things are not al­ways equal, and different people endup with different amounts of thesegoods, but the principle standsnonetheless: if there is literally notenough to go around, some povertyis inevitable. At the other extreme,if goods should become overabun­dant, their price would approach zeroand the poorest could afford all theycould use.) Thus an important meansof reducing poverty is increasingproduction.

The third truth has more to do with

method, that is, to paraphrase HenryHazlitt: good ecpnomics looks be­yond obvious and short-term effectsto see effects that are hidden andlong-term. Applying this idea towelfare programs, we must look be­yond the immediate advantages suchprograms provide to welfare recipi­ents-the food stamps, medicaid, in­creased income and the like-and seeother effects of the welfare processas a whole. For example, how dowelfare programs affect employ­ment, wage rates, productivity andprices (all of which are important tothe poor).

With these truths in mind, beforelooking at any statistics, let us turnto some indirect effects of welfarethat we would expect to occur.

Predictable Effects of Welfare

A first observation is that the in­centives associated with welfare tendtoward unwanted results (not thatthey necessarily bring about theseresults, only that they cause a ten­dency in that direction). The bene­fits go to people who, for a host ofreasons, are relatively unproduc­tive, while the funds to pay for themcome, through taxation, from peoplewho are relatively productive. Nowwe know that for human beings,benefits are positive incentives whiletaxes are negative incentives. Thusthe welfare system tends to encour­age unproductiveness and discour­age productivity. A person who could

222 THE FREEMAN April

bring home only a few dollars moreper week working than taking ad­vantage of the welfare system hasan incentive not to work. Accord­ingly welfare tends to diminish bothself-sufficiency, since it leads morepeople to accept unemployment, andproduction, since the productive po­tential of those people is not turnedinto goods. The effect may not be alarge one, but it is something to con­sider.

From a purely economic stand­point, we must look beyond the vis­ible welfare benefits and comparethem with other positive effects thatmight have occurred in the absenceof welfare, but cannot occur in itspresence. For an important exam­ple, consider that the billions of dol­lars which go into the welfare sys­tem are no longer available for otherthings-such as investment. Manydollars spent on welfare would oth­erwise have been invested in newtools, new buildings and the like.This investment would have hadconcurrent positive effects of creat­ing new employment opportunitiesand raising productivity. With wel­fare, however, these contributions toself-sufficiency and production nevercome about.

A final effect of government-pro­vided welfare that we would expectto find, knowing how human beingsbehave, is inefficiency and waste.This is a phenomenon we might call"government failure": the inherent

inability of government to do muchof anything well. Since bureaucratsare paid out of tax revenues, whichare collected regardless of whetheror not the bureaucracy does a goodjob, there is little incentive for themto maintain high standards. Since theamount of taxpayers' money thatpasses through their hands dependson the size and perceived impor­tance of their programs, the bureau­crats have an incentive to expandthe numbers encompassed by thoseprograms, and to find new reasonsfor increased funding. Since alloca­tion of funds must for fairness' sakebe by rule, a great deal of time andpaperwork gets generated, and min­imal scope is allowed for individualjudgment about who deserves howmuch. Other problems of this kindcould be identified.

A Look at the Record

Are these potential problems re­alized in fact? Ifso, how bad are they?According to the U.S. government'sfigures, the answers to these ques­tions are, respectively, "yes" and"very bad indeed."

In regard to government failure,to begin with, there is a rather im­pressive disparity between theamount of money spent for the statedpurpose of relieving poverty, and theamount the poor actually receive. Inan article entitled "Where Do All theWelfare Billions Go?" (HumanEvents, February 6, 1982) M. Stan-

1984 DOES WELFARE DIMINISH POVERTY? 223

ton Evans points out some remark­able figures. In 1965, combined fed.­eral, state and local outlays for "socialwelfare" totaled $77 billion. This wasthe beginning of the "Great Society"era. In 1978, the total was $394 bil­lion. "This means that,· over the spanof a dozen years, we increased ournational outlays for the alleged goalof helping poor people, on an annualbasis, by $317 billion." But thenumber of poor people in the coun­try, according to official estimates,has remained nearly constant inthose years, at about 2.5 million.Here I quote Evans at length:

One has to wonder how it is possible tospend these hundreds of billions to alle­viate poverty and still have the samenumber of poor people that we had, say,in 1968. Waive that objection for a mo­ment, however, and simply compare thenumber of poor people with the dollarsspent to help them: You discover that, ifwe had taken that $317 billion annuallyin extra "social welfare" spending, andgiven it to the poor people, we could havegiven each of them an annual grant of$13,000-which is an income, for a fanl­ily of four, of $52,000 a year.

In other words, with this colossal SUlm

of money, we could have made all thepoor people in America rich.... Itprompts the more suspicious among usto ask: What happened to the money? ...[A] tremendous chunk of these domesticoutlays goes to pay the salaries of peoplewho work for and with the federal gov­ernment-including well-paid civil ser­vants and an array of contractors and"consultants," many of whom have got-

ten rich from housing programs, "pov­erty" studies, energy research grants, andthe like.

In the words of Thomas Sowell, "thepoor are a gold-mine" for the pre­dominantly middle-income bureau­cracy.

But we might expect ending pov­erty to be expensive. The crucialquestion is what has happened topoverty itself. That question is partlyanswered in the statistic above thatthe number of official poor has re­mained at about 2.5 million; clearlypoverty has not been eliminated. Butwhat of poverty as a percentage ofpopulation-are we at least decreas­ing the proportion of poor people inthe country? Alas, no. In an articlecalled "The two wars against pov­erty: economic growth and the GreatSociety" (The Public Interest, Fall1982), Charles A. Murray demon­strates that around 1968, when GreatSociety antipoverty spending wasbooming and unemployment stood at3.5%, progress against povertyslowed, and then stopped.

The Problem Persists

Since 1950, the number of (offi­cial) poor as a percentage of popula­tion was approximately 30%. Fromthen until 1968, the figure droppedsteadily, to about 13%. But then,right in the heart of the Great Soci­ety years, when more money thanever was being spent to decreasepoverty even faster, the trend line

224 THE FREEMAN

flattened. After ten more yearsmarked by ever-increasing outlays,the percentage of poor in our popu­lation had dropped only to 11%. Twoyears later, in 1980, it was back upto 13% again. The more we spent,the less progress we made.

Murray also discusses the figureson the proportion of people depen­dent on the government-that is,those who would be below the pov­erty line were it not for governmentbenefits. This measure, which Mur­ray calls "latent poverty," is perhapsthe best indication of progressagainst poverty because it best re­flects self-sufficiency, or lack thereof.Like official poverty, latent povertyas a percentage of population de­creased steadily until the late six­ties, from about 33% in 1950 to 19%in 1968. In 1968, however, the trendreversed; the proportion of Ameri­cans dependent on the governmentbegan to increase. With the excep­tion of one dip after 1975, it has in­creased since, back to 23% in 1980.

In short, despite doubled and re­doubled outlays to try to do awaywith poverty, poverty is increasingin our country. We made much bet­ter progress when we were spendingless.

These sad results fit well what wemight expect from the theoreticalexpectations mentioned above.Where there are incentives againstself-sufficiency and productiveness,people will tend to become less self-

sufficient and productive. The big­ger the incentives, the stronger thetendencies. It should come as no sur­prise to see dependency increasewhen dependency is met with largecash and in-kind benefits. Perhapsthese are not the reasons for the sys­tem's failure; perhaps entirely dif­ferent forces are at the base of it.None spring to mind, however.

Quit this Business of Relief

In any case, welfare, the dole, poorrelief-call it what you will-is aspectacular failure. More than that,if the reasoning presented here issound, it is one of the vast tragicironies of our age. It springs fromthe desire of good-hearted people tosee poverty diminished, but in prac­tice, apparently, it augments pov­erty. The fault is not in our inten­tions, but in our methods, oureconomic understanding, and ulti­mately, perhaps, in our principles."To quit this business of relief," toend "the days of the dole," we mightwell find it best simply to do it. Letofficials design policy-that is, doaway with policies-according to theclassical Liberal principle that "theforce of law should never be used tobenefit some people at the expenseof others," not even if those benefit­ing are poor. Let care of the reallyneedy be returned to individual re­sponsibility-to genuine, privatecharity and efficient, private orga­nizations. ,

Women,Work andWages

Hans F:. Sennholz

To know the cultural condition ofsociety is to know the position womenhold in it. Their influence permeatesthe whole oflife. They cultivate taste,refine manners, broaden views, andpatronize the arts. Men mostly "goalong" under their influence. Womensupport literature and music, cham­pion painting and sculpture, andsustain educational, cultural, andsocial institutions. They are themainstay of the churches, and thearbiters of taste, styIe and mannersfor both sexes. And yet, governmentstatisticians inform us that Ameri­can women earn only fifty-nine centsfor every dollar earned by men. Fora society that takes great pride in along tradition of individual freedomand equality before the law, such in­equality of income, if it is true, de­mands an immediate explanation.

It is probably correct that the av­erage income of men exceeds that ofwomen although any and all mea­surements of the difference must berather suspect. They deal with his­torical data, not with purposeful in­dividual action. Moreover, govern­ment statistics are political statistics

Dr. Sennholz heads the Department of Economics atGrove City College In Pennsylvania. He Is a notedwriter and lecturer on economic. political and mone­tary affairs.

225

226 THE FREEMAN April

designed to serve political ends.Nevertheless, the difference, what­ever it may be, calls for an explana­tion. It is urgently needed to calmthe waters that are agitated by oldprejudices and new ideologies,churned by party politics and pres­sure group tactics.

The income differential permitstwo possible explanations: it eitheris just and moral, reflecting a differ­ence in economic productivity of bothsexes, or it is a grievous injustice thatis rooted in man's behavior, custom,and institutions. If the latter shouldbe found to be true, man must an­swer for the injustice inflicted onwomen, for man passed all laws,adopted all regulations, and estab­lished the economic and social order.

The Basic Choice of Orders

Economic production may be or­ganized on the basis of private prop­erty in the means of production,commonly called "capitalism," oralong the lines of state ownership orcontrol of the means of·production,which may be called "socialism" inits broadest sense, or more descrip­tively, the "command system." Incapitalism, income flows directlyfrom economic production. There isno separation of production from in­come creation, no "distribution" ofthe national product or dividend.Economic production is simultane­ous income formation through asimple pricing process that is obliv-

ious to extraneous factors, but keenlyaware of the contributions made toproduction. Every man, woman andchild receives the full measure ofhisor her contribution to the productionprocess.

Socialism is an ideology of "just"distribution, which gives it greatappeal and popularity the world over.Its raison d'etre is ''just'' wages, andits objective is "justice" as defined byits authors. Some describe it as equaldistribution per head of the popula­tion; some prefer distribution ac­cording to needs; yet others promotedistribution according to merit andservice rendered to the community.A few contemporary authors favordistribution according to "compara­tive worth." But no matter whatversion of ''just wages" they shouldadvocate, they all reject a close con­nection between production and dis­tribution. They all rely on an eco­nomic czar or commander, or acommittee of czars, wielding eco­nomic and political power. In theirscheme of things income is assignedand allocated according to the com­mander's notion ofmerit and justice,which must ever be mindful of age,ability, sex, and many other factors.There is no market in which theconsumers may value the producers'contribution to economic well-being,no value imputation and price cal­culation. But there are the com­mander's orders that assign work andallocate income.

1984 WOMEN, WORK AND WAGES 227

Work and Income by CommandDistribution according to socialist

justice not only opens the doors ofarbitrariness, but also establishes asocial ranking order similar to thatof the military. In the Soviet Union,which is the Marxian stem of allcommand systems, income justice isderived from the preservation andpromotion of the Soviet order .asjudged by the men in power. Per­sonal income and position are as­signed according to the contribu­tions made to the Soviet system,which makes all incomes "politicalrewards" for services rendered toparty or state, and endows all posi­tions with "political ranks" in theservice of the Soviet order. It ismanaged by a new elite consistingof (1) members of the CommunistParty and government officials, (2)officers of the armed forces, (3) wri­ters, artists, scholars, and scientistswho promote the system, (4) eco­nomic executives who manage theproduction process. The number ofindependent women in this new So­viet nobility is minute.

Nearly one-half of all Soviet la­borers are women, even in occupa­tions that demand great physicalexertion and usually are thought tobe male. There is little considera­tion for feminine physique and fam­ily obligations. The Soviet womanmust labor from dawn to dusk, likea demon for work, not only in herprimitive household but also in a vo-

cation or profession. Like nowhereelse in the world, the married womanand mother of children is forced tolabor alongside men in mines andfactories.

Women in Mines

In the words of a foreign visitor tothe Soviet Union, "I cannot forgetthe sight of the women whom I metunderground in the. Kusbass coalmines, not far from the Mongolianborder. It is true they did not labordirectly as miners, but they oper­ated the machines, ran the trains,and pushed the loaded wagons in thehoisting cage. It always touched mepainfully when, in the dim light ofmy oil lamp, I saw women in un­shapely garbs, with ugly headcoverswhich are a blend of hardhats andscarves, with stark black faces, doingheavy and dangerous work. Theyobviously felt out of place, had sul­len faces, and answered the master'squestions in a grumpy and irritatedmanner."!

In an economic command system,many men and most women are ex­ploited ruthlessly by government,which may be the sole employer inthe system. The particulars of ex­ploitation may differ from countryto country, may vary in fascism, so­cialism, or communism, but they allspring from a common root: the sep­aration of income from productionand the dispensation of "economicjustice" by political force.

228 THE FREEMAN April

The Private Property OrderIn free and unhampered markets

the consumers are the ultimatebosses of the production process.Their choices and preferences notonly issue the production orders, butalso create the jobs that fill the or­ders. They even pay the wages anddetermine the rates for all partici­pants in the production process. Inmost cases the consumers are quiteunconcerned about merchants andmanufacturers. It does not matterwhether they are white, black, brownor yellow, whether they are male orfemale, or worked five hours or fiftyhours. Their only concern may be thequality and price of the product thatpromises to contribute to their per­sonal well-being. The housewiferarely inquires into the race, color,creed, or sex of the manufacturer ofthe washing machine she may buy.But she undoubtedly is keenly in­terested in the quality and price ofthe product.

It is conceivable that consumersseeking personal services may dis­criminate among the providers of theservices. The white piano studentmay want a white instructor, theblack athlete a black coach, the yel­low visitor a yellow companion. It iseven conceivable that the female pa­tient may prefer a female doctor orthe male criminal a male defender.But it is equally feasible that indi­viduals may prefer the opposite sex.The male patient may choose a fe-

male doctor and the female client amale attorney. The macho chief ex­ecutive may surround himself withcompetent female executives, and thefemale school supervisor with capa­ble male teachers. But even in allsuch cases of discrimination thequestion ofquality and price usuallyenters into the buyer's considera­tion.

Consumers Discriminate

Consumer preferences always arediscriminatory acts and as such af­fect the income of producers. Dis­crimination in production ordersconstitutes discrimination in in­come allocation. In short, some peo­ple earn more than others becauseconsumers discriminate. If it is truethat women only earn fifty-nine centsfor every dollar earned by men, it islogical to infer that consumers, mostof whom are women, discriminateagainst women. Women do not dis­criminate against women on the ba­sis of sex, but rather on grounds ofproductivity in the market place.They tend to allocate orders and in­come according to the services ren­dered for their well-being. Despiteall the temptations of discrimina­tion on the basis of sex, they prefereconomic well-being over bias andprejudice. If this is true and womendo earn less than men, it must beconcluded that many women earnless because they produce less in themarket.

1984 WOMEN, WORK AND WAGES 229

The Issue of the 1980sFeminist activists summarily re­

ject this conclusion. They are con­vinced that men conspire to holdwomen down and keep them in low­paying jobs, that labor markets in­flict harm on women and violateegalitarian and feminist principles.Jobs and income, they argue, aremoral and legal entitlements, thatflow from natural rights. If the de­mand and supply forces of the mar­ket order do not guarantee suchrights, women must seek refuge withthe command system that will as­sure the rights. Political action andgovernment coercion must set justrates for every job.

The doctrine of "just wages" maybelong to the armory of socialism ormay have deep roots in Medievaleconomic thought. During the Mid··dIe Ages the center of economicthought was the doctrine of justumpretium, which provided the ratio··nale for a rigid social order. In finaJlanalysis, it was a "station-of-life"doctrine that allocated income andwealth according to the class or es­tate in which a person happened tobe born. The "just wage" allotted aprincely income to a prince and aserf's pittance to a serf. It did notconcern itself with personal produc··tivity, that is, the contribution madeto someone's well-being, but empha­sized the rights and privileges ofclassor estate as defined by the king.

In contemporary setting, the

Feminist drive for just wages findsexpression in the movement for"comparable worth." Like the ''justprice" doctrine of ages past, the"comparable-worth" theory rejectsmarket considerations and, instead,elaborates rights and privileges de­fined and granted by government.The latter differs from the formeronly as it builds on sex rather thanclass or estate. As the hottest itemon the political agenda, it has beenendorsed by every Presidential can­didate and by hundreds of politi­cians who hope to use it to their ad­vantage. The news media call it "theissue of the 1980s."

Like the "affirmative action"principle of the 1970s, the "compa­rable-worth" doctrine may becomethe law of the land through judicialdecree rather than statutory au­thority of any kind. Federal judgesall over the country are handingdown orders against employers fordiscriminating against women. Thestate of Washington, for instance,was found to discriminate againstoffice workers and ordered to comeup with nearly a billion dollars togrant wage hikes and back-pay tocertain .state employees, mostlywomen.2 Numerous other suits havebeen filed and Equal EmploymentOpportunity Commission chargesmade against several states, munic­ipalities and other employers.

The "comparable-worth" doctrinerejects all market judgments of com-

230 THE FREEMAN April

parable worth that are visible in theform of equal pay for many differentkinds of labor. In the market sense,the house painter who earns the sameincome as the headmaster of a school,or a band musician, or a businessmanager, has "comparable worth";he renders services that are valuedequally to those performed by theheadmaster, the musician, the man­ager, and many others. But this isnot the meaning of the term used byFeminist activists and Federaljudges. Their committees rank jobsaccording to a complicated pointsystem, based on paper qualifica­tions, training, education, humanrelations, problem-solving ability,accountability, and working condi­tions. The points then are runthrough an expensive computerwhich invariably finds employersguilty of sex discrimination.3

Education and Income

The comparable-worth doctrine isan elitist theory that aims to substi­tute committee points for the pref­erences and choices of consumers. Itseeks to suppress economic reason­ing and instead promotes the primi­tive notion that government deter­mination and control of incomes arepreferable to market forces of de­mand and supply. It betrays an eli­tist contempt for manual labor, es­pecially hard physical labor, andreveals an astonishing bias for col­lege degrees.

Surely, education may developcharacter and impart knowledge onhow to make a living and how to live.But it may not have a direct rela­tionship with personal income. In theprivate property order consumersreward producers for the servicesthey render, not for the academicdegrees they hold or the money theyinvested in education. When educa­tion makes a person more produc­tive in the rendition of marketableservices, it tends to yield higher per­sonal income. After many years oftraining a heart surgeon is likely toearn a satisfactory income.

Whenever education does not im­part productivity and usefulness toothers, it may make a person learnedand wise, but does not afford higherincome. The brilliant student ofSanskrit or Gothic may not therebyenhance his earning power. In a freesociety he is free to pursue his stud­ies to his heart's desire. But he canlay no claim to any income other thanthat which his customers ascribe andallow. The learned scholar whochooses his own life style, but covetsthe incomes of others, is not solearned after all. He is a vain andselfish individual who, to make mat­ters worse, may join the enemies ofthe market order and call for redis­tribution ofother people's income andwealth by political force. Lamentingthe "unfair" distribution of incomes,many elitist academicians and in­tellectuals readily pass sentence on

1984 WOMEN, WORK AND WAGES 231

individual freedom and extol thevirtues of one of the many varietiesof the political command order.

As the affirmative-action doctrineof the 1970s did little to improve theeconomic lot of the minorities, somust the comparable-worth pro­gram of the 1980s be expected to bedisappointing to the Feminists. Thejudicial decrees openly clash with theinexorable principles ofhuman choiceand action. Violating the laws of themarket, the judges' orders are as fu­tile as any order that would seek torevoke the laws of nature.

The comparable-worth program,wherever it is enacted, can be ex­pected to depress the levels of livingof most Americans as it raises costsand reduces output. But above all, ithurts the interests of many womenwhom it lifts right out of their jobs.After all, rising costs tend to depressdemand. The program, wherever itis pursued with vigor and force, mustbe expected to cause unemploymentespecially among those women whom.the judges meant to benefit. More··over, it must be expected to distortthe labor market by promoting thesupply of "comparable-worth labor':'and reducing the supply of physicallabor that is primarily male. It willboost the number of trained typists:,secretaries, and librarians, but re··duce that of electricians, plumbers,and house painters. It will increasethe number of volunteers for pleas··ant jobs in friendly offices and pleas··

ing environments, and reduce thenumber of people who report for dirtyor dangerous or physically exhaust­ing labor. In time, this distortion canbe expected to restore the pay differ­ential between librarians and housepainters, or even make it greaterthan ever before. The market differ­entials will reassert themselves, le­gally or underground, despite all thejudges' orders.

Women and the LawThroughout the ages the market

order has been most supportive ofwomen's rights. After all, it is theconsumers' order that welcomes thegreatest efforts by producers regard­less of race, color, creed, or sex. Thepolitical command order, in con­trast, reveals an uninterruptedrecord of discrimination. It appliesthe force of government to benefitone class of subjects at the expenseof another class. It thrives on the po­litical support from its beneficiaries,and brushes aside the protests of itsvictims. Throughout the economicDark Ages women have been amongits favorite victims.

During the last century whenwomen first invaded occupations thathad been held formerly by men only,government erected numerous bar­riers to the employment of women.In most cases labor unions spear­headed the drive. They did not openlycastigate the competition of womenand demand their purge, but they

232 THE FREEMAN April

called for government interventionthat would drive women off the la­bor markets. Unions advocated leg­islation to limit the working hoursofwomen, fix minimum wages so thatthey would not be competitive withmen, or even prohibit women fromcertain occupations. All these regu­latory laws conflicted openly with thequest for legal and economic equal­ity of women.

Studies of wages paid to women,conducted by labor unions or theirpolitical agents, invariably revealthat wages are largely insufficientto maintain a standard of "mini­mum health and decency." Conse­quently government must inter­vene, they conclude, to protectwomen and minors. The protectionusually takes the form of forced in­crea'ses in costs, which tend to elim­inate the "protected" labor. All statesnow have legislation that limitswomen's hours of work in commerceand industry. Worst of all, they allhave statutes designed to suppressthe employment of women in theirhomes on a piece-work basis. Politi­cians and unionists decry it as the"Sweating System"; women calfit the"Convenience System."

It is a method of industrial pro­duction in which productive work isdone on the premises of the workerrather than in a shop or factory. Ithas been used most frequently in thegarment industry, especially in in­expensive women's, children's, and

infants' wear, but also other prod­ucts such as embroidery, artificialflowers, shoe ornaments, lampshades, toys, jewelry, brushes, pre­pared foods, and many other items.The Convenience System is an idealsystem for women with family obli­gations that may leave some timeand energy for income production.Unfortunately, governments andunions are waging an unrelentingwar against it.

Most states have legislation de­signed to eliminate industrialhomework. Some states prohibit,under penalty of fine and imprison­ment, the manufacture by home­work of numerous articles such asfood products, children's clothing, andtobacco. Others require the licens­ing of homeworkers and the inspec­tion of homework premises. Federalattacks on the homework systemhave taken the form of minimumwage legislation, which is designedto eliminate the homework per­formed by women and children. Allalong, labor unions are raising theirbarriers to female employmentthrough unrelenting seniority rules.Varying in detail, they discriminateagainst women in hiring, layoffs,promotions, and so on.

During the 1970s rapid technolog­ical improvements have reopened thedoors for profitable homework bywomen. The computer-word proces­sor, which is coming to the marketat ever lower prices, is creating new

1984 WOMEN, WORK AND WAGES 233

opportunity for women to performclerical and accounting work, en­gage in research and provide infor­mation, from a home computer viamodem to any other computer bankin the country. Exciting opportuni­ties await a homemaker equippedwith a terminal and knowledgeablein the ways of modern technology.

In the coming years governmentand labor unions may want to closethis door again to female indepen­dence and opportunity. It will be in­teresting to observe the methodswhich the intervention will take: li­cense or franchise, control of prem­ise or equipment, interference withcommunication, imposition of mini­mum wages, or outright labor pro­hibition. Surely, politicians cannotbe expected to leave working home­makers alone!

It is ironic and yet so revealing ofcontemporary thought and mental­ity that the same governments nowhaughtily legislate equality of thesexes. In June 1963 the Equal PayAct was signed into law, providingfor equal pay for women. The CivilRights Act of 1964 outlawed em­ployment discrimination on groundsof sex, race, color, or national origin.In 1965 two education acts, the Ele­mentary and Secondary EducationAct and the Higher Education Actsought to eliminate discriminationin schools. In 1972 the EducationAmendments Act expressly forbadesex discrimination against students

and employees in federally assistededucation programs.4 And yet, twentyyears after the passage of the EqualPay Act and despite all the laws andregulations that were to follow,American women are said to earnonly fifty-nine cents for every dollarearned by men.

The legislative activity on behalfof women does not spring from thedesire to remove old labor-law re­straints on women. Having been im­posed in the name of "protection,"they probably will stay on the books.The activity must be seen as just an­other offshoot of the "command ide­ology" that seeks to use the law inan effort to promote an economiccommand system and reform humannature. It had, and continues to have,all the characteristics of a politicalideology that endeavors to erasenatural inequalities, to bring equal­ity to white and black, old and young,and to make women the equal ofmen.

ERAFor more than a decade countless

American women struggled to addthe Equal Rights Amendment to theU.S. Constitution. Their efforts endedin defeat on June 30,1982, when thedeadline passed with three statesshort of the thirty-eight needed forratification.

The wording of the amendmentwas innocuous enough: "Equality ofrights under the law shall not be de­nied or abridged by the United States

234 THE FREEMAN April

or by any state on account of sex."In the end the proposal failed be­cause most Americans suspected thatthe movement wanted more than"equality of rights under law." Theysaw the amendment as a manifestofor Feminist radicalism that findsconflict in every issue and seeks toreform human nature by politicalforce. To them, the struggle for ERAwas linked with the movement forabortion, homosexual rights, nu­clear freeze or disarmament, andother controversial issues.5 Wom­en's rights advocates were talkingabout the "gender gap" and "part­ing-of-the-ways" between men andwomen. But before they actuallyparted they showed marked prefer­ence for "liberal" politicians whopromise to use government force inhuman relations, and revealed openhostility toward conservative candi­dates defending traditional values.

The political, social and economicideology of ERA proponents hasnever been in doubt. According toEleanor Smeal, the former presidentof the National Organization forWomen (NOW), the amendmentfailed in the end because "the Re­publican Party led the attack." Shereleased a list of137 Republican statelegislators who she said were pri­marily responsible. She also chargedthat "the Reagan administration isthreatening the economic and socialgains women achieved in the lastdecade."6 At other times she blamed

"the special corporate interests thatprofit from sex discrimination." Thisexplanation differed little from thosethat would blame profit-seeking cor­porations for racial discrimination orclass inequalities, or would indictcorporations for low wages and ob­scene profits, for labor unemploy­ment and consumer gouging, for airpollution and water poisoning, andfor many human failings and vices.

Women's rights advocates ap­plauded the Emergency Jobs Act (PL98-8) that provided $1 billion for jobsand services of benefit to women. In1983 they lobbied for the EconomicEquity Act (HR 2090, S 888 of 97thCongress), which promised changesin tax and retirement matters, de­pendent care, insurance rates, reg­ulatory reform, and child support.Complaining about "ingrained pat­terns of discrimination," they areever eager to call on government formore laws and regulations, closerbureaucratic supervision and greatergovernment expenditures on behalfof women. They readily file discrim­ination lawsuits against employersin the hope that "affirmative-actionjudges" will find new ways of rulingin their favor. The Supreme Court,in fact, paved the way by ruling thatwomen may file suit under the 1964Civil Rights Act without having toprove discrimination. A womanmerely needs to show that her sexwas used in the determination ofherpay scale, in order to obtain a judg-

1984 WOMEN, WORK AND WAGES 235

ment against her employer.It is difficult to judge the impact

of the ERA ~ovement. Although itwas permeated by political and eco­nomic radicalism, it did reveal apowerful desire for sexual equality.It ushered in some changes in lawand, more significantly, broughtmarked changes in tradition andcustom. During the 1970s numerousstates amended their constitutionsto guarantee equal rights for bothsexes. All kinds of institutional bar­riers came down, even a few laborlaws. And above all, many mentalbarriers that were rooted in tradi­tion and custom gradually disap­peared.

Tradition and Custom

It is important to distinguish be­tween tradition that is anchored innatural constitution and traditioncreated by institutional factors. Bothtogether tend to obstruct women frommoving into many occupations andemployments in which they couldhave been more productive. Tradi­tion and custom assigned certain vo­cations and professions to men, andrelegated women to a sphere of"women's work" and "female profes­sions." It is true, the doors were usu­ally open to new trades and profes­sions that appeared in response tonew technology. But in occupationswhich men for a long time regardedas their own, tradition exercised apowerful restraining influence.

Custom, in general, is a practicethat has become habitual. A busi­nessman calls individuals who relyon him his "customers." Much of thecommon law in Anglo-Saxon coun­tries is based on what had becomecustomary and traditional. Whencustoms command respect by virtueof being old they are said to have aglorious tradition. Their acceptancerests on the tacit conviction that theirsurvival through the ages is proof oftheir worth and, therefore, justifiestheir preservation. The employmentof men and women in certain occu­pations rested on the obvious differ­ences in physical strength and ca­pability, and represented a naturaldivision of labor. The differences inphysique assigned heavy labors tomen, and life supporting, lighterhousework to women. For thousandsof years human survival undoubt­edly depended on this natural divi­sion of labor.

What used to be an obvious neces­sity ofnature may, in modern times,have become a tradition that nolonger serves man's best interests.Modern technology may greatly re­duce the disutility of labor, espe­cially strenuous physical labor, andconvert it to a pleasant push-buttonactivity that can be performed by anyresponsible individual. Women nowappear in labor markets that aretraditionally male because moderntechnology may afford them laborproductivity similar to that of men.

236 THE FREEMAN April

In this sense, technological progressin free societies necessitates contin­uous revisions of tradition and cus­tom. The women's rights movementis on the. side of progress wheneverit is requesting such revisions.

It is especially important to ques­tion tradition and custom that areresting on man-made laws, espe­cially labor laws. They may offerspurious justifications for legal ob­stacles and create mental barriers.The latter tend to be highest withfellow-workers and their tradeunions, and lowest with employers,the most maligned group of society.Employers are always under thepressure to use labor most effec­tively and advantageously and,therefore, are least susceptible tocostly tradition. They may be sub­ject to natural inertia and reluc­tance to·learn, like anyone else. Butit is unlikely that employers will forlong oppose female labor if it is foundto be higher in productivity and lowerin cost.

There Is a Difference

To the dismay of most employersthe use of female labor rarely af­fords any advantage. There are fewwomen who devote their whole livesto income production, but many whodedicate their lives to their families.Rightly or wrongly, many employ­ers are living in constant fear of los­ing their female workers to home andfamily. As one employer put it:

"There are many jobs we may teacha woman; but it does not seem worththe effort and expense to teach herbecause the brighter she is, the morelikely she is to go off and get mar­ried, just when she is beginning tobe of some use." Or, she may leavebecause she is pregnant, or her hus­band is transferred. Or she mayrefuse to be transferred for reasonsof family. In fact, she may not evenwant to shop around in the labormarket in order to sell her labor atthe highest price. Family consider­ations may be more important to her.Therefore, she must expect to earnless than an equally capable maleworker because she will be produc­ing less.

Most women spend but a few yearsof their lives in economic pursuits.The common age at marriage being21 to 25, they may spend a few yearsbefore they are married, and againlater when the children have left thenest. The amount ofwork a wife maysupply to the market may depend notonly on her wage rate, but also onthe total income of the family. Em­pirical researchers have found thatfemale market labor responds nega­tively to husbands' incomes; the morehusbands earn, the less likely arewives to work. But there is a posi­tive response of a woman's ability toearn income to her inclination towork; the more she can earn the moreshe is likely to work.7

In recent decades women

1984 WOMEN, WORK AND WAGES 237

throughout the capitalistic worldhave flocked from home to office orfactory. In the United States, morethan forty per cent ofmarried womennow are estimated to be earning ex­tra incomes. This shift from home tomarket must be explained not onlyby the phenomenal reductIon inphysical exertion as a result ofmod­ern technology and application ofcapital, but also by the growing op­portunity cost of home work. AsAmerican industry provided an everincreasing variety of goods at lowerprices, it became more advanta­geous to buy them in a store than tomake them at home. In other words,an hour's work in the office becamemore productive in providing goodsfor the home than an hour's work athome, which persuaded millions ofmarried women to seek market em­ployment. But even then they maywant to limit their labor to times andplaces that allow for family chores.The office hours should not conflictwith family hours, the place of workshould not be too far from home, andabove all, the production demandsshould not be overly exhausting, de­priving her of the strength neededat home.

It is in the interest of all membersof society that woman should de­velop her ego and join man as equal,freeborn companion and partner. Sheshould develop her personality inaccordance with her inclinations,desires and economic circumstances.

But the basic differences in sexualcharacter and physique cannot beoutlawed any. more than other ine­qualities of the human race. Shecannot escape the burden of moth­erhood, of childbearing and child­rearing that consume her energiesand tend to remove her from the la­bor market. Pregnancy and thenursing ofchildren take many yearsof her life and deprive her of the op­portunity to be active profession­ally. While man may be pursuingambitious goals, woman is a child­bearer and nurse, carrying the bur­den ofhuman reproduction. In orderto compete with man and develop herabilities in economic life she mayhave to renounce her womanly func­tions and deny herself the greatestjoy, the joy of motherhood. A few ex­traordinarily gifted women manageto achieve both, perform great deedsin addition to motherhood.

Affirmative-action judges are blindto the obvious. They actually findemployers guilty for consideringsexual limitations and situations.Oblivious to human nature, they is­sue court orders that seek to sup­press it. They are hurting the veryindividuals they seek to benefit. Byraising the cost of female labor theyare reducing its demand which, insimple economic language, is tanta­mount to c:r:eating unemployment.The "marginal" employees, whoseproductivity was barely coveringtheir employment costs before the

238 THE FREEMAN

judge's order, are rendered "sub­marginal" by the order; that is, theyare made to inflict losses on theiremployers and thus, for purposes ofemployment, are made destructiverather than productive. In short, theyare rendered unemployable. A Su­preme Court decision that inter­prets the law in such an "affirma­tive" fashion may condemn manythousands of American women tolong years of unemployment.

No society can rest for long on ajudge's order and the power of thepolice to enforce it. A society, toprosper, must be built on the solidfoundation of freedom and morality:these are the principal elements ofits strength and the guarantors ofits prosperity. @

-FOOTNOTES-lKlaus Mehnert, Der Sovietrrumsch, Deutsche

Verlags-Anstalt, Stuttgart, 9th edition, 1962,p.87.

2The federal judge ruled that the state vio­lated federal laws by "direct, overt and institu­tionalized discrimination" that was "inten­tional" and is "continuing now." Unable to refutethe comparable-worth doctrine, attorneys forWashington state argued that the judgment willhave a "devastating" effect on the state's econ­omy. The retail sales and use tax would have tobe increased to 7.9 percent from 6.5 percent.Or, a 55 percent business and occupation sur­tax would have to be imposed. The Wall StreetJournal, December 15, 1983, p. 18. This writerquestions the attorneys' analysis. The judg­ment will merely create high rates of unem­ployment among the beneficiaries and greatlyreduce the bureaucratic effectiveness of the state.Th find employment many women may have toleave the state for other areas that offer marketrates rather than court-ordered reparations.

3Fbr a thorough discussion ofthe comparable­worth doctrine see: Ruth G. Blumrosen, "WageDiscrimination, Job Segregation and Title VIIof the Civil Rights Act of 1964," Journal ofLawReform, Spring 1979 (V. 12, No.3), pp. 399­502; Cotton Mather Lindsay, Equal Pay ForComparable Work: An Economic Analysis of aNew Antidiscrimination Doctrine, LEC Occa­sional Paper, University of Miami Law andEconomics Center, 1980; E. Robert Livernash,ed., Comparable Worth: Issues and Alterna­tives, Washington, D.C., Equal EmploymentAdvisory Council, 1980; Suzanne E. Meeker,"Equal Pay, Comparable Work, and Job Evalu­ation," Yale Law Journal, January 1981, (V. 90,No.3), pp. 657-680; Bruce A. Nelson, EdwardM. Opton, Jr. and Thomas E. Wilson, "WageDiscrimination and the 'Comparable Worth'Theory in Perspective," Journal of Law Re­form, Winter 1980 (V. 13, No.2), pp. 231-301;Donald J. Treiman and Heidi I. Hartmann, eds.,Women, Work, and Wages: Equal Pay for Jobs ofEqual Value, Washington, D.C., National Acad­emy Press, 1981.

4June Sochen, "Women and the Law," in En­cyclopaedia Britannica, Book of the Year, 1980,pp. 485, 486.

5Probably the most effective opponent ofERAwas Mrs. Phyllis Schlafty ofAlton, Ill. In 1972,when the amendment was passed by Congress,almost unopposed, she launched a crusadeagainst it. She founded a national organization,The Eagle Fbrum, and took her message coastto coast, charging that ERA would weaken theAmerican family. After ERA's defeat, the Fb­rum continued its "profamily" educational ef­fort. Cf. The Phyllis Schlafly Report, Box 618,Alton, Illinois.

6Congressional Quarterly, Weekly Report,January 30, 1982, p. 160; July 3, 1982, p. 1586;April 23, 1983, p. 781 et seq.

7Cf. Jacob Mincer, "Labor Fbrce Participationof Married Women," Universities-NationalBureau Committee for Economic Research,Princeton, N.J., 1960, pp. 63-97. John D. Dur­and, The Labor Force in the United States, 1890­1960, New York, Social Science Research Coun­cil, 1968, pp. 216-217.

Edmund A. Opitz

TO SAVETHE WORLD

Status quo is a Latin phrase mean­ing, in a modern translation, "themess we are in." A great number ofour contemporaries must under­stand it so, because never have somany persons and organizationscome forward with such a variety ofschemes for reforming other peopleand saving the world. This is the ageof the Man with the Plan. The re­former, with his blueprints for socialuplift, is in his heyday. I suppose thatI too would be classified by some asa reformer, for I travel around thecountry making speeches and tak­ing part in seminars. And the gist ofwhat I have to say is that, indeed,things are in bad shape, but that theymight be improved if we approachedeconomic and political issues withmore sense and in a different spirit.

The Reverend Mr. Opitz is a member of the staff ofthe Foundation for Economic Education. This articleis from a speech delivered at the 40th annual confer­ence of the American Association of Physicians andSurgeons, Columbus, Ohio, September 22, 1983.

If the distinguishing mark of a re­former is his yen to save the world,then I am not a reformer. But I liveclose enough to the tribe so thatmany of them send me their litera­ture.

Across my desk come the outpour­ings of many earnest souls, offeringsalvation to the world if only theworld will embrace their particularpanacea. The panaceas peddled bythese folk come in all sizes and styles,ranging from world government to alow cholesterol diet. In between arethe socialists, the land reformers, themoney reformers, the prohibition­ists, the vegetarians, and those whobelieve that the world is in thestrangling clutch of a far-flung con­spiracy of sinister men who operateanonymously behind the scenes. AsI read this material I am thankfulthat the world has so far refused tolet itself be saved on the terms eachand every one of these reformers laydown. These people differ wildly

239

240 THE FREEMAN April

among themselves as to the detailsand precise nature of the remedy, butthey are in basic agreement as tothe general pattern reform shouldtake. Reform-as they understandit-consists of A and B putting theirheads together and deciding what Cshould be forced to do for D. WilliamGraham Sumner of Yale, said some­thing like this about a century ago.

Sumner was describing and de­ploring a tendency he perceived inthe governmental policies of his dayto expand the network of govern­mental interventions and regula­tions over society in the interests­allegedly-ofupgrading the generalwelfare. This could not be done, heargued, except to the detriment ofthe productive part of the nationwhose interests were to be sacrificedfor the assumed benefit of selectedindividuals and groups. The A andB who put their heads together sym­bolized government, the publicpower. D symbolized those who gotgovernment handouts and subsidiesof various kinds. C symbolized thegreat body of the nation, the menand women engaged in productivework, whose taxes supported not onlythe government but the vast andgrowing number of people, rich andpoor alike, who fattened at the pub­lic trough. Sumner called C "the for­gotten man" because he was the vic­tim sacrificed whenever the publicpower was misused to confer privateadvantage. It is intriguing to note

that when the New Deal resurrectedSumner's phrase the meaning wasinverted. D, the new class with ac­cess to public funds, was now "theforgotten man."

"The New Freedom"

The thing which Sumner saw tak­ing root a hundred years ago hascome to full flowering in the totali­tarian states of this century. But theseeds of today's Democratic Despo­tism were planted as far back as the18th century when certain Conti­nental philosophers decided that manhad now come of age and could takecharge of his own affairs. When youtranslate this idea from the Frenchit reads: We enlightened few to whomthe new truth has been revealed, willtake charge of all the rest of you.The kings have been deposed and werepresent The People. Combine ma­joritarian political processes with thepowers conferred by science to con­trol both nature and man, they said,and we will hatch a perfected hu­manity and manufacture a kingdomof heaven on earth. The age-old uto­pian dream will be a reality; it willbe called "The New Freedom"!

Bring this ideology down to themiddle of the 19th century and wecome to the man from whom so many20th-century problems stem-KarlMarx. The determining factor formankind, Marx wrote, is "the modeof production in material life." Aman's very consciousness is deter-

1984 TO SAVE THE WORLD 241

mined by his social existence. "Men'sideas," he added, "are the most di­rect emanation of their materialstate." The logic of this is fantastic,for according to Marx's own state­ment, he himself is a mere mouth­piece for the material productiveforces of 1859; Marx's mouth mayframe the words, but his mind doesnot generate the ideas. The ideascome from "the mode of productionin material life."

Salvation by Politics

Marx does not stop here; he goeson to fashion an idol. Declaring him­self an atheist, he excoriates thosewho do not "recognize as the highestdivinity the human self-conscious­ness itself." This new mortal god hasonly one obligation to the world: Saveit! Aristotle's god, the Prime Mover,derived esthetic enjoyment fromcontemplating the world He hadmade; and many philosophers, andordinary folk as well,have enjoyedthe starry heavens and the gloriesof nature. But if Marx were to havehis way, these kinds of pleasureswould be prohibited. "The philoso­phers have only interpreted the worldin various ways," he wrote: "thepoint, however, is to change it."(1845) A contemporary of ours, thelate Bertram Wolfe, writing criti­cally of Marxism, gives us this in­terpretation: "History was to be givena new meaning, a new goal, and anew end in Time. . . . At· last man

would become as God, master of hisown destiny, maker of his own fu­ture, conscious architect of his ownworld." Salvation by politics!

Utopians, dreaming of an earthlyparadise, have drawn up their blue­prints of a heaven on earth, but inpractice, every attempt to realize aperfect society has resulted in an in­tolerable society. Newfangled heav­ens on earth-as exemplified bythe totalitarian nations-resemblenothing so much as visions of theold-fashioned hell. Nations began towalk the road to serfdom and the newslavery was inevitable. Meanwhile,another set of ideas was germinat­ing.

The Rule of Law

Human beings have long aspiredto be free. But it was only two cen­turies ago that this aspiration tookconcrete form in the philosophy ofpolitical liberty under the Rule ofLaw, with its economic corollary, thefree market. America announced itsideal of political liberty to the worldin The Declaration of Independence.The year was 1776. The Declarationstates that men and women are givencertain rights and immunities bytheir Creator, among them the rightof every·person to live his life peace­fully, plus the right to freely exer­cise the energy that being alive con­fers-our rights to life and liberty.When a person is free to exercise hisenergies-which is to say, when he

242 THE ~REEMAN April

is free to work-he produces goodsand services, and these rightfullybelong to him. A person's right toproperty follows logically from hisrights to life and liberty, and privateproperty is the cornerstone of a so­ciety of free people.

The economic complement to thepolitical structure envisioned in theDeclaration is Adam Smith's monu­mental work, The Wealth of Na­tions. Smith demonstrated once andfor all that the business, industry andtrade of a nation does not need to beplanned and managed by the politi­cal authority. Jefferson paraphrasedSmith's idea when he wrote: "If thegovernment should tell us when tosow and when to reap we should alllack bread." The uniquely Americanpolitical philosophy of the Declara­tion said, in effect, that governmentshould not run people's lives; gov­ernment's proper role is similar tothat of an umpire. The umpire on abaseball diamond does not operatethe game, manipulating the playersas if they were pieces on a chessboard. The umpire's job is to be animpartial arbiter of the rules uponwhich baseball functions, interpret­ing and enforcing them as needed.

And so it is with the governmentof a free society. The people managetheir own affairs according to the setof rules for living together in soci­ety' and the full time job of govern­ment is to ensure that the rules areobeyed. This is called the· Rule of

Law, referred to by Smith as the"liberal plan of liberty, equality, andjustice." Smith showed that a soci­ety with equal justice under the lawprovides optimum liberty for the cit­izens, and that these same citizensin their capacity as consumers di­rect and regulate economic produc­tion by purchasing this and not pur­chasing that. Entrepreneurs analyzethis data and produce whatever goodsthey think the customers will buy.This is capitalism, economic free­dom in the marketplace, and it isthe other side of the coin of politicalliberty. Neither can survive withoutthe other.

Regulated by Consumers

Adam Smith did not advance theidea of an unregulated economy; noone believes in an unregulated econ­omy. Capitalism is an economy reg­ulated by the customers; it is con­sumer sovereignty exercised withinthe guidelines laid down by the morallaw. A free society presupposes thateach person is responsible for the wayhe lives his life; it presupposes thatmost people most of the time will notmurder or assault or steal; most ofthe time they will tell the truth, ful­fill their contracts, and treat theirfellows decently. No kind of a soci­ety is possible among creatures whohabitually violate these moral laws,and a free society presupposes highgrade human material. If you havegood people-defining "goodness" to

1984 TO SAVE THE WORLD 243

include a modicum of intelligence­a good society follows. If men andwomen pursue the excellence appro­priate to our species, choosing suchexemplars as Jefferson's "aristoc­racy of virtue and talent," they willhave a good society to match.

The original proponents of politi­cal liberty and a free economy calledthemselves Whigs in the 18th cen­tury-men like Jefferson and Madi­son in this country, Edmund Burkeand Adam Smith in England. Theirfollowers began to call themselvesLiberals when England's Whig Partychanged its name to The LiberalParty in 1832. But the meaning ofthe word "liberal" began to changeeven before the turn of the century,and it now means centralized gov­ernment and a good deal ofeconomicplanning-just the opposite of thethrust of early Whiggism and Clas­sical Liberalism. We who believe inthe free society cannot now call our­selves Liberals, although early lib­eralism is in our heritage, so I havetaken to calling myself a Whig, afterF. A. Hayek who once said, "Call mean old-fashioned Whig, with empha­sis on the old-fashioned."

Freedom of the Press

Whiggery fought some importantbattles in its time and gained somewell-earned victories for severalspecific freedoms we tend to take forgranted. For example, it brought thepress out from under the political

umbrella, freeing it from interfer­ence by a government censor em­powered to tell editors and writerswhat to print and what to spike.There's a lot of hogwash writtenabout "freedom of the press" thesedays, but that's another story!

A corollary of the free press isfreedom of speech. This means thatpeople are free to speak their mindsand criticize the authorities withoutrisking jail; free speech is an essen­tial element of any society wherepeople elect public officials. The de­parture of the kings introduced the.electoral process as a means ofchoosing personnel for public office.And when citizens must select pub­lic officials by balloting, it is neces­sary that the issues be ventilated bywritten and oral debate-which mustbe free.

The third major freedom workedout by the Whigs was religious lib­erty. A free society has no official,established church supported out ofthe tax fund. Churches are sup­ported by voluntary contributions,and there are no laws to punish her­esy. The nearest thing to an estab­lished church in America is the pub­lic school system; but despite that,and despite the enormous quantitiesof tax money now being siphoned intocolleges and universities, we still givea lot of lip service to the idea of aca­demic freedom.

Academic freedom is a good idea,although the ways we now translate

244 THE FREEMAN April

that idea into action are open to se­rious question. Freedom of the pressis also a good idea, even though somejournalists understand it to meanunlimited license to distort report­ing into conformity with their ideo­logical biases. "Separation of churchand state" has become my least fa­vorite American shibboleth, but I amnevertheless a devout believer in re­ligious liberty. However critical I amof much that now goes on in thesesectors of our life I know that condi­tions are much worse when the gov­ernment operates the schools, thechurches and the press-which is thetheory and the practice of collectiv­ist nations.

Let People Alone

In Whig theory, governmentshould let people alone; governmentshould not dragoon people into car­rying out some vast national pur­pose; it should not override theirpersonal plans in favor of somegrandiose national plan. So long asJohn Doe is minding his own busi­ness, pursuing whatever peacefulgoals he has in mind for himself,government should let him alone.But whenever John Doe's life, lib­erty or property is violated by anyperson, government should be alertto detect the crime and punish theperpetrator. The use of lawful forceagainst criminals to protect thepeaceful and productive members ofsociety is the earmark of good law.

"The end of government is justice,"wrote Madison, "and justice is theend of civil society." Establish rulesof the game designed to secure fairplay for everyone, while providingmaximum liberty for each man andwoman to pursue personal goals. Getgovernment out of its activist role.Limit the law to enforcing the rulesagainst those who violate them-andthe free society is the result.

Letting things alone is not thesame as doing nothing; letting thingsalone is an acquired skill. The jour­nal with which I am associated iscalled The Freeman. Between 1920and 1924, the editor of The Freemanwas a unique personality named Al­bert Jay Nock. Associated with Nockwas a group of young writers suchas Suzanne LaFollette, Van WyckBrooks, and Lewis Mumford. Some­one-reflecting on those four years­remarked to Nock, "Albert, you'vedone wonderful things for theseyoung people."

"Nonsense," said Nock, "all I'vedone was to let them alone."

"True," replied his friend, ''but itwould have been different if some­one else had been letting themalone."

Wise and Salutary Neglect

Rightfully letting things alone, instatecraft, is Edmund Burke's policyof"a wise and salutary neglect." Butlet me turn to medicine for a goodanalogy of the nature ofgovernment

1984 TO SAVE THE WORLD 245

action proper to the free society.Certain medical theorists of about acentury ago-especially in Ger­many-examined the human organ­ism and found it a crude contrivanceof pipes, tubes, levers and deadweight. This botched mechanismcould be kept going only if someoneconstantly patched and repaired it.Writing of this antiquated medicaltheory, an historian says: "This heldthat the body was a faulty machineand Nature a blind worker. The stu­dent made an inventory of the bod­y's contents and found, as he ex­pected, some out of place, somewearing out, some clumsy make­shifts ... some mischievous surviv­als left over." Medical practice, basedon this theory, was to interfere withthe body's working by probing, op­erating, removing and altering. Thepractice sometimes proved disas­trous to the patient!

Medical theory has changed. Mod­ern theory, according to the samehistorian, regards the body as "asingle unit, health a general condi­tion natural to the organism ... andthe best diet and regime, to live nat­urally." This theory regards the bodyas a self-regulating, and for the mostpart, a self-eurative organism. It neednot be interfered with except to re­pair or remove any obstruction thatprevents the free flow of the healingpower of nature. This is an ancientidea, as witness the Latin phrase vismedicatrix naturae. Medical or sur-

gical ministrations do not createhealth; the body does that of itself,if let alone.

The new outlook in medicine issummed up by the title of the fa­mous book by Harvard professorWalter B. Cannon: The Wisdom ofthe Body. I believe it was Dr. Can­non who introduced the concept of"homeostasis," the idea that the hu­man body maintains all the bal­ances necessary to preserve health­unless something interferes. In whichcase, call the doctor!

Health and FreedomThere is a striking parallel be­

tween present day theories ofhealthand the ideal of freedom in humanaffairs. The believer in freedom isone who has come to realize that so­ciety is a delicately articulated thing,each part depending on every other.Hence, arbitrary interference withanyone's peaceable willed action notonly diminishes the freedom of theperson restrained but affects all otherpersons in society. The attempt tomasterplan society upsets the bal­ance which every part ofsociety nat­urally has with every other part, be­cause every unit of society is anautonomous, initiating, reasoning,responsible human being.

Nearly everyone favors freedom inthe abstract. Most intellectualschampion freedom of speech, aca­demic freedom, freedom ofthe press,and freedom of worship; they dis-

246 THE FREEMAN April

trust economic freedom. Those whowould deny freedom in the market­place assume that, in the absence ofpolitical controls over production,economic life would be chaotic. Theassumption, in other words, is thatmanufacturers would not produce thegoods consumers want unless gov­ernment stepped in and told themwhat to make, and in what sizes,styles, and colors. The assumption isabsurd; and so is the belief that thefree economy rewards some at theexpense of others. Everyone in thefree economy is rewarded by his peersaccording to their evaluation of theworth of his goods and/or services tothem.

The Problem Is Scarcity

Why is there economics? What isthe problem that calls forth this dis­cipline? The problem, in one word,is "scarcity." Virtually everythingmen and women want, need, or de­sire is in short supply. On the hu­man side of the economic equationis a creature of insatiable needs anddesires. On the other side of thisequation is the world of raw materi­als and energy, which are scarce rel­ative to human demands for them.Unlimited wants on one side of theequation, but only limited means forsatisfying them on the other. Theequation will never come out right.Human wants always outrun themeans for satisfying them. Econom­ics, in the nature of the case, is "an

anti-utopian, anti-ideological, disil­lusioning science," as the late Wil­helm Roepke used to point out.

For a thing to qualify as an eco­nomic good, two requirements mustbe met: the item must be needed orwanted, and secondly, it must be inshort supply. Air, despite the factthat it is necessary to our lives, isnot an economic good, for it is not inshort supply; under normal condi­tions there is enough air for every­one with lots left over. But condi­tioned air is an economic good, eventhough it is not necessary for life butonly ministers to our comfort. Con­ditioned air is scarce, there is not asmuch of it as people want, merelyfor the taking; so people have to giveup something in exchange in orderto get it. Aside from fresh air, vir­tually everything we want or needis an economic good; there is notenough of anything for everyone tohave all he wants merely for thetaking. Some frustration is there­fore inevitable; frustration is builtinto the human situation and wehave to learn t9 live with it. All thateconomics can promise is a meansfor making the best of an awkwardsituation.

Economics, then, is the disciplinewhich deals with goods in short sup­ply-just about everything wewant-and the problem it faces ishow to allocate scarce goods so as tobest satisfy the most urgent humanwants, in the order of their urgency.

1984 TO SAVE TH]~ WORLD 247

The free market approach to thisproblem is to rely on the individualfree choice of consumers, as mani­fested in their buying habits. Thebuying habits of people form a pat­tern which tells entrepreneurs whatto produce, and in what quantities,sizes, and so on. This is the tactic ofliberty as applied to the workadayworld; this is the market economy,or the price system, and' if govern­ment merely protects people in theirproductive activities, and in theirbuying and selling-protects themby curbing predation and fraud-theeconoIIl;ic activities of man are self­starting, and self-regulating.

Market Performance

The free market is the only deviceavailable for allocating scarce re­sources equitably. The market's per­formance is so efficient and so intel­ligent that it has excited theadmiration of those who have stud­ied and understood its workings.Virtually everyone of the chargesthat has ever been directed againstthe free economy proves, upon ex­amination, to be aimed at a problemcaused by some misguided politicalinterference with the free economy.

No one likes the term SocializedMedicine but there are many peo­ple-including some doctors-whosupport things like Medicare. Theprofessed aim of Medicare is to in­crease the availability of medical andsurgical services by political inter-

ventions and subsidies. Now medi­(~al and surgical services are in shortsupply, relative to the demand forthem. This is to say that medical andsurgical services are economic goods,and-like all economic goods-theyare scarce relative to demand.Therefore, away must be found toration them.

The free market is the only effi­eient and fair way to allocate scarcegoods, and it follows that only thefree market can be relied upon tofurnish the greatest quantity of highgrade medical and surgical servicesat the lowest possible price, to a cit­izenry which has a great variety ofother needs and desires to satisfy aswell. Every political alternative tothe market means a wastage of eco­nomic goods and resources; it meansless for all. This law applies to med­ical and surgical services. SocializedMedicine must inevitably lead to amisallocation of available medicalresources, with fewer available ben­efits for those who need them.

'The Better Alternative

There are no perfect solutions inhuman affairs; there are only betteror worse alternatives. The privatepractice of medicine does not prom­ise perfection, any more than theprivate practice of education, or theprivate practice of religion, or theprivate .practice of anything you'dcare to mention. But private prac­tice surely beats the alternative,

248 THE FREEMAN

which is to have the politicians andbureaucrats run the show. In thatdirection lies disaster!

Nineteenth-century collectivisttheories resulted in twentieth-cen­tury totalitarian politics, with itsrecord of slaughter, conquest, pov­erty, fear, terror, regimentation, andthe Gulag. Ideas have consequences;the consequence ofbad ideas is mon­strous evil on a vast scale. But ideasare changing. Former left wing in­tellectuals are now neo-conserva­tives. Some even admit to being con­servatives-a conservative beingdefined by Mike Novak as a liberalwho has been mugged by reality! I'mnot going to assert that we've turnedthe corner, but we have madeprogress and the corner is withinsight.

Universal Order

This is a universe we live in, nota multiverse or a chaos. Old MotherNature has a passion for order; shewill tolerate disorder up to a point­then watch out! For thousands ofyears we have known what we oughtto do in the moral and spiritual di­mensions of our lives, but we find itdifficult to perform as we should atthis level. Man likes to think thathe can "get away" with things, andso he ignores or defies that Purpose

which manifests itself in and throughthe universe. The universe tolerateswayward man up to a point, but ifman does not learn his lessons fromhis own waywardness he will betaught the hard way. "Things won'tbe mismanaged long," said Emer­son. Nature will not allow it.

Victor Hugo in his great novel LesMiserables put the matter more dra­matically. You recall his long de­scription of the Battle of Waterlooand the defeat of the French. Andthen these words at the end of chap­ter 53: "Why Napoleon's Waterloo?"Hugo asks. "Was it possible thatNapoleon should gain this battle? Weanswer No. Why? Because of Wel­lington? Because ofBlucher? No; be­cause of God! Bonaparte victor atWaterloo-that was no longer ac­cording to the law of the 19th cen­tury. Another series of events waspreparing wherein Napoleon had nofurther place... Napoleon had beendenounced in the infinite and hisdownfall was resolved. He botheredGod. Waterloo is not a battle; it isthe universe changing front."

And so I say, Let's not try to savethe world! Saving the world is God'sjob; our job-yours and mine-is tolive in the world up to the level ofour best insights. That might makethe world worth saving! ,

A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN

America by the Throat

IN his America by the Throat: TheStranglehold of Federal Bureau­cracy (Devin-Adair, Publishers, 143Sound Beach Avenue, Old Green­wich, Conn. 06870, 190 pp., $14.95),President George Roche of HillsdaleCollege talks about an imaginarystate of Rapinia. It is bureaucrati­cally run, with orders going out froma Central Economic Planning Bu­reau. It happens to have four mainframe computers, procured illegallyfrom capitalist countries. The prob­lem is what to feed into the comput­ers that will enable the chief bu­reaucrats to decide on the dispositionof available investment capital andenergy.

The economy of Rapinia is outthere waiting. The country needssteel I-beams, shoes, wheat, tooth­paste, dental drills and hydroelec­tric dams. But in what order, and inwhat relative amounts? How shallthe workers be apportioned to thevarious enterprises? Which factorieswill be entitled to what raw materi­als? "What," asks Roche, "are twokilos of soap powder worth relativeto a hectare of barley relative to a

hydroelectric dam? How can one addup or make any calculations con­cerning an I-beam, wheat, and cos­metics? There is no common denom­inator for these things."

In a market system they could bepriced in terms of the money thatindividual purchasers would be'willing to put out for the separateitems. But this presumes free willon the part of individuals, and a pri­vate base from which to trade. In as­suming that Rapinia is cut off froman international market (just howdid the Rapinian bureaucrats everget hold of those computers any­way?), the problem of economic cal­culation must become a nightmare.Decisions will be made by sheerguesswork and enforced by a police,a KGB, who are under orders from aplanning board which itself is sub­ject to prior decisions made by a po­litical dictator. The dictator, ofcourse, would have to think first ofall in terms of his army. So ·we havemissiles always coming before butter!

In describing his Rapinia, with allits troubles, George Roche acknowl­edges his tremendous debt to Lud-

249

250 THE FREEMAN April

wig von Mises, who raised the pointabout the dependence of economiccalculation on a market system somesixty years ago. But Roche's concernin depicting his imaginary Rapiniais not merely to endorse the Misesinsight. The idea behind Roche's bookis to show how the urge to approachRapinia as a limit corrupts thethinking ofbureaucrats in free mar­ket states, making economic calcu­lation more difficult as the empire­building talents of canny top bu­reaucrats manage to siphon offmoreand more of the national income.

To Ludwig von Mises George Rochehas added· Albert Jay Nock, whomade key distinctions between po­litical power and social power. Thepolitical power is coercive, and itgrows all the time. When it beginsto take more than 30 per cent of thenational income for itself, it has di­sastrous effects on the incentives ofthose who still possess some socialpower. Invention lags. People seekspecial tax havens and turn to a newlawyer class to find ways of outwit­ting the bureaucrats.

The bureaucrats that keep grow­ing may be well-intentioned, but ri­gidity is imposed on them by law.The bureaucrat must go by the book.If he departs from the rule, the let­ter of the law, he would be subject toinvestigation and a possible jail sen­tence.

The regulations imposed by thebook are essentially sterile. Busi-

nesses grow by bold innovationsmade by individuals who are willingto take chances. The bureaucrat can'tunderstand the innovative mental­ity. If the law tells him that a toiletseat must be made a certain way, orthat a mouse trap must conform tocertain specifications, or that a win­dow must be X number of inches offthe floor, he will apply the rule quitearbitrarily. In so doing he may befreezing a design forever.

Examples of Waste

George Roche has a lot of goodlaughs at the bureaucrats' expense.By law federal bureaucrats poured76 million barrels of oil into a caveto create a mandated Strategic Pe­troleum Reserve. But the law hadforgotten to specify that pumps mustbe installed to get the "reserve" outin a time of emergency. Every year,in accordance with regulations, theDepartment of Defense buys 48,000heavy duty leather holsters for .45caliber pistols. But it hasn't gottenany new .45 pistols since 1945.

These things, culled mostly fromBill Buckley's National Review, arefunny in detail. But they cease to befunny when their cost to the tax­payer is considered.

And it is certainly not funny whenbureaucracy strikes at Dr. Roche'sown college at Hillsdale in Michi­gan. Hillsdale has never taken adime from the federal governmentin direct government support. But

1984 AMERICA BY THE THROAT 251

some of its students have borrowededucation money from governmentsources on their own. This is theirlegal right, and Hillsdale has had nopower to prevent it. But the bureau­crats, sticking to the letter of the lawas interpreted by themselves, de­cided that any college that accepts astudent who has had Federal fund­ing must itself accept Federal rul­ings on such things as hiring quotas.Hillsdale, according to the bureau­crats, did not employ enough women.The little fact that there are notenough women Ph.D.s to go aroundmeant nothing to the bureaucraticmind.

The rulebook approach insuresthat mistakes, when made by over­solicitous governments, can in Fior­ello LaGuardia's phrase be "beauts."An environmental ruling designedto protect caribou in Alaska delayedthe building of the needed trans­Alaska oil pipeline by five years at

the very time that the Arabs ofOPECwere getting away with their mo­Ilopolistic price-fixing. Eventuallythe magazine published by theSmithsonian Institute sent a re­porter up to the Alaskan North Slopeto check on the caribous' habits. Thereporter discovered that the caribou,far from being bothered by the pipe­line right-of-way, loved huddling onthe new artificially raised land to getaway from the mosquitoes.

The business of the bureaucrat, soRoche tells us, is to fund problems,not to solve them. The bureaucratwho wants to keep his job goingwould only be cutting his own throatif he were to work himself into pre­mature retirement. So we come toRoche's two laws. The first is thatthe supply ofhuman misery will riseto meet the demand. The second isthat the size of the bureaucracy in­creases in direct proportion to theadditional misery it creates. ,

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252 THE FREEMAN April

THE ECONOMICS AND POLITICSOF RACE: AN INTERNATIONALPERSPECTIVEby Thomas Sowell(William Morrow & Co., Inc., 105 MadisonAvenue, New York, NY 10016),1983324 pages· $15.95 cloth

Reviewed by Allan C. Brownfeld

Do CERTAIN GROUPS advance in soci­ety at varying rates because of theattitude ofsociety toward them? Doesdiscrimination against a given groupcause it to do less well economicallyand educationally than those groupswhich do not face such external bar­riers?

Policy makers in the U.S. haveanswered these questions in the af­firmative. They have decided thatcertain groups ofAmericans, in par­ticular blacks, are poorer than av­erage because of the prejudice theyface and the discrimination withwhich they have been forced to con­tend, not only today but historically.The answer to these disparities, it isargued, is not only to eliminate suchdiscrimination, but to make up forthe past by instituting programs of"affirmative action."

But what if some have advancedless rapidly than others not becauseof the attitude of the external soci­ety, but because of the internal val­ues and constitution of the groupsthemselves? If this is the case, cur-

rent polities are irrelevant at best,and possibly counterproductive aswell.

In this landmark study, Dr.Thomas Sowell, a Senior Fellow atthe Hoover Institution of StanfordUniversity and well known as aleading black economist, uses an in­ternational framework to analyzegroup differences. Examining theexperience of given groups in morethan a dozen countries, he seeks todetermine how much of each group'seconomic fate has been due to thesurrounding society and how muchto internal patterns that follow thesame group around the world.

The Italians in Australia and Ar­gentina, for example, show social andeconomic patterns similar in manyrespects to those of Italians in Italyor in the United States. Chinese col­lege students in Malaysia specializein very much the same fields thatthey specialize in in American col­leges-a far different set of special­izations from those of other groupsin both countries. Germans have,similarly, concentrated in very sim­ilar industries and occupations inSouth America, North America, orAustralia.

Analyzing the successes of eachgroup, Sowell points to the group'sculture, which rewards some behav­iors over others, as the determinantof skills, orientations, and thereforeeconomic performance. "Race mayhave no intrinsic significance," he

1984 OTHER BOOKS 253

writes, "and yet be associated his­torically with vast cultural differ­ences that are very consequential foreconomic performance."

In Southeast Asia, for example, theoverseas Chinese have been sub­jected to widespread discrimination.Quota systems were established ingovernment employment and in ad­missions to universities in Malay­sia, and a "target" of30 per cent Ma­laysian ownership in business andindustry was established. In Indo­nesia, a 1959 law forbade the Chineseto engage in retailing in the vil­lages. Chinese-owned rice mills wereconfiscated. In the Philippines, it wasdecreed that no new Chinese importbusiness could be established, andChinese establishments were closedby law.

Despite all of this, Dr. Sowellpoints out, the Chinese thrived. Asof 1972, they owned between 50 and95 per cent of the capital in Thai­land's banking and finance indus­try, transportation, wholesale andretail trade, restaurants and the im­port and export business. In Malay­sia, the Chinese earned double theincome of Malays in 1976, despite amassive government program im­posing preferential treatment ofMalays in the private economy. Inthe U.S., as in Southeast Asia, writesSowell, "the Chinese became hatedfor their virtues." Despite discrimi­nation, the Chinese advanced rap­idly in the U.S., as did the Japanese,

who met similar forms of racial big­otry, including special taxes and jobrestrictions.

In Europe, the. author points out,precisely the same story can be told'with regard to Jews. Anti-semitismwas a powerful force in many coun­tries, yet Jews continued to ad­vance. Although Jews were only onepercent of the German population,they became 10 per cent of the doc­tors and dentists, 17 per cent of thelawyers and won 27 per cent of theNobel Prizes awarded Germans from1901 to 1975. In the U.S., Sowellpoints out, "Although the Jewishimmigrants arrived with less moneythan most other immigrants, theirrise to prosperity was unparalleled.Working long hours at low pay, theynevertheless saved money to starttheir own small businesses ... or tosend a child to college. While theJews were initially destitute in fi­nancial terms, they brought withthem not only specific' skills but atradition of success and entrepre­neurship which could not be confis­cated or eliminated, as the Russianand Polish governments had confis­cated their wealth and eliminatedmost of their opportunities."

In the case of blacks in the U.S.,Dr. Sowell notes that West Indianshave advanced much more rapidlythan native born American blacksbecause of major cultural differ­ences. In the West Indies, slaves hadto grow the bulk of their own food-

254 THE FREEMAN April

and were able to sell what they didnot need from their individual plotsof land. They were given economicincentives to exercise initiative, aswell as experience in buying, sellingand managing their own affairs­experiences denied to slaves in theU.S.

The two black groups-native bornAmericans and West Indians-suf­fered the same racial discrimina­tion, but advanced at dramaticallydifferent rates. By 1969, black WestIndians earned 94 per cent of the av­erage income of Americans in gen­eral, while native blacks earned only62 per cent. Second generation WestIndians in the U.S. earned 15 percent more than the average Ameri­can. More than half of all blackowned businesses in New York Statewere owned by West Indians. Thehighest ranking blacks in the NewYork City Police Department in 1970were all West Indians, as were allthe black federal judges in the city.

It is a serious mistake, Sowell be­lieves, to ignore the fact that eco­nomic performance differences be­tween whole races and cultures are"quite real and quite large." Atti­tudes of work habits, he believes, arekey ingredients of success or failure.The market rewards certain kinds ofbehavior, and penalizes other be­havior patterns-in a color-blindmanner. Blaming discrimination byothers for a group's status, he states,ignores the lessons of history.

Political efforts to address the"problems" of minorities usually fail,Sowell reports, because they refuseto deal with the real causes of suchdifficulties: " ... political 'solutions'tend to misconceive the basic issues... black civil rights leaders ... of­ten earn annual incomes runninginto hundreds of thousands of dol­lars, even if their programs and ap­proaches prove futile for the largerpurpose of lifting other blacks out ofpoverty."

Crucial to a group's ability to ad­vance is the stability of its familylife and the willingness to sacrifice:" ... more than four-fifths ofall whitechildren live with both their par­ents. But among black children, lessthan half live with both parents ...What is relevant is the willingnessto pay a price to achieve goals. Largebehavioral differences suggest thatthe trade-off of competing desiresvary enormously among ethnicgroups ... The complex personal andsocial prerequisites for a prosperouslevel ofoutput are often simply glidedover, and material wealth treated ashaving been produced somehow, withthe only real question being how todistribute it justly."

If we seek to understand groupdifferences, it is to "human capital"that we must turn our attention, Dr.Sowell declares. The crucial ques­tion is not the fairness of its distri­bution but, "whether society as awhole-or mankind as a whole-

1984 OTHER BOOKS 255

gains when the output of both thefortunate and the unfortunate isdiscouraged by disincentives."

It is possible that many civil rightsleaders, academicians and politi­cians have a vested interest in per­petuating the current myths aboutthe causes of group differences, butthe rest ofus are under no obligationto view the world through the blind­ers of such special interest groups.Many are likely to oppose the conclu­sions of this important book. Theywill not, however, be able to ignore it.

~

IDOLS FOR DESTRUCTION:CHRISTIAN FAITH AND ITSCONFRONTATION WITHAMERICAN SOCIETYby Herbert Schlossberg(Thomas Nelson Publishers, P.O. Box141000, Nelson Place at Elm Hill Pike,Nashville, TN 37214), 1983335 pages. $14.95 cloth; $8.95paperback

Reviewed by Edmund A. Opitz

THE modern world, as Mr. Schloss­berg perceives it, is steeped in poly­theism. Strange gods comprise itspantheon, bearing odd names suchas Historicism, Mammon, Human­ism, Nature, Power, and Religion. Achapter is devoted to the left-liberalideologies which constitute, or haveinfiltrated, these several fields, andwell-known apologists advance theirbest arguments. But after our au-

thor has applied his critical analysishis opponents are left without a case.He is an acute critic who seems tohave read everything the idol mak­ers have written, and much else be­sides. With its full index, the book isan encyclopedic survey of contem­porary ideologies. It is also an an­swer, point by point, to much en­trenched error. As an iconoclast,Schlossberg is a smashing success ashe coolly demolishes one idol afteranother.

But the net impact of the book· isnot negative, for the author has apositive philosophy of freedom to re­place the dubious notions he criti­cizes. Schlossberg is equipped with abody of principles explicitly Chris­tian, buttressed by ideas from thewritings of men like Mises, Hayekand Friedman. It is my opinion thatmany readers of The Freeman willbe stimulated and challenged by thiswork, and I urge it upon them. ,

DOUBLE CROSSINGby Erika Holzer(G. P. Putnam's Sons, 200 Madison Ave.,New York, NY 10016),1983291 pages. $13.95 cloth

Reviewed by Bettina Bien Greaves

1'his is a novel about two brothers,Aleksei and Kiril Andreyev. Born inthe Soviet Union and raised in Mos­cow, their lives took two very differ-

256 THE FREEMAN

ent turns. Through flashbacks welearn that their father had been adrunkard and a member of thedreaded Soviet police. Their mother,however, had been unable to shareher husband's views and, when athird son was seriously injured ininfancy, had fled with him to theWest in a desperate search for med­ical attention.

Aleksei, just under ten when hismother disappeared, had alreadylearned that his father's name in­spired fear in the hearts of listeners.He soon became a young bully andin time, following in his father'sfootsteps, a powerful official in theSoviet intelligence agency.

Kiril, only three when his motherleft, was raised by an aunt who sym­pathized when he rebelled againstthe Communist youth organization,encouraged his natural desire forfreedom and taught him how to op­pose the regime in silence. Thus,Kiril quietly nursed his resentmentagainst the Communist regime andspent every effort toward preparinghimself for eventual escape from theSoviet Union. He studied languagesand chose a medical career in thehope that it might some day takehim abroad.

Kiril's first carefully worked outscheme to escape failed when his co­conspirator was killed in a desper­ate dash for freedom across the bridgebetween East and West Berlin. ButKiril persisted. Aleksei, suspicious

of his brother's intentions, had longbeen having him closely followed bysecret informants.

The tale climaxes when fate fi­nally brings Kiril, his brother Alek­sei, as well as all the other majorcharacters in the book, to a medicalmeeting in East Berlin. There, for­tuitously, Kiril meets a famousAmerican doctor who looks aston­ishingly like him. Kiril tries to per­suade the doctor to let him "borrow"his U.S. passport just long enoughto permit him to cross the border intoWest Berlin. Unfortunately, thisscheme goes awry for completelyunexpected reasons. Kiril then im­provises on the spot-to tell how,would give the plot away. Suffice itto say that the story is exciting andthe ending satisfying.

This book tells a great deal aboutthe sad plight of persons behind theIron Curtain who are yearning to befree. It reveals to some extent theirdesperation and the faint hopes towhich they cling on the slight chanceof someday escaping the clutches ofthe Communist regime.

To promote the freedom philoso­phy, it is important to make use ofany and every medium of communi­cation. Too few novels nowadays aresympathetic to capitalism. Thus, itis refreshing to have a well-writtenthriller that is frankly pro-freedomand anti-communist. Our thanks toErika Holzer for Double Crossing. i