Paul L. Poirot 3
Robert M. Thornton 12
Henry Hazlitt 16
Norman S. Ream 26
Leonard E. Read 32
Institute of Directors 41
AUGUST 1966
Weakness Corrupts .
On Heroes, History, and Our Heritage .
The Case for International Investment •
A Clergyman Looks at Free Enterprise •
Some Reflections on Robots •
The Assault on Free Enterprise •
The Flight from Reality:
23. The Flight from the Constitution, I
Books:
Adenauer's Memoirs
Other Books •
Clarence B. Carson
John Chamberlain
45
60
63
5 '12 % 5 3/4 0/0systematic savings- on 3 year accountsand on 3 year accounts of $10,000 or moreof $5,000 to $9,000 in in multiplesmultiples of $1,000 of $1,000
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. ·.·...·..LJmjHMHMl@iilmlM~·.~·······COAST FEDERAL SAVINGS & LOAN ASSOCIATIONDepartment FM, 9th & Hill Sts., Los Angeles, California 90014
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Please open a Coast Federal Sav-ings account STREET _
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in the name(s) of CITY
THE FREEMAN AUGUST 1966
Vol. 16, No.8
II'" Indiscriminate bombing with Federal Aid in the War on Poverty victimizes those who most need to knowhow to help themselves p. 3
II'" The heroic stand of stalwart menpervades our history and constitutesour heritage - lest we forget .... p. 12
yt' Henry Hazlitt rests his case for international investment on the forces ofthe market rather than the vagaries ofintergovernmental alliances and politi-cal chance p. 16
J;I" The Reverend Norman S. Reamspells out his faith in free enterprise,among free men, under God ..... p. 26
II'" Those robots of automation, sowidely held as causing unemployment,can be a boon to those who understandand use them wisely, contends Leon-ard Read . p. 32
yt' From Britain's Institute of Directorscomes a timely warning of the dangersof government interference in businessmatters p. 41
yt' Getting back to the Constitution, asProfessor Carson suggests in this chapter, calls for a renewed understandingof the reasons for limiting governmen-tal powers.... . p. 45
yt' In Konrad Adenauer's Memoirs1945-53, John Chamberlain finds thespiritual, economic, and political foundations for the "German miracle"
............ p. 60
~ And Robert Thornton delights inRussell Kirk's commentaries on TheIntemperate Professor and Other Cult-tural Splenetics p. 63
Anyone wishing to communicate with authors may sendfirst-class mail in care of THE FREEMAN for forwarding.
AUGUST 1966
LEONARD E. READ
PAUL L. POIROT
Vol. 16, No.8
President, Foundation forEconomic Education
1l1anag'ing Edito1·
THE FREEMAN is published monthly by theFoundation for Economic Education, Inc., a nonpolitical, nonprofit educational champion of privateproperty, the free market, the profit and loss system,and limited government, founded in 1946, with officesat Irvington-on-Hudson, New York. Tel.: (914) 5917230.
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Copyright, 1966, The Foundation for Economic Education, Inc. Printed inU.S.A.
Additional copies, postpaid, to one address: Single copy, 50 cents;3 for $1.00; 25 or more, 20 cents each.
Permission is hereby granted to anyone to reprint any article in wholeor in part, providing customary credit is given, except liThe Case forInternational Investment" and liThe Flight from Reality."
Any current article will be supplied in reprint form if there are enoughinquiries to justify the cost of the printing.
PAUL L. POIROT
THE CURRENT CAMPAIGN in thewar on poverty might be wagedmore successfully had Lord Actondevoted less attention to the corrupting influence of power andrecognized that weakness alsotends to corrupt and absoluteweakness corrupts absolutely.
Is that not the lesson of theparable of the talents? Thewicked and slothful servant didnothing constructive with theproperty entrusted to his care;whereupon, the property wastransferred to the good and faithful servant whose capacity forstewardship had been proven.There is war on poverty - with avengeance! But many· will doubtthe justice and humanity of transferring property from the least efficient to the more efficient usersof it. Instead, they would proposea negative income tax, for the
more equitable distribution ofwealth. In their zeal for equalityof material possessions, theystumble over the basic flaw of thecommunist idea - the destructionof the incentive for anyone to dievelop and use his talents moreconstructively. They cater to man'sweakness rather than his strength,failing to see that hatred, greed,envy, and similar weaknesses arethe most corrupting vices of all.
Individuals are not equally endowed nor do they develop theirtalents at the same pace - each isan individual, with his own scaleof values, wants, satisfactions. Essentially, there are but two waysin which a person may implementhis choices. One is through production and willing exchange,earning power converted to purchasing power in the open competition of a marketplace policed
3
4 THE FREEMAN August
to the extent necessary to protectlife and property and keep thepeace. The alternative method ofimplementing choices is throughthe physical or political power ofcoercing others to obey and serve,with government perverted intoan instrument of plunder.
Reliance on the Market
Most of us are fully aware thatit is morally wrong to murder,rob, cheat, and lie to one anotherto get what we want. When weseek employment, we instinctivelylook first to the most successfulbusiness managers, savers, creators of job opportunities. L.ikewise, in our shopping for bargains, we tend to buy from themost efficient, most successful suppliers, rewarding with handsomeprofits those who best serve ourwants. The market measures aman by what he does with his ownresources. Each man more or lesschooses and is responsible for hismarket position, relative to thatof other self-choosing and selfresponsible individuals. Day afterday we depend upon our purchasing power and the method of willing exchange to implement ourchoices; and we ought to be awarethat this market method serves uswell.
But the market is not the soledeterminant of each man's economic status, there also being "peo-
pIe control" through political action. To the extent that government ne gates the individual' schoice, it also renders him irresponsible. True, the protectiveservices of government may be designed and may indeed help tocurb irresponsible actions of certain individuals, with a resultantnet gain in the total voluntary activity of all persons in the marketplace. This is man's hope and expectation of a government confined to keeping the peace.
Nevertheless, nearly every person of restricted means, low income, limited purchasing powercan be tempted to see an advantage to himself of redistributingall incomes higher than his own.The idea of Federal aid, the negative-income-tax proposal of takingfrom the rich to help the poor,finds popular support. Withoutthought for the consequences, weturn over the power of taxationto those who lack purchasingpower. Thus, the market iswrecked and abandoned, and coercion substituted as a new way oflife, when we allow our weaknesses to corrupt us.
The simplest application oflogic ought to tell us that a weakperson cannot force a strongerperson to help him. So, it shouldbe self-evident that turning fromthe voluntary method to the coercive method of fulfilling wants can
1966 WEAKNESS CORRUPTS 5
only work to the disadvantage ofthe weak and poor among us.
Subsidy and Taxation
Government control, aside fromits defensive role of keeping thepeace, may be summarized undertwo general headings: subsidyand taxation.
That "the power to tax is thepower to destroy" seems so clearand obvious, one hesitates to discuss the matter further. Yet, itmust be recognized that a government without the power to collecttaxes is also powerless to do anything else. If government is topreserve the peace, it must be ableto collect taxes enough to pay forthat service. If government is toprotect life and property, it musthave sufficient claim upon livesand property to give the necessaryprotection. But, the fact that anygovernment does involve claimsupon the lives and the property ofthe citizenry is the all-importantreason why the scope of government should be limited. An unlimited power to destroy thoseunder its influence is more "protection" than anyone can afford. To bedefended to the end of one's resources, and then to death, is of noavail. The power to tax is indeedthe power to destroy.
While most of us can see theharmful or dangerous aspects ofthe power of taxation, we may see
less clearly the nature and impactof the governmental power to subsidize. Yet, the power to subsidizealso is the power to destroy. Noris the destructive effect confinedto those whose lives and propertyare taxed away to obtain themeans for subsidies to others. Therecipient of unearned goods orservices may sadly discover thetruth of the expression that "oneman's meat is another's poison,"for there· is no surer way to destroy a man than to assume theresponsibility for his well-being.
Even the most altruistic voluntary act of charity is capable oflasting harm to the intended beneficiary if it in the smallest degreediminishes his will or capacity tohelp himself. Rare indeed is theindividual with sufficient strengthof character to accept unearnedassistance and not be tempted toask for more. And strength ofcharacter is not a notable qualityamong those most likely to befound on the receiving line for ahandout.
Specific Programs Examined
A more careful examination ofsome specific governmental welfare programs may help exposethe futility of such coercive measures to alleviate poverty.
Unemployment compensation,for example, supposedly is in-
6 THE FREEMAN August
tended to help overcome the lackof employment opportunities forpersons whose livelihood dependsupon the sale of their services.The problem of the unemployed isthat their services are not worththe price they are asking in thecurrent market; no employer cansee a chance for profit at suchwage rates; his resources maybetter be used to obtain laborsaving equipment or devoted tos'ome other purpose: he has inmind. But, to make matters worse,the unemployment compensationprogram constitutes a coercivedrain upon an employer'sresources. All other taxes upon hisbusiness or his earnings similarlyreduce his incentive and capacityto provide job opportunities at attractive wage rates and to producegoods and services at prices attractive to consumers. The heavierthe tax load upon the most efficient and successful business entrepreneurs, the less chance therewill be for the le·ast skilled workers to find jobs or to purchasefood, shelter, clothing, and othernecessities at prices they canafford. The poor, rather than thewealthy, are the ones with mostto lose when coercion displaceswilling exchange.
Social security, medicare, andvariou8 other welfare programsare closely related to the unem-
ployment compensation idea andsimilarly disrupt the free flow ofgoods and services between suppliers and consumers. The· combined old age, disability, andmedicare tax is supposed to leveloff in due course at 11.3 per centof a person's wages up· to $6,600,which comes to a tidy $746 a year.That would be the equivalent of a5 per cent return on a capital investment of about $15,000. If aperson began investing $746 ayear at age 21, with earnings of 5per cent compounded annually, hewould have accumulated $15,000before age 36, $30,000 by age 44,$115,000 by age 65. A 5 per centreturn on $115,000 would yield$5,750 a year - without eating intothe principal.
It is recognized, of course, thatsome wage earners will accumulate private savings and invest inproductive enterprises in spite ofthe heavy burden of social securityand other taxes, whereasothers would save nothing even ifrelieved of all tax liabilities. Someindividuals tend to be morethrifty and self-responsible thanothers. Be that as it may, the factremains that the presently scheduled social security tax dep·rivesthe individual of the opportunityto save and invest up to 11.3 percent of his earnings, which couldaccumulate to as much as $115,000, and possibly more, by the
1966 WEAKNESS CORRUPTS 7
time he had reached age· 65. Thiscompulsory seizure of potentialsavings, for current redistributionamong consumers, deprives individuals and the economy generallyof the capital that could createmore and better job opportunitiesfor all working men and women.And the greatest disservice of thisentire procedure is to the poorestand the least productive membersof society who so need additionaltools and equipment and other facilities to improve their productivity.
True social security may be approached when individuals generally, and voters especially, beginto understand that savings and investment and the prerogatives ofownership are best left in thehands of those whom consumershave rewarded and designated asthe most efficient and generoussuppliers of the goods and servicespeople want. To tax and confiscateproperty and savings is to frustrate the choices of consumers;and the first and sharpest cutbackin productivity is of those veryitems that had been most abundantly mass produced - for themasses.
Tax-supported education hasbeen promulgated and widely accepted in theory as a great equalizer, not only at the elementaryand secondary school levels, but
more and more at the college level,and even for graduate studies.
When a high proportion of thepopulation of a nation is able toread and write, it may be arguedconvincingly that illiteracy is ahandicap and that everyone shouldhave the opportunity to learnthese skills in order that he maybecome a better citizen and a selfresponsible, contributing memberof society rather than a hopelessburden to himself and to others.At least, some such rationale laybehind the first steps toward government schools in the UnitedStates - elementary schools, operating at the community level.
People can be helped, even compelled, to learn to read and write.But not all who can will read orwrite; not every opportunity extended is accepted; not everyonerelieved of self-responsibilityseizes upon the situation as an opportunity to grow in ability andresponsibility. Indeed, nothing butthe precise opposite may be inferred from the sorry record ofthe consequences of governmenteducation in the United States.Never before in the history ofcivilization have so many literatecitizens deemed and decreed themselves incapable of self-support asin the United States of Americain 1966. There is no evidencewhatsoever that compelling a person to learn to read and write will
8 THE FREEMAN August
sharpen the sense of self-responsibility within him.
Furthermore, when all havelearned to read and write, somewill read and write more wiselythan others and develop talentsthat others neglect. And eventually, high school diplomas and college degrees will be required - arebeing required - of applicants forjobs of the type formerly fulfilledrespectably by illiterates. Thismay be one of the reasons whymajor universities in the UnitedStates now look to Washington for40 and 50 per cent and more oftheir total budgets. And those whoare obliged to pay the costs ofeducation, from the communitygrade schools of country-club atmosphere to the tax-supportedcenters for graduate study, are thepoor taxpayers presumed capableof and willing to educate everybody's children but their own.
After tiny tots have been joggedabout town in yellow buses,through red and green lights untilthey no longer are able to distinguish black from white, they mayproceed to express themselves concerning national and internationalproblems until free lunch isserved; .and some eventually maylearn to read and write - withreading machines and automatictypewriters. Whether the studentdropout from such a curriculumis intellectually inferior to the one
who carries on and graduates is anice question that cannot be resolved by any of the theories andpractices of the system of compulsory schooling. Is the one anybetter trained than the other todemonstrate his animal nature inthe streets or otherwise expressthe civil disobedience that passesfor maturity according to the formula of personal irresponsibility?Nor should anyone be surprisedthat the heaviest current governmental expenditures for highereducation are devoted to researchand development for occupation ofthe moon!
Urban Renewal plans and practices may afford the best illustration of all the misguided campaigns in the war on poverty. Ifanyone can be found living in substandard housing or other slumconditions, no matter that he isconscientiously doing his best tolive within his means while- striving to help himself toward something better. Root him out, andforce him to find a home he cannotafford in a community with publicservices and tax rates tailoredfor those in high-income brackets.
Government is organized intolerance; and there is nothingwrong with such intoleranceleveled against those criminal actsby individuals who disturb thepeace and· jeopardize the life and
1966 WEAKNESS CORRUPTS 9
property of others who are minding their own business. The mostdeplorable kind of intolerance isthat evidenced by the "humanitarian with the guillotine," thewell-intended reformer armedwith the power of eminent domainand the full force of governmentto simply wipe out all signs ofpoverty and suffering, includingthe individuals so afflicted.
The free market economy is tolerant of differences in humanwants and capacities, leaving theindividual free to fill his needs according to his abilities - to drawsupplies from the market in proportion to his own offer-and-delivery of goods and services. Itaffords each person the maximumincentive and opportunity to helphimself, which, in the final analysis, is the only kind of help thatdoes not carry the prospect ofgreater harm than good to the intended beneficiary.
A strong case can be made,. andhas been made on numerous occasions by countless individuals,concerning the immorality offorcefully taking the property ofthe more provident and thriftycitizenry for redistribution in oneform or another among the. poor.But far too little attention hasbeen paid by anyone to the immorality and injustice of thus depriving those poor persons of theopportunity to experience the
reality of cause and consequence,effort and reward, method and results. To feed and clothe andhouse and surround a man's bodywith other physical comforts beyond the capacity of his mind toappreciate and earn and cope withthese material blessings is to deprive him of the opportunity ofever rising above the level of adomesticated animal. No greaterinj ury can be inflicted on any manthan to "save" him from earninghis own way. The benevolent government that taxes the rich alsorobs the poor at the same time,taking from one his property,from the other his human dignity.When it is recognized that the important part of urban renewalmust take place within the mindsand souls of human beings, it maybe seen that the coercive force ofgovernment can play no constructive role in this do-it-yourselfproject of mental and moralachievement.
Transport subsidies, rangingfrom below-cost subway and commuter fares to the underwritingof luxury liners and plush airtravel, generally tend to transferproperty by force to those whocan afford to travel from thosewho can't.
There are economic as well asother reasons why the poorermembers of a community tend to
10 THE FREEMAN August
congregate and crowd together inwhat seem to be the rundowntenements and slums near theheart of an urban industrial area.There is the inexpensive, secondhand housing they can afford nearto their places of work, with olderand unadorned but nonethelessadequate schools and other serviceand shopping facilities withintheir reach and means. Those persons with ambition always havemanaged to help themselves out ofsuch crowded areas if they reallywanted to leave, thus makingroom for others on th,eir way upthe economic ladder. The market,comprised of individuals eachminding his own business, is tolerant of such arrangements.
There are persons, however,especially among the new rich recently moved to Suburbia, whohave failed to understand the ma.rket method of progress and whosee no further need for those lesselegant and lower rungs in theeconomic structure. By taxation,subsidy, and force, they wouldabolish slums, displace with orderly empty space what once werehomes and shops and service centers and sources of livelihood foremergent, self-reliant humanbeings. Then in the name of thedisplaced poor, but more obviouslyin their own interest, the new suburbanites clamor for subsidizedsubway fares, subsidized com-
muter services, subsidized freeways and parking space, subsidizedcorrectives for the destructionthey have promulgated in the nameof renewal and progress. And theinevitable workings of the processof taxation, however steeply graduated to soak the rich, are suchthat each dollar of return on investment capital thus withdrawnfrom the market place of productive enterprise means somethinglike six dollars of wages neverearned and never paid.1 The oneswho finally pay, and pay dearly,for every dollar politically diverted to the "war on poverty" arethe poor workers who so need thefreedom of the market place inorder to help themselves.
Foreign aid to undevelopedcountries will be our final examplehere of the miscarriage of justicein the political war on poverty.
Bad enough that every item assembled for give-away by thedonor government, whether it befood and other necessities or themost elaborate kind of capitalequipment, is ultimately at theexpense of those of our own citi-
1 In the highly industrialized UnitedStates over recent years, about 85 percent of personal income has been in theform of pay for work done currently and15 per cent as pay to savers who providetools and job opportunities. See F. A.Harper, Why Wages Rise (Irvington,N. Y.: Foundation for Economic Education) pp. 19-27.
1966 WEAKNESS CORRUPTS 11
zens most in· need of cheap food,clothing, and shelter and most in·need of the additional capital thatmakes for improved job opportunities and working conditions. It always is the poor who pay mostdearly for goods and services theirgovernment withdraws from thedomestic market in which they aretrying to earn their livelihood.Persons of· means, by biddingenough, can always obtain portions of what remains for saleafter government has forciblytaken "its share" of scarce resources.
But worse than these domesticinjustices of intergovernmentalgive-away programs is the impactof such measures upon the individuals supposed to be helped inthe recipient countries. Theirs isprimarily a problem of too muchregulation and control by theirown government, too little freedom and incentive to assume personal responsibility for additionalproduction, saving, and investment. Yet, there is no recor<J.y noreven the slightest hint of any attempt to put foreign-aid fundsanywhere except at the dispositionof the government of the recipientnation. Thus are these already authoritarian and dictatorial governments sustained and bolstered intheir power to regulate and control the lives of their citizen subjects.
Nor does it customarily makevery much difference in what formthe foreign-aid goods and servicesare originally transmitted fromone government to the other. Letus say that boatloads· of foodgrains are intended to stave offstarvation among the teeming millions of India - a million dollarsworth of food. The immediate consequence is that the power of theinterventionist government of India is bolstered by that amount. Ithas an additional million dollarsworth of patronage to distributeamong its lackeys and favorites.And the probability that a starving Indian may receive some ofthe foreign-aid food will dependupon how much of it he can affordto buy in the black market.
Many persons, of course, will bequick to condemn the marketeerswho would thus profit from trafficin the necessities of life. On thecontrary, the role of the blackmarketeers is the most constructive of any played in the entireforeign-aid procedure. The greatinjustice is done by those governmental enthusiasts who woulddeny the functioning of the market in the allocation of scarce resources.
A More Hopeful Approach
In questioning and criticizingthe conduct of the current campaign against poverty I have tried
12 THE FREEMAN August
to suggest what seems to me amore hopeful strategy. Twothings, I believe, are necessary tomake of any community the mostprosperous economic and culturalgarden spot of the world:
First, and most essential, is topopulate it with individuals inwhom flows the spirit and understanding and practice of liberty.Due respect for life, liberty, andproperty under the rules of peaceful exchange among self-reliant,self-responsible, self-respectinghuman beings would seem to restupon a faith that this is God'sworld, a humility that we arecreatures, and a tolerance towardfellow men peacefully participating as we ourselves aspire to doin the infinite process of the Creation.
Second, though supplemental tothe first, is to relieve that community of every form of government aid and subsidy and at thesame time relieve it of all tax burdens, regulations, interventions,and controls other than those necessary and strictly limited to itsown internal policing and its defense against foreign attack.
And the mottoes above the opengates of such a free society wouldread:
and
ON HEROES, HISTORY,
AND OUR HERITAGE ROBERT M. THORNTON
"IN TIMES of insecurity when thefoundations of life are severelyshaken," says Bernhard W. Anderson, "men often turn to the pastto gain perspective. In our time,for instance, the world crisis hasstimulated an intensive study of
Mr. Thornton is a businessman in Covington,Kentucky.
the past and the tradition in whichwe stand."
Our age surely qualifies as a timeof insecurity so it is likely thatmore and more thoughtful peoplewill, as Anderson says, turn to thepast to examine their heritage.Thus, the renElwed interest in themost important of the Founding
1966 ON HEROES, HISTORY, AND OUR HERITAGE 13
Fathers: Washington, Franklin,John Adams, Jefferson, Madison,and Hamilton. All have theircritics, to be sure, but they havenot been forgotten in the nearlytwo hundred years that havepassed since this nation wasfounded. We may wish to discoverwhat makes them great, what setsthem apart from others who livedin their time.
But while we want to knowwhat made the Founding Fathersgreat, few of us are interested inreading anything that treats themas plaster saints. We need to knoweach one's personality with all itsshortcomings, that is to say, weneed to treat them as humanbeings, for only in that way maywe appreciate their greatness,only so can they serve as inspiration and challenge to us. To proclaim perfection for these men is,as Douglas Southall Freeman hasexplained, to deny growth. PaulWilstach speaks of a need to "balance their noble qualities as greatcharacters with their amiabilitiesas fellow human beings." We canbest understand persons of thepast, suggested Albert Jay Nock,if we think of them as men andwomen much like ourselves withtwenty-four hours a day to getthrough as best they could. Theneed, in brief, is to humanize theFounding Fathers without demeaning them.
But, it might be asked, arethere really persons who mayfairly be called heroes - for instance, persons who overcometheir fear and risk their lives forothers or persons who stick bytheir beliefs in the face of strongopposition or temptations? Some"intellectuals" go so far as to saythere are no heroes since aU of usare mere products of determiningforces - biological, psychological,and environmental- over whichwe have no control; hence, we arelittle more than robots doing, notwhat we choose to do, but whatthese forces make us do. Granted,if the nature of man is such thathe can not make free choices andcan not act from disinterested motives and can not do what heknows he ought to do regardless ofwhat he Iwants to do, it is futile toargue whether at certain times,say, during the period whenAmerica became an independentnation, particular men risked"their lives, their fortunes, andtheir sacred honor" out of loveof principles. If, on the otherhand, man is not a helpless pawnand can act disinterestedly, thenwe can investigate to learn if, forinstance, the Founding Fatherswere guided by principles andideals or only by selfish motivesdisguised as a love of liberty. Howthe acts of the Founding Fatherswill be interpreted depends, then,
14 THE FREEMAN August
not only on historical knowledgeand understanding, but also on theview of the nature of man that isimplicit in any work of history.
It is not unexpected that a masssociety derogates the value andrelevance of individual action;hence the "debunking" and disregard of our national heroes. Butin diminishing our forebears wediminish rather than exalt ourselves. In demeaning the motivesof the great Founding Fathers wecompromise our own character asfree and responsible men. And itis hardly right to live off thefruits of their commitments whileinsisting they were either unaware of what they were doing orwere moved by motives differentfrom those they professed.
It is fruitless, anyway, for "intellectuals" to say there are noheroes because most persons, especially youngsters, will have theirheroes -like it or not. The realquestion is who will be the heroesto look up to and emulate. DanielBoorstin has observed the modern-day worship, not of heroes butof celebrities. "The hero was distinguished by his achievement;the celebrity by his image ortrademark. The hero created himself; the celebrity is created bythe media. The hero was a bigman; the celebrity isa big name."These new-model "heroes" are nolonger "external sources which fill
us with purpose" but "receptaclesinto which we pour our own purposelessness." "The hero," he goeson to say, "is made by folklore,sacred texts, and history books,but the celebrity is the creatureof gossip, of public opinion, ofmagazines, newspapers, and theephemeral images of movie andtelevision screen. The passage oftime, which creates and establishes the hero, destroys the celebrity." Perhaps, remarks Boorstinwisely, "our ancestors were rightin connecting the very idea of human greatness with belief in God.Perhaps man cannot make himself. Perhaps heroes are born andnot made."
Our generation, in its worshipof the present, scoffs at history asdull and unimportant; a cockybunch, we fail to appreciate thatonly if we know where the roadwe travel came from can we knowwhere it will take us. We fail, too,to understand that all of us, eventhe greatest, stand on the shoulders of those who came before.Man, Renan has said, does not improvise himself. Likewise, American society in the middle of thetwentieth century did not suddenly spring into existence, andthe spiritual and material blessings enjoyed by Americans todaywould not be ours if those whopreceded us had shirked their responsibilities to future genera-
1966 ON HEROES, HISTORY, AND OUR HERITAGE 15
tions as we are guilty of doing today. A true community, after all,is much more than just a groupof people living at a particularmoment; it is, if you will, a spiritual body including those whohave gone before and those yet tobe born.
Written history, explains PageSmith, is Uthe effort to pass on tothe sons the wisdom of the fathers, and thus to preserve, ratherthan destroy, the continuity between generations." History thusdefined will help the individual todiscover his identity, for an essential part of that identity isfound in the story of his past- his "collective autobiography."To destroy the links with the pastand live simply in the present, hecontinues, is to leave oneself at themercy of neuroses, so common inthe present day. Great history,writes Smith, is "the history thathas commanded men's minds andhearts, [history] with a story totell that illuminates the truth ofthe human situation, that liftsspirits and projects new potentialities." For the historian himself the important thing is not toseek a cold objectivity but rather"to conceive of his task as one ofsympathetic understanding of hissubject, a matter of attachmentrather than detachment, of loverather than aloofness." History,Maritain has said, "is not a prob-
lem to be solved, but a mystery tobe looked at...."
Many readers will recognize theabove-mentioned ideas on historyas conservative, not radical or"liberal," for the underlying premise of this concept of Americanhistory is that there is somethingto conserve, a heritage to treasureand to pass on to our ,posterity.There is, indeed; and our tradition, to put it briefly, is liberty.As Clarence Carson has demonstrated, ours is not a revolutionary tradition but a "tradition ofindividualism, voluntarism, constitutionalism, representative government, government by law,equality before the law, recognition of moral order in the universe, natural rights, and personalindependence." ~
Authors cited:
B. W. Anderson, Understanding the OldTestament. Englewood Cliffs, New Jersey: Prentice-Hall, 1957, p. 288.
Paul Wilstach, Patriots Off Their Pedestals. Indianapolis: Bobbs-Merrill Co.,1927, p. 15.
Daniel Boorstin, The Image: A Guide toPseudo-Events in America. New York:Harper Colophon Books, 1964, pp. 61, 63,76.
Page Smith, The Historian and History.New York: Knopf, 1964, pp. 130, 142, 155,206, 245, 248.
Jacques Maritain, University Bookman,Winter, 1966, p. 32.
Clarence B. Carson, The American Tradition. Irvington, New York: Foundationfor Economic Education, 1964, pp. 26, 27.
HENRY HAZLITT
16
The Case for
International Investment
• This article by the well-known economic journalist andauthor is reprinted by p-ermission from the February 12,1966 special 75th anniversary edition of Farmand, oldestbusiness jout'nal in Scandinavia, published in Oslo.
Dr. Trygve J. B. Hoff, 70 last November and editor ofFarmand since 1935, has won friends around the w'orldwith his staunch and undev·iating stand for a societycharacterized by la10 and order, freedom, and respect forthe individual and the dignity of man.
Henry Hazlitt is one of the several members of theMont Pelerin Society contributing articles on various as-
pects of business and economics to this commemorativeissue of Farmand.
Copies of the 24,O-page anniversary edition, in English,at $1.50 each, may be ordered direct from Farmand, RoaldAmundsensgt. 1, Oslo 1, Norway.
THE CASE for American investment in Europe is simply part ofthe case for international investment. The case for internationalinvestment, in turn, is simply partof the case for all investment,international or domestic. And thecase for freedom of investmentis simply the case for free trade,for free enterprise, for economicliberty - and for world-wide economic cooperation.
Lending and investment, whenwisely made, benefit both thelender and the borrower. Let uslook at domestic investment first,where fewer prejudices are likelyto be involved. Investment benefitsthe lender, of course, by givinghim a return on his capital inthe form of either interest orprofit.. He tries to get the highestreturn on his investment consonant with safety. Investment benefits the borrower as well. If it isa fixed-rate investment, in theform of a loan, a mortgage, orbonds, it gives the borrowing entrepreneur the capital he needsfor his venture. If his venture issuccessful, he can payoff theamount borrowed and expand hisoperations with his own capitalaccumulated from his profits.
If the investor and the entrepreneur are different people, bothshare in the gain. If the investor
and the entrepreneur is the sameperson, and he is competent andsuccessful, he provides consumerswith some product they want thatthey have not previously been getting; or he provides them witha better quality of it; or he provides them with more of it,andprobably at a lower price. So hebenefits consumers. In addition,he either provides more employment or, if there has already beenfull employment in the locality ofhis plant, he tend·s to raise thelevel of wages there.
And this mutual benefit applies,of course, to international investment. A new foreign venture (likea new domestic venture in a givenlocality), particularly if it is successful, may hurt less efficient domestic (or foreign) producers already in the field. But it will doso only because it is producing abetter quality product or sellingit· at a lower price. In other words,it will do so only because it ismore effectively meeting the needsor wants of consumers in thecountry in which the investmentis made.
Moreover, however regrettableits short-run effects may be on aparticular domestic industry, thelong-run effects of the new foreignventure are bound to be beneficial.For it will either force the do,;,
18 THE FREEMAN August
me~tic industry to become moreefficient (and so to serve domesticconsumers better), or it will forceentrepreneurs in that industry,and new entrepreneurs comingalong, to turn to products in whichthey are at least as efficient as,or even more efficient than, theforeign entrepreneur.
In short, the case for freedomof international investment, thecase for the free flow of funds,is the same as the case for freedom of international trade, for thefree flow of goods. The countrythat permits the free flow of fundsand goods will have more goodsand services. It will become moreefficient and productive. In brief,it will become wealthier andstronger.
Those who wish to put barriersin the way of international investment are confused by the samefallacies as those who wish to putbarriers in the way of international trade.
It seems pretty late in the dayto have to refute these fallacies.They have already been refutedhundreds of times, brilliantly andcompletely, by the classical economists and their successors.
Why fear the Supplier?
I will digress at this point onlyto mention one .of these fallacies,because it leads to a false fearthat still has a strong popular
hold. This is that if a foreigncountry, say the United States, isallowed to "invade" the marketsof other countries with its capitalas well as its final products, itwill be able to produce everythingmore efficiently than its Europeancompetition, and so destroy European industry. (I'd like to callattention here to the use of suchwar terms as "invade," or suchnatural disaster terms as "flood"or "inundate," to which protectionists habitually resort.)
All such fears are, of course,entirely groundless. They have notonly been refuted by the wholecourse of history; they are notonly refuted afresh every monthby the most casual study of thestatistics of imports and exports;but they are refuted a priori byelementary deductive reasoning.Ricardo refuted them once for allwhen he enunciated his law ofcomparative costs. But it shouldbe obvious to the most backwardmind that in the long run a country can only pay for its importswith its exports, and that the extent of the one both makes possible and limits the extent of theother. In the long run a nationcannot expand exports without expanding imports; and it cannotdiscourage and restrict importswithout correspondingly discouraging and restricting its exports.
Trade always balances, when
1966 THE CASE FOR INTERNATIONAL INVESTMENT 19
governments let it alone, for thesimple reason that exporters insist on getting paid for what theysell.
In the last few years all of ushave been chattering learnedlyabout deficits in the balance ofpayments. But such deficits, whenpersistent, are always the resultof unsound monetary and fiscalpolicies and interventions on thepart of governments. Typically, agovernment inflates its currencyfaster than its neighbors, and thenartificially supports its currencyquotation in the foreign exchangemarket. But we'll return to thislater.
Americans in Europe
To my short exposition of thetwo-sided advantages of international investment in general Ishould like to say a word aboutthe particular two-sided advantages at this time of American investment in Europe.
The advantage to American investors and American firms isobvious. American investors expect to get a higher return ontheir investment than they couldget at home. American firms openup new markets for their products, and at least at the beginningrealize a higher rate of profit onthem than they would by tryingto achieve a further saturation oftheir markets at home. But the
advantages to Europe are enormous.
The world today is in the midstof a great technological revolution, which will probably transform the face of the world evenmore than did the Industrial. Revolution of the late eighteenth andearly nineteenth centuries. Thistechnological revolution, of course,typified by electronics, computers,automation, is merely an accelerating continuance of the IndustrialRevolution.
From the producer's point ofview, an enormous amount ofmoney will be made in this technological revolution. To exploit iteffectively requires know-how, bigmarkets, and huge amounts of capital. Now America has these hugeamounts of capital, and it has theknow-how largely because it hasthe capital. It is, in fact, the chiefsource of capital creation today.It has been spending hugeamounts of capital on researchand development, far beyond whatEuropean countries have spent orare able to spend. An idea of thecontrast was given by the Frenchweekly L'Economie in an estimateearly last year that whereasFrance spends less than 6 billionfrancs a year on scientific research, the United States spends100 billion - an amount, it adds,three times as great as that of allEuropean countries together. The
20 THE FREEMAN August
estimate given in L'Economie forthe United States agrees fairlywell with the best American estimates, derived from figures published by the National ScienceFoundation. These estimates placeUnited States expenditure for research and development last yearat $22.1 billion, of which $15.5billion represents government expenditure and $6.1 billion privateexpenditure.
Europe, prosperous though itnow is, and expanding economically as rapidly as it now is, justhasn't got the comparable capitalto spend on research and development. Nor is it producing it at arate fast enough to finance thetechnological revolution to takefull advantage of it. It needs capital from the United States; and itneeds to import the advancedplants, equipment, and productivemethods that have been developedby this research.
Yet the irony of the presentsituation is that though privateAmerican investment in Europebenefits both Americans and Europeans, both the American government and some European governments fear and distrust it, andboth are busy putting obstacles inits way.
European Government Objections
Let us disregard why the U. S.authorities fear and dislike the
outflow of American capital andturn to the reasons why some European authorities fear or dislikeits inflow. It is in France, by thede Gaulle government, that thereasons for this distrust have beenmost clearly expressed.
At a press conference on February 4, 1965, President de Gaullecomplained that the United States,in effect, was buying up Europeanfirms with Europe's own money.This accusation is so peculiar thatI prefer to quote de Gaulle's exactwords (that is, in English, in theofficial translation) :
He began by pointing out that, because of the gold exchange standard,the United States is not required tosettle its payments deficits in gold.He then went on:
"In other words, capital was created in America, by means of whatmust be called inflation, which inthe form of dollar loans granted toStates or to individuals, is exportedoutside.
"As, even in the United States, theincrease in fiduciary currency whichresults as a side effect makes investments at home less profitable, thereis a growing tendency in the UnitedStates to invest abroad. The resultfor certain countries is a sort ofexpropriation of some of their business firms."
Some Americans have beentempted to reply that this soundsungrateful coming from a country
1966 THE CASE FOR INTERNATIONAL INVESTMENT .21
into which we .have poured some$10 billion or $11 billion of aid.But this is beside the point. Wemust admit in all candor that deGaulle is right in attributing partof the amount of our recent capital export to our own inflation andartificially low interest rates. Atfirst glance, also, his charge thatU. S. firms have been in effectbuying out European firms withthe deficit·in the American balanceof payments looks like a seriousone. Yet there is no· "expropriation" involved. Where Europeanfirms have been bought up theyhave been paid for with real dollars, with real money. And whenEuropean firms accept these dollars, and European central banksbuy them and hold on to them fortheir reserves, these are (for themost part) voluntary decisions.European central banks alwayshave the legal right to demandgold for their dollars, whether ornot the American monetary managers would be happy about theirdecision.
I come next to the charges ofPresident de Gaulle and othersthat the United States is exporting part of its inflation to Europe.It may be so; but I should like topoint out that Europe is not forcedto import it. Even if it takes andholds dollars, and even if theseend up as additional reserves inits central banks, no country is
under any obligation to issue anew pyramid of its own credit orcurrency against these paper dollars. It can simply use them tostrengthen its reserves and increase its reserve ratio.
When Europe imports dollarsfrom the United States it is notimporting inflation; it is merelyimporting temptation. It is up tothe monetary authorities of eachcountry to decide what to do withthe dollars.
Domination
I come to the next chargeagainst American investment inEurope, a charge that is againmainly heard in France. This isthat· the "invasion" of Americancorporations in Europe carrieswith it the threat of "domination"of the European economy.
How real is this threat? An article in the French weekly L'E c'Onomie of February 12 of last yearpointed out that American investmentsin ·France represent barely2 per cent of that country's grossnational product. Yet what hascaused concern, the article continued, is that this investment isconcentrated in certain key-sectors of the French economy. Andit went on to describe the situation in the petroleum and chemical industries, in mechanical andelectrical engineering, and in electronics.
22 THE FREEMAN August
But the charge of "domination"may mean either of two things. Itmay mean merely that a foreigncompany enjoys an uncomfortablylarge proportion of the marketfor a specific product. This maynot be satisfactory to the Frenchproducers; but it indicates that alarge number of French consumers prefer it to the product oftheir domestic companies. Andthis competition is a stimulus tothe French manufacturers to improve their product.
But the charge of "domination"may imply something more serious - that the American-ownedcompanies would have too much tosay about the economic decisionsof the government of the countriesin which they were located. I canonly say that I regard this outcome as wholly improbable. Thegovernment of any country, notriddled by corruption, seldom has~
difficulty in exercising its· sovereignty over any foreign-ownedcorporation. The real danger isthe other way round. The foreignowned company puts itself at themercy of the government of thehost country. Its capital in theform of buildings, equipment, andeven bank deposits may betrapped. In the last twenty-fiveyears, as American oil companiesand others in Asia and SouthAmerica have found to their sorrow, the dangers of discrimina-
tory labor legislation, or discriminatory taxation, or even expropriation, are very real.
Americanization
I come to one last reason foropposition to American investment in Europe - the fear of"Americanization." This is a littlemore difficult to deal with thansome of those I have just reviewed. But "Americanization," itseems to me, may refer to severalrather distinct things. It may refer to an increase in some of theconveniences, comforts, and luxuries of life - more and better bathtubs, lavatories, showers, andtoilets, more supermarkets anddrugstores, more radios, televisionsets, and automobiles. Few people- whether Americans, Europeans,Asians, or Africans - who are in aposition to get these things forthemselves have any objection tothem.
The real objection to some ofthem - like automobiles - is thatwith advancing prosperity toomany oth.er people are also in position to get hold of them, andthen their mere multiplication results in traffic jams that makeeach individual car less useful toits owner. I am willing to confessthat I have no solution to offer tothis problem.
The word "Americanization,"however, may be used to refer to
1966 THE CASE FOR INTERNATIONAL INVESTMENT 23
certain spiritual and culturalchanges - or, rather, I suppose Ishould say, to certain antispiritual and anticultural changesto the increasing pursuit of merely material ends, to a restless increase in the pace of both businessand pleasure-seeking, to the vulgarization typified by advertisingbillboards, jukeboxes, and thecommercialization of every phaseof life.
I should be the last to want todefend all this. But I should liketo point out that this is a development well within the control ofEuropeans themselves. It is perhaps temporarily inevitable whenthe income of the masses growsfaster than opportunities for theireducation and the cultivation oftheir tastes. But increased prosperity does not necessarily lead toincreased vulgarization and materialism. I have been impressed inthe last ten years by the remarkable growth in the United Statesin the appreciation of serious music, the reading of serious literature, and the interest in scienceand in the fine arts as reflected -inthe sales of good records and goodpaperback books and the attendance at art galleries.
Why U. S. Corporations Invest
I come finally to the question:What reasons induce Americancorporations to invest abroad and
what reasons deter them from doing so?
Of course the primary reasonthat an American corporation invests abroad is to make a profit.This consideration is not absolutebut relative. It depends upon thealternatives. The corporation goeswhere it expects to make a greater profit (in relation to the risks)than it can by expanding at homeor by investing or .expandingfurther in some other country.
Of course a multiplicity of considerations affect this expectation.The corporation must decidewhether it is better to build a newplant from the ground up or beginby acquiring some existing European concern. It must decidewhether it wants its subsidiary tobe wholly owned or whether tomake its investment a joint venture with nationals of the hostcountry. The wisdom of all suchdecisions depends on the specialcircumstances in each case. Giventhe opportunity for profit,themost common moving forces foroverseas investment are the desireto maintain or expand sales by entering a new market, or the hopeof preserving an established market in the face of tariff, exchange,or unofficial barriers. Americancorporations have invested in theCommon Market area or even inthe European Free Trade Area because these areas are protectionist
24 THE FREEMAN August
against outsiders. Another reasonAmericans may invest in a foreign market is because it may bepossible or easier from there toexport to a third market areawhich otherwise could not bereached because of discriminatingprotectionism or for political reasons. If an American company setsup a plant in West Germany, forexample, it may be able to ship into East Germany. Or it m.ay setup a plant in some other European country to take advantage ofbilateral arrangements that donot exist in countries where it already is.
Once a decision has been madeto invest abroad, a number ofother considerations dictate thechoice of which country shall receive the investment. These canbe grouped into governmental factors and nongovernmental factors. With respect to the firstgroup, American investors seekout a country that has political,financial, and economic stability, afavorable official attitude towardprivate enterprise and the profitmotive, and little or no corruptionwithin the government. Turningto nongovernmental factors influencing the choice of country,American investors will considerthe availability of skilled and unskilled labor, managerial personnel, banking facilities; road, rail,and harbor facilities; ancillary or
supporting industries; power facHities; and labor costs.
The question of labor costs ismore complicated than is commonly supposed. It is not simply aquestion whether wage rates arelow in a given country, butwhether they are low or high inrelation to the skill and productivity of the labor available there.
Another reason for direct investment in a given country isthat the material is there. This ofcourse is the reason in the caseof the extractive industries - oil,copper, bauxite, etc.
Deterrents to Investors
The reasons why American corporations may not make investments abroad are mainly thatsome or all of these favorable conditions do not exist.
Let me give a brief list of somereasons that will deter private investment in a country: (1) lack ofgovernment cooperation or enthusiasm; (2) lack of local financingfacilities; (3) lack of guaranteeson repatriation of capital andprofits; (4) restrictions on fieldsof investment; (5) limitations onownership by nonnationals; (6)burdensome taxes; (7) unstablecurrency; (8) currency exchangerestrictions; (9) import licensedifficulties on essential materials,machinery, or know-how; (10)burdensome social security legis-
1966 THE CASE FOR INTERNATIONAL INVESTMENT 25
lation; (11) price controls; (12)discriminatory laws; (13) government-owned competition; and(14) the possibility of expropriation.
I may have seemed to be arguinghere that American investment isan unmixed blessing for Europe,and that all opposition to it is theresult of misunderstanding or unreasoning prejudice. I do not wishto give that impression. I havethrown my emphasis in this direction mainly because I am writingin a European periodical. If Iwere writing on this same subjectat home my emphasis would bedifferent. I would devote at leastpart of my discussion to deploringand warning against some of themistakes that Americans makeabroad, both in actions and attitude - condescension, brashness,disregard of local customs andmethods, refusal even to try tolearn the local language, failure
to employ nationals of the hostcountry to the greatest possibleextent, and so on. Such actionsand attitudes breed a perfectlyjustifiable resentment.
But the faults I have been describing are in the main the faultsof the more recent arrivals inEurope among American companies. An official of the Parker PenCompany tells about a conversation he fell into with a Londontaxi driver. "Are you over herefor pleasure, sir?" asked the taxidriver. "No," replied the American, "on business." "What's yourbusiness?" asked the driver. "I'mwith the Parker Pen Company,"replied the American. "Oh," askedthe taxi driver, "does Americahave a Parker Pen Company, too?"
Well, that's the impression thatevery foreign corporation oughtto give in the country in which ithas a subsidiary. ~
CliRlate for Progress
IN A NATION without a thriving business community, privatewealth is generally stored in vaults, or used in conspicuous consumption, or invested in real estate, or placed with business communities abroad. But where a country's private business is notsubject to Procrustean measures of control, this private wealthis less likely to be shipped abroad, buried, or otherwise divertedinto circuits of low economic potential. It is likely to come out ofhiding, or to be brought home from abroad, particularly sincethe prospects of profit are normally higher in a poor country ifthe political environment is good.
HAROLD FLEMING, States, Contracts and Progress
A ClergymanLool~s atFree Enterprise
NORMAN S. REAM
I BELIEVE that a great number ofclergymen in this country despisesocialism in all of its forms,whether it be called the New Deal,the Fair Deal, the New Frontier,or the Great Society. But they arenot in the majority, and they arenot quoted continually in the newspapers and magazines. They arecertainly not the executives of national church groups which areconstantly issuing, or causing tobe issued, statements proposing anever greater expansion of the welfare state. You will perhaps havenoted that most of the ultraliberalspokesmen for religion are in executive positions or in theologicalseminaries. Very few of them areparish ministers and parishpriests. Unfortunately, however,The Reverend Mr. Ream is pastor of the FirstCongregational Church of Wauwatosa, Wisconsin.
26
great numbers of clergymen onthe parish level are strongly influenced by the voices which emanate from church councils andseminary campuses.
Let me tell you what I thinkthe typical clergyman is like whenit comes to economic and politicalmatters. First we must go backinto history a bit. Back in theearly thirties, a great many people in this country - clergymen included - developed what Ludwigvon Mises calls an anticapitalisticmentality. Several religious denominations adopted resolutionswhich condemned capitalism equally with communism. One groupvoted a resolution conde:mning capitalism and advocating its elimination, along with the eliminationof the legal forms and moral idealswhich sustain it. Because church-
1966 A CLERGYMAN LOOKS AT FREE ENTERPRISE 27
men, for the most part, were woefully ignorant of economics andthe causes of depressions, theyblamed all of the suffering andeconomic malfunctioning whichexisted in our country at that timeon what they mistakenly referredto as laissez-faire capitalism. Although this mentality has moderated generally during the lastthirty years, it is still prevalentin ofl5cial circles.
Economically Uninformed
The clergy, like most of the population, is, as I have already observed, woefully ignorant of economics. There is one difference,however: the clergy are leaders inthe community and have thereforea greater responsibility for beinginformed, especially if they aregoing to issue pronouncements andpass resolutions. But time aftertime I have sat in meetings whereclergymen argued the pros andcons of certain political mattersconcerning which they were abysmally ignorant. I well rememberon one occasion sitting in a meeting where a group wanted to passa resolution favoring the adoptionof the United Nations Declarationof Human Rights. They were almost unanimously in favor of itbut when I asked them how manyhad read it, not a single personpresent had read the documentthrough. It had a nice title, it
sounded good, prominent personswere· pushing it, so they were forit.
Most clergymen have been sotrained as to develop_ a sensitiveconscience. When they see injustice and need in human society,they want to do something aboutit. They do not always stop toconsider what is the best thingto do, over the long run and forall concerned. Over and over againin talking with politically liberalministers, when I have challengedthe socialistic method of meetingthe problem, I have been asked,"Well, don't you care about thesepeople who are suffering or undergoing hardship?" And of course Ido care, as all of you care, butone has to be cautious in his care.He has to care enough to see theproblem as a whole and not partially.
What Are the Consequences?
This leads me to another strongconviction shared by Dr. Mises. Ihad the privilege of studying under him, the dean of classicaleconomists, in two summersessions. Over and over again, whenconfronted with a difficult economic problem, he would insistthat we have to consider the longrun and not just the short run. Tosolve an economic problem bymeeting an immediate need butignoring the long run conse-
28 THE FREEMAN August
quences, is not to solve it at all.Such a method often raises greaterand more difficult problems.
May I suggest a very simpleanalogy. If a panhandler accostsme on the street and is obviouslyhungry, ragged, and in great need,I can give him a couple of dollarswhich will solve all his immediateproblems. It will get him something to eat and a bed. But haveI really solved his problem? Ofcourse not. His problem is muchmore deep-seated than that, andalthough this is a simple analogy,it is a pertinent one. Many ministers think the solution of ourcomplicated and difficult economicproblems are likewise simple: justget the government to tax thosewho have and give to those whohave not. That, they suppose, willcreate a just and equitable society.
Well, we have been doing thatwith increasing intensity over thepast thirty years. We have, to besure, met some of the immediateneeds of men and women who perhaps didn't have enough to eatand enough to wear and properhousing. But let us look at someof the consequences during thosethirty years. We have a greatlyenlarged national debt, we havegreatly increased taxes, we haveinflation, we have a greater crimerate, divorce rate, alcholism rate,narcotics rate; and in spite of ouraffluent society, there is a strong
undercurrent of feeling in ourcountry that not all is well. Now,would you reply that all of theseconsequences I have enumeratedare not necessarily the results ofa socialistic economic policy? Ithink there is a relationship, andwe need a lot more study to determine just what that relationshipis; for those statistics apply notonly to our own country, but toevery country which has gone increasingly socialistic.
A Common Failing
Now, this condemnation of economic ignorance should not bereserved for clergymen. There arealso businessmen who are economically ignorant. It is not an occupational hazard or professionaldisease reserved for one segmentof the population. When MiltonFriedman of the University ofChicago says that the two worstenemies of freedom are liberalprofessors and businessmen, thisis part of what he is talking about.It is economic ignorance thattempts a businessman to seek aquick profit at the expense of along-range economic gain. It ismoral ignorance that lets a businessman break the law or pull afast deal to the detriment of allbusiness and businessmen in thefuture. I am no economic expertmyself, but I know a fake whenI see one; and lots of business-.
1966 A CLERGYMAN LOOKS AT FREE ENTERPRISE 29
men I have known are fakes inthis area. In a really laissez-faireeconomy they couldn't exist. It isthe protection of governmentwhich often saves them from failure.
Not only are most clergymen,like so many Americans, ignorantconcerning the fundamentals ofeconomics; they are also ignorant,like so many Americans, of ourrich heritage, and of what it isthat has made this country sogreat and wonderful. Typical ofthis national ignorance is that pollwhich recently revealed that 85per cent of our young people didnot think patriotism. was vital orplayed any important part in life;61 per cent did not think theprofit motive necessary to the survival of free enterprise; and wellover 50 per cent were in favor ofclose government regulation of allbusiness.
Spoiled Children of History
I must confess that I am notoptimistic about the future of ourWestern civilization and our traditional free institutions. Our civilization and the institutions ofour Western culture depend uponunderstanding and awareness, andthey often demand sacrifice. TheAmerican people today are in nomood to sacrifice. Weare thespoiled children of history.
What it all comes down to is
that, among others, the religiousleaders of our Western civilizationare disillusioned because the freeenterprise system has not broughtabout a national and internationalutopia. Their reasoning seems tobe somewhat as follows: The traditional American system has nottransformed all men into saintsand solved all the problems of human nature; therefore, there mustbe something wrong with the system. There being something wrongwith the system, the obvious answer is to do away with it and trysome other system. Such reasoning does not properly assess whatthis system has done over thepast 200 years. It does not understand and appreciate its benefitsto mankind around the world.
Free enterprise,on the otherhand, has not sold itself to therecipients of its own benefactions.Those whom it has blessed mostdo not appreciate it or understandit. They seem blind to the fact thatsocialism has produced, when compared to free enterprise, practically nothing; and the little it hasproduced has been at the cost ofhuman dignity and self-respect.
Did you see those figures published by the director of the censusa while ago: According to ourgovernment, if you make under$4,000 a year you are in poverty.Yet, three-fourths of the familiesmaking less than $4,000 a year
30 THE FREEMAN August
have their own washing machines.Almost 93 per cent of them havetelevision sets; 60 per cent of themhave automobiles available. Theaverage Negro youth in the Southin the United States has a betteropportunity to get a college education than the average whiteyoung person in England. Why,in light of all of this, are theremen and women in America - andespecially clergymen - who don'tlike the system that has made itall possible? Is it perhaps an underlying feeling that man doesnot live by bread alone, that wedon't have all we need in orderto really live happy, useful, meaningful lives? There's somethingmissing, and clergymen are aptto see this more quickly, moresharply, than others.
The Role of the Church
Here, clergymen come face toface with their own failures andthat of the church. It is the business of the church to purify men'smotives, to enrich their spirits, toinspire them with lofty aims andpurposes. This is not the functionof a manufacturing concern or abank. When the clergyman seesbusiness meeting man's materialneeds, but the church failing tomeet his spiritual needs, he getsa guilt complex which sends himto Selma, Alabama, and out ontothe picket line. It is the business
of the clergyman and of the churchto build religiously oriented individuals with strong moral character and send them out into theworld to transform that world into something more akin to theKingdom of God. Because thatKingdom is so slow in coming, because the church is so ineffectiveand weak in its task, there arethose who now want to go outand take the Kingdom by violence,as Jesus warned they would. Business, free enterprise, capitalism,the profit motive - all of this becomes the scapegoat for every evilthat exists in society. The clergyman, I sincerely believe, is unconsciously passing the buck for hisown professional failure. But itis not his failure alone. It is thechurch's failure as well; and mostof us are a part of the church. Itis, therefore, our failure, too.
Each individual within the capitalistic system has a responsibility to be a moral man, and anytime anyone of us acts withoutintegrity, it reflects on the system. When one business breaksthe law, all business comes undercondemnation. When one executive is immoral, all executives tendto be branded.
Do you remember what AlbertSchweitzer said when somebodyasked him what was the greatestforce and power in the wholeworld? He answered, "Reason,
1966 A CLERGYMAN LOOKS AT FREE ENTERPRISE 31
persuasion, and example, but thegreatest by far is example." Wehave had too many examples ofimmoral businessmen or improperbusiness activities which are notdue to the system under which weoperate, but due to immoralitywithin individuals. All of thesethings, in the mind of the averageman, reflect on the system, onbusiness, on our free way of life.
Albert Jay Nock insisted, in thetitle of one of his books, that thestate - not government, not politicians, but the state - was man'senemy. By its very nature it tendsto grow and intrude upon man'spersonal freedom. It was for thisreason the Founding Fatherssought to set up strong safeguardsagainst the state's arbitrary useof power.
Nock and the Founding Fatherswere alert to the warning issuedcenturies earlier by Confucius.Traveling with some companionsalong a lonely· mountain road hecame upon an old woman weeping.Questioned by the disciples, shereplied, "0, sirs, some time ago
my brother was killed at thisspot by a ferocious tiger. Lastmonth my husband was killed inthis same spot by the same tiger.Yesterday my son was likewisekilled." "But, old woman," askedthe disciples, "if the tiger wasso dangerous why did you notleave this spot?" "Because, sirs,"she replied, "because there is nooppressive government here." Confucius then spoke and said, "Remember this, my sons, oppressivegovernment is more to be fearedthan a ferocious tiger!"
Civilized man has always felthimself to be a creature with adivine origin. As such, he has believed he ought to be free fromthe domination of other men. Forthis conviction he has often beenwilling to give his life.
The time will come, I believe,when men will once more cherishfreedom as did our fathers; andit will be because they havelearned anew that man does notlive by bread alone, even thatbread provided by a benevolent,but omnipotent government. ~
Samuel de PuDendorf
HE IS JUSTLY ESTEEM'D the more excellent Citizen of the World,and the more generous Benefactor to his Fellows . . . the morediligent he hath been in advancing his own Perfection.
SOME REFLECTIONS ON
ROBOTSLEONARD E. READ
MEANS are often confused withends. Thus, when we focus on theemployment-unemployment picture, as I do in this essay, thetendency is to overlook the factthat job holding by itself is, as arule, but a means to the satisfaction of wants. The growth of anyindividual's physical and mentalfaculties does, of course, demandexercise, but having a "job" isn'talways necessary for that; thesefaculties can be and often aremore exercised by the joblesscoupon clippers, for instancethan by job holders.
So, we're not seeking employment merely for the exercise. Human labor for its own sake is seldom our aim; we labor in orderto enjoy its fruits in the form offood, clothing, and shelter, or tosatisfy other physical and spiritual hungers. And one of themost essential qualities of being
32
human is the urge to be relievedof burdensome effort and freed topursue more desirable objectives.It is this urge, when men are free,that causes the invention of mechanical slaves - our tools andmachines; they free us for something hopefully better. This is also why we specialize and trade.
In a world which has an infiniteamount of work to be done, involuntary unemployment is inconceivable - provided the market isfree. Unemployment is always theresult of price (wage) and othercoercive controls. Automation, asI shall attempt to demonstrate,has nothing whatsoever to do withit. Our mechanical slaves -laborsaving devices of all kinds - stemfrom the recognition and pursuitof higher wants than mere survival; they are the means towardsuch ends. Let us therefore try toclear away some of the confusion
1966 SOME REFLECTIONS ON ROBOTS 33
that attends the employment-unemployment problem as related toautomation.
Whenever we come into possession of a source of mechanicalenergy equivalent to one man'senergy, we have added to the workforce a mechanical slave, an automaton, a robot.
No question about it, the robots,at first blush, appear to cause unemployment. Take the automobile,for instance. It disemployed buggyand wagon workers, whip andharness makers, stable hands, anda host of others. True, some wentto work for the auto makers but,nonetheless, the automobile - automated travel, the product of automation - made for unemployment. So goes the chant.
The facts Deny the Theory
Regardless of that first impression, we know that robots do not,in fact, cause unemployment. Forinstance, we have experienced anenormous outburst of automation,yet a high percentage of the population - about 80,000,000 - is onthe work force; today's manyareas of acute labor shortage refute the notion that automationcauses unemployment.
Quite possibly we could settlethe whole question in our ownminds by merely reflecting onprimitive automation : the wheeland a domesticated animal. The
ox-drawn cart, instead of puttingthe owner out of work, gave himhigher level work and multipliedwhat he could· produce and thusconsume.
Or, consider the story of twomen who were watching a hugesteam shovel removing earth inpreparation for the building ofHoover Dam. Said one, "Think ofall the men that shovel is puttingout of work!" Replied the bettereconomist .of the two, "Therewouldn't be a .single person working on this project if all thatearth had to be removed by menwith their hands."
Yes, the automobile disemployed buggy workers, but in thesame sense that the ox-drawncart relieved primitive man fromdoing everything by hand. Failureto see this point leads many people to believe that automationcauses unemployment.
If robots are the cause of unemployment, then the telephoneautomated communication - musthave wrought havoc. The fact?The operating companies employover 700,000 people, and severalhundred thousand are employedby the suppliers. But surely, somewill contend, automatic dialingdisemployed a great number ofswitchboard operators. The fact?There are nearly 50 per cent moreoperators today than in 1940.Why? Because automatic dialin~
34 THE FREEMAN August
made possible so much more useof the telephone than before. Ifthe present volume of conversations had to be connected manually, at least 1,000,000 switchboardoperators would be required. Ofcourse, this is a fictitious "if."The manual operation would be soinefficient relative to automaticdialing that the volume would require no such number.
If automation caused unemployment, then it would follow that anaddition to the work force of anymechanical energy equivalent toone man's energy - one robotwould disemploy one man. However, this is contrary to observedfact. Today in the U.S.A., eachworker has perhaps 135 mechanical slaves - helpers or robotsworking for him, each contributing energy equivalent to. theenergy of one human worker.1 Ifeach robot displaced one worker,the unemployment figure would be
1 The figure of 135 mechanical slavesper worker is believed to be conservative,though there are too many variables toafford proof positive. The electrical industry estimates that 67 KWH's is equivalent to the energy of a man working an8-hour shift for a year. More than atrillion KWH's were generated in 1965,which would mean nearly 200 electricalrobots for each person in the work force,assuming that there were no energylosses in transmission and use. Some machines convert energy more efficientlythan others; some humans are more energetic than others; so the figure is aguess, at best.
135 times the present work force- 10,800,000,000 - an utter absurdity.
If these robots do not displaceworkers, then where does all thisextra energy gO? Should we discover the right answer, we willknow whether they are the workers' friends or foes and, as well,whether we should try to encourage or discourage their proliferation. Let's try to find the answer.
In Grandfather's Day
My grandfather, recalling the1850's, used to repeat, "Manytimes have I walked thirty milesin a day." His boast recentlycame to mind as I flew from NewYork City to Kansas City (1,100miles) in two hours. It wouldhave taken grandfather about 280hours of walking to negotiate thatdistance. He would have been onhis way to Kansas City for thirtyseven days. Only 365 round tripswould have taken every day of hislong life.
Grandfather, in his early days,had only his own energy at hisdisposal- just one man-power.Now assume that he had walkedto Kansas City, taking 280. hours.I made it in two hours by jet. Isn'tit clear that something has to account for that 278 hours miraculously, one might say, put at mydisposal? What made this possible? It was, among other factors,
1966 SOME REFLECTIONS ON ROBOTS 35
the billions upon billions of robotdays that assisted in the construction and the operation of that jet 12
But these robots did more thangive me 278 hours unavailable tograndfather. There were 100 passengers on that flight, a freeingfor other use of 27,800 hours.Further, that very same jet maybe good for 25,000 such flights ora total freeing of 695,000,000hours. And that jet is only one ofhundreds of commercial jets. Addall the commercial prop jobs andall the private planes, and theliberated hours become astronomical. Anyway, that's where some ofthe robots' energy went, withoutputting anyone out of work.
The Chance fo Grow
We must, of course, keep inmind that the energy of robotsgoing into airplanes is but somevery small fraction of all automated energy. But the statisticsdo not matter; what is importantis that we understand what theserobots do for us and, also, to us.For one thing, they multiply our
2 I must not leave the impression thatadded mechanical energy alone accountsfor all material progress. There is gain,for instance, in every voluntary exchange. An idea, a flash of insight, animproved concept of freedom, the abandonment of a coercive practice, an incentive, a spirit of entrepreneurship, thepractice of integrity, in short, .spiritualactivities, add incalculably to material aswell as to other forms of progress.
opportunities for unique, enriching experiences. When taking thefamily for a drive at 60 miles perhour, speculate on why the trip ispossible and what is propellingyou at this speed! Think of thesituation were only shank's mareavailable. Or why you can read abook instead of washing thedishes, or write a poem instead offoraging for food. You will, perhaps, stand in awe of and givesome credit to the robots for relieving you of the necessity ofsloshing around in the rice paddies or scrounging for rabbits soyou won't starve or, yes, frommaking buggy whips.
Or even more: perhaps theserobots have something to do withyour very existence. Less than 400years ago this land we call theU.S.A. had a population variouslyestimated at 250,000 to 1,000,000.Why so small? It was not becauseof the Indians' inability to breed,nor because of unfriendly climateor infertile soils, nor for any lackof natural resources. It was because a foraging economy wouldnot support more than then existed. Assuming no improvementover that type of economy - norobots except some horses - thechances are at least 200 to 1 thatyou would never have knownadult life.
But back to grandfather: henever saw Kansas City; indeed,
36 THE FREEMAN August
through his teen years, he neverwent beyond his walking orbit. I,on the other hand, have visitedHong Kong, as far from home asI can get; my air mileage alone isnow equal to eighty loops aroundthe world. Grandfather didn'thave time enough to do verymany things. I have the time to doa thousand times as many things,and by reason of your and my mechanical helpers, the robots. This,of course, explains why timesavers multiply busy-ness - there areso many more things we can do.For good or ill, we are far busierthan our ancestors ever were.
Grandfather never talked overa telephone in his life. I reach myson - 2,600 miles away - in 10 seconds ; I have talked across thePacific, to Buenos Aires, Gander,London, Mexico, and to every nookand cranny of the U.S.A. If therobots have disemployedme, it isfrom the limited opportunitiesgrandfather experienced. There isa better way to put it: the robotshave liberated, not disemployed,humans.
Robots Are a Response
Robots put people out of work?On the contrary, robots becomeeconomically feasible and appearin our lives only as the result of ascarcity of human labor to accomplish all the tasks we want done.It doesn't pay to do by machine
what can be done more cheaply byhand. Businessmen tend to mechanize or automate after, ratherthan before, laborers have movedaway from a particular job.
For example, our operation atFEE calls for three large mailingsevery two months, requiring 20workers for two days on each occasion. When we began two decades ago, we trained local housewives for this part-time work andpaid the hourly minimum wage of80 cents. Afterward, the minimumwas raised to $1.00 and later to$1.25. Now assume that FEE wason the brink of bankruptcy, thatis, at that critical point where afew hundred dollars would tip thescales toward institutional survival or closing, and that thelatest minimum wage raised ourcosts to that point. What to do?We bought some robots in theform of a machine: press a buttonand it automatically collates,stuffs, seals, and stamps, doingthe work of the women, quickerand at lower cost. True, the parttime women lost their "pin money"jobs but the rest of us were savedfrom losing ours.
Most people will say that therobots disemployed the women, agrave error. The culprit was noneother than the minimum wage law- governmental interference withthe free market. It was bad lawthat sent our women back to
1966 SOME REFLECTIONS ON ROBOTS 37
housework. As these costs of governmental intervention rise yearafter year, more and more employers are faced with failure. Therobots have performed a remarkable and incalculable rescue mission.
Men to Match Machines
There isn't anything wrongwith automation per see The serious problems cropping up are notbecause of the robots but becauseof the people who are blessed withthem. These problems, as. near asI can fathom them, have theirorigin in an imbalance .betweentechnological know-how and economic, political, and moral wisdom.The former is remindful of an explosion; the decline of the latteramounts to apostasy. This is dangerous, for an increase in therobots we command calls for acommensurate increase in understanding and virtue. It isn't at allpromising to put a chimp at thewheel of a truck, a truck driver atthe controls of a jet, or a peoplein command of a powerful systemof robots the interworkings ofwhich they but dimly understand.If we aren't to be done in by ourown creations, what then is it wemust understand?
The kind of automation thatproliferates opportunities as tovarieties of employment and, atthe same time, multiplies the
kinds of goods and services thatmay be obtained in exchange forthe fruits of one's labor, is exclusivelya free market phenomenon.3Such automation cannot, as is sooften demonstrated, be transplanted into or copied by authoritarian societies. Robots that servethe masses are first the outcroppings of freedom and then of capital formation, and cannot existwhere these two absolute essentials are absent. For instance,steel mills have been built in Russia, India, and other socialistcountries, the effect on the massesof people being further impoverishment. Automobiles are not being produced for the masses inRussia; only the Commissars canhave them. And so it goes. Thepoint of all this is that if we substitute the governmentally plannedeconomy for the free market, themass-serving robots will tend todisappear until they become asscarce and useless here as theyare in the USSR! This is only
3 I am omitting any discussion of therobotry that does not originate with freemarket processes, the kind that can beand is made possible by the coercive collection of funds, the type used to makesputniks and to put men on the moon.Robots originating with socialist processes impoverish rather than enrich themasses of people. For an explanation,see the chapter, "How Socialism Harmsthe Economy" in my Anything That'8Peaceful (Irvington, N. Y.: The Foundation for Economic Education, Inc.,1964).
38 THE FREEMAN August
a part of the understanding thatmust accompany our increase intechnological know-how. There ismuch more.
Specialists Are Dependent
As only casual observation reveals, automation spells specialization - in our own case, to a fantastic degree. This, in turn, increases interdependence. Is it notself-evident that all of us - no exceptions - are dependent on thefree, uninhibited exchanges of ournumerous specializations?4 Inshort, we are at a level in interdependence that can only be sustained by a highly intelligent, perceptive, and moral people. Forsupport of this contention, reflecton what's involved.
These exchanges, it is plain, areessential to survival. Nor canthey, in a specialized society, beachieved by barter; they cannottake place without an economiccirculatory system, that is, themedium of exchange - money. And
4 Automation makes for specializationwhich, in turn, increases our interdependence on the high quality behavior of eachother. But a new and awesome dependence also develops: our dependence onthe robots! They become necessities, thatis, sources of energy we must have inorder to survive. Example: man-contrivedelectrical energy. A century ago its elimination would have had no perceptibleeffect. Were it suddenly eliminated todayall of us, except the few who could existby foraging, would perish. See "TheseOur Gifts," THE FREEMAN, October 1958.
any act, private or public, whichlessens the integrity of the circulatory medium correspondinglyimperils the complex exchangeprocesses. Inflation, brought onentirely by governmental excesses,and encouraged by a people who donot understand the simple economics of the matter, is the culpritthat .erodes the integrity of themedium. Thus, a people who extravagantly automate and who donot at the same time know moreabout, and practice with increasing scrupulosity, the economic andmoral facts of life are headed fora disaster greater than inflationhas ever brought on in othercountries.5 To fully appreciate thisdanger, one need but recognizehow far each American is removed from self-subsistence, or torecognize how impossible survivalwould be were each individual toexist only on what he alone produces. For reasons not easy toexplain, understanding appears tobe decreasing as robots are increasing.
One can hardly imag~ne a societal situation more chaotic thanone with specialization on the increase as freedom in transactions
5 Students of liberty will find it profitable to read and reread Andrew DicksonWhite's classic, Fiat Money Inflation inFrance (Irvington, N. Y.: Foundationfor Economic Education, Inc., $1.25 paper, $2.00 cloth, 125 pp.).
1966 SOME REFLECTIONS ON ROBOTS 39
is on the wane. As robots increaseand augment our specialization, somust there be an increase in freeand willing exchange, freedom ofchoice, the free market. As robotsappear, coercion - governmentalcontrol and rigging of the market,for instance - must correspondingly disappear. Simple reasoningas well as all the evidence attestto this fact. Yet, an alarmingnumber of people - teachers,clergy, politicians, even entrepreneurs - are blind to it.
Can Progress Occur in
the Absence of Obstacles?
I have suggested that it isn'teasy to explain why understanding seems to shrink as automationexpands. Is there, perhaps, a correlation between struggle andsound thinking and, conversely,between easy affluence and intellectual~""tdecadence? Of one thingwe are certain: our robots confermore and more material satisfactions with less and less effort onour part.
The present trend is toward increasing material affluence in return for decreasing effort. Literally millions of individuals are approaching a something-for-nothing way of life. Obviously, it isdifficult to keep mentally rigorouswhen the robots are doing one'swork. Indeed, mental rigor maybe impossible unless the individ-
ual experiences a cultural growthcommensurate with growth in affluence. This is to say that the individual may vegetate unless herealizes that the purpose of wealthis to release him from drudgeryso that he may more vigorouslypursue those potentialities and aptitudes uniquely his own. If therobots are to induce our gettingout of life - vegetating - ratherthan getting ever deeper into life- growing - then the late DeanInge's observation is indeed prophetic, "Nothing fails like success."
The struggle to overcome is thegenesis of becoming. It is the lawof polarity, the tension of the opposites, that spells growth, development, progress; at least this appears to be Nature's dictum. Menneed new frontiers to explore andoccupy and· transcend, not in theform of politically contrived obstacles - heaven forbid! - but inthe form of challenges worthy ofthe mind of the individual humanbeing striving toward his potential. When the struggle for existence is eased, higher level struggles must be substituted: expanding awareness, perception, consciousness, in a word, difficult,hard-to-overcome intellectu aI,moral, and spiritual goals. This isby way of saying that disastercannot be avoided unless a growthin wisdom be up to and on a
40 THE FREEMAN August
parity with a growth in technological know-how.
Elevating Our Ideals
But here is the rub: materialhardship, once overcome, does notand cannot serve as the obstacle,the tension, the springboard forthis required growth in wisdom,this flexing and expansion of theintellectual and spiritual faculties.Material hardship is an obstaclesupplied by Nature or, if you prefer, by the environment. Butonce overcome, man is on his own;he has to make his own obstaclesin the form of rationally constructed goals. As the French scientist, Lecomte du NOllY, phrasedit, "To re.ally participate in thedivine task, man must place hisideals as high as possible, out of
reach if necessary." And is notthis creating of our own obstacles,perhaps, the profound lesson weshould learn from the rohot explosion?
The rohots presuppose ourknowing how to live with them.They, as an auto, TNT, sulphuricacid, a jet plane, are dangerousin the hands of those who do notknow their properties, of thosewho are unaware of automation'sdeeply significant meaning. Therohot army, in its present dimensions, requires, at a minimum, anunderstanding of private property,free market, limited governmentprinciples - economic and politicalenlightenment - far superior toany such understa.nding everachieved up to this period in history. ~
Labor Saver
WHEN A MACHINE is invented that does the work of twenty menat the wage cost of one, we are all beneficiaries. When a merchandising plan is invented that clips 5 per cent from the cost of distribution, every consumer is a little better off. When electronicsbrings first-class entertainment and instruction into our homesat negligible expense, we all live a little more abundantly.
We make progress in two ways: first, by individual effort, andsecond, by the efforts of others. In the last thirty years the dullestand least enterprising among us have been lifted to a standard ofliving and comfort that could not be achieved by any, except avery few, two hundred years ago.
WILLIAM FEATHER, The William Feather Magazine, January 1966
The recent Finance Bill of lUr• .James Callaghan,Britain's Chancellor of the Exchequer,is perhaps the most dangerous ofa long and continued series of assaultsupon the free enterprise system in that nAtion.
The fact that freedom is· similarlythreatened in the United States and elsewheregives universAl importance to the alarmsounded from London by the Institute of Directorsrepresenting more tho" 40,000 British bus-inessmen.
TDEASSAIJLT ONFREE ENTERPRISE
BRITAIN LIVES by free enterprise.It is the whole basis of our way oflife. Even those who openly abuseand deride free enterprise admitthat four-fifths of the nation'sbusiness should stay outside thenet of nationalisation.
Now there are ominous signs ofthe free enterprise system beingeaten away without the country'scitizens being .aware of it. Indeedthe most alarming thing about thelatest and most dangerous assaulton free enterprise is that so manypeople are not· really alarmed.
They seem not to have noticed
the cracks in the ice, the plume ofsmoke from the volcano, the shifting of the landslide; or if theyhave seen it, they dismiss what'shappening as something remote."It doesn't affect me personally, sowhy should I worry?"
By the time you have finishedreading this booklet, we believethat we will have shown how itdoes affect everyone personally,why it's not just the concern ofthe nation's businessmen, but isin truth everyone's business.
Mr. Callaghan's Finance Bill isthe sharpest and most open warn-
42 THE FREEMAN August
ing yet. It will cut deep and hasshocked a lot of people, ordinarypeople who saw themselves a mileaway from this sort of issue. But,make no mistake: the subtle process had already been going on forsome time before Mr. Callaghangot to his feeton Budget Day. Hemade no secret of the fac't that hismeasures were not a "once for all'"burst of radicalism. Far from it.They are meant as the first in along ,series of anti-business restrictions.
Capital,says the Chancellor ineffect, is the enemy. Let us beatit to its knees. And in doing justthat,he cuts off industry's rawmaterial. For without capital, thefree enterprise system mustwither. The wall is breached. TheState walks in.
An assault on capital is an assault on the means whereby businesses grow. It is an assault onthe reasons why businesses grow.The assault on capital takes shapefor all to see if they have a mindto do so. Look at the facts.
Hard to Raise Capital
The government makes it increasingly tough for the businessman to get new capital. It's notonly practically difficult. It's almost socially indecent. Savage andsteeply progressive tax rates onindividuals and on companies-anda political bias which favours the
spenders rather than the savers- make it impossible to build upreserves. Robbed of reserves, themarket dies. The businessmanmay recall from his school daysthe task of Sisyphus, one of theTitans who was condemned to rollup a hill a stone of ever-increasing weight; the businessman hasthis dubious advantage over Sisyphus-he knows he can't win.
But the assault doesn't stopthere. It's almost as difficult todayto keep capital in a business as itis to ac'cumulate it. Compared withthe new Capital Gains Tax, deathduties were a mild imposition, afeather touch compared with afull-blooded lash. The CapitalGains Tax makes no allowance forinflation. It is thus a recurrentcapital levy, that once-for-all taxSir Stafford Cripps, the spiritualforebear of Mr. Callaghan, imposed in 1948. Of course, it willmean the end of the small business during the owner's workinglife-time. (When Mr. Heath madethis point in the Commons debateon the Finance Bill a voice from theLabour benches called, "And avery good thing, too.")
What is the ultimate source ofnew capital? The answer is-profits. And now, deliberately, profitsare being buffeted from every direction: by taxes piled on taxes,by compulsory contributions, byforced levies, by any amount of
1966 THE ASSAULT ON FREE ENTERPRISE 43
cost increases coming directlyfrom government decision. Knockthe profits, and you knock thesystem by which they are made.It's all very simple.
Investors, too, find themselvesin the front line. The governmentinstitutes a vindictive tax policy"unearned income" is an attractive catchword for those withneither the wits nor the thrift toacquire it. This shrinks the possible return on the investmentstake and has now dimmed eventhe hope of capital gains. Investors are rebuffed no less by theCorporation Tax whose clear purpose is to cripple their chances ofa share in profits.
How Long?
What's the total of this dismalarithmetic? At every stage success is penalised, ambitif)'fl, curbed,and enterprise stillborn. The remarkable thing is that businessactivity and investment should, sofar, have withstood this brutal assault as well as they have. Butthere is a limit to the punishmentthey can take. From now on, theeffects will increasingly be felt.New businesses, new investment,new enterprises will dwindle.They must. For the seed-corn isbeing eaten.
Does all this matter ? Well, ofcourse it matters to the businesscommunity. But in fact, it matters
very much to all those who abhorthe prospect of an omnipotentstate, all those who want to livetheir own lives.
Let's get the record straighthere-it's unlikely that anyone elsewill. What we call the free enterprise system is not just anothereconomic theory, an "ism" in thesame breath as Marxism or socialism: it is freedom. Withouteconomic freedom, without thefreedom to save and spend, to accumulate and invest and inherit,without the freedom to mis-spend(for we need no-one to tell uswhether we are spending our ownmoney wisely or not), personalfreedom disappears.
Destroy free enterprise and wewill forfeit tlhe right to make upour oum minds: the final sacrifice.If nobody has any capital, if nobody can launch an enterprisewit,hout the state's approval, thenthe rape of free enterprise is complete. This means the death warrant for any man with the enterprise and guts to start his ownbusiness.
No businessman is stupidenough to believe that in a periodof rapid technological change andhuge capital requirements therearen't problems to be solved: bigproblems, social and structural.They demand consideration. Theycan be solved. But the last peopleto solve them are governments
44 THE FREEMAN August
and their economic advisers whoeither because they just don't understand the problems, or areswayed by political doctrines, areout to sabotage the whole system.
That's the situation. It's extremely dangerous. If the socialists have their way, Britain willget less and less investment, lessand less accumulation of capital,fewer rewards for efficiency, arapidly dwindling number of
pione,ers and merchant adventurers. There'll be no more Nuffields.Least of all can the business community afford to ignore what ishappening or dismiss it as "merepolitics." But the peril goes deeper - it strikes at us all. The peril,make no m,istake about it,threatens our way of life, itthreatens our future prosperity, itthreatens our freedom - yours andmine. ~
The Misfortunes of Intervention
ALL THE MISFORTUNES that our beautiful France has been experiencing have to be ascribed to "ideology," to that cloudy metaphysicswhich goes ingeniously seeking first causes and would groundlegislation of the peoples upon them instead of adapting laws to
what we know of the human heart and the lessons of history. Sucherrors could only lead to a regime of men of blood and have infact done so. Who cajoled the people by thrusting upon it a sovereignty it was unable to exercise? Who destroyed the sacredness
of the laws and respect for the laws by basing them not on thesacred principles of justice, on the nature of things and the natureof civil justice, but simply on the will of an assembly made up of
individuals who are strangers to any knowledge of law, whethercivil, administrative, political, or military? When a man is called
upon to reorganize a state, he must follow principles that areforever in conflict. The advantages and disadvantages of the dif
ferent systems of legislation have to be sought in history.
From Napoleon's reply to the Council of Stateat its session of December 20, 1812.
23.The Flightfrom the
ConstitutionPART I
CLARENCE B. CARSON
THE CONSTITUTION of the UnitedStates was the major obstacle tothe use of the government to reconstruct American society. Socialreconstruction by government,. ifit could be done, would require theconcentration of power in·a singlegovernment, the central directionof the exercise of that power, anda concerted effort over an extendedperiod of time. The latter wouldbe a requirement if it were to bedone gradually, and it should beclear that this was the methodgenerally approved by Americanreformers. Ushering in utopia bygovernment action would requirenot only an initial control over thelives of Americans but also a continuing control such as to make
Dr. Carson is Professor of American Historyat Grove City College, Pennsylvania. Amonghis earlier writings in THE FREEMAN were hisseries on The Fateful Turn and The American Tradition, both of which are now available as books.
continuing popular decisions impractical, undesirable, and disruptive of the whole course of development.
The Constitution was carefullydrawn so as to make such uses ofthe government which it authorized exceedingly difficult, if not impossible. The Founders did nothave in mind preventing meliorism (or socialism), of course, forthey had never heard of it, thoughthey· were familiar with mercantilistic approaches to amelioration.They were concerned with protecting the liberty of individuals andpreventing the government frombecoming tyrannical. Any provisions that tend to accomplish thisobject will, at the same time, placeobstacles in the way of using thegovernment for social reconstruction. Tyranny is made possible byconcentrated and unchecked pow-
45
46 THE FREEMAN August
er, by the very conditions whichare necessary for social reconstruction.
Beware of Factions
The Founders were not familiarwith meliorism but they were acquainted with factions, interestgroups, and parties. They wereaware, by way of history, of thedamage done to republics, to popular governments, and to liberty bymen joined together in factionsand using political power toachieve their aims. In short, theywere conscious of the dangers offaction and party. James Madisonprovided an acute analysis of thesources and dangers of factionsin the Federalist number 10. Hefirst defined the term:
By a faction I understand a number of citizens, whether amountingto a majority or minority of thewhole, who are united and actuatedby some common impulse of passion,or of interest, adverse to the rightsof other citizens, or to the permanent and aggregate interests of thecommunity.1
He explained that this tendency ofmen to group as factions arisesfrom human fallibility and liberty.The partiality of men's visioncoupled with self-love inclines
1 James Madison, Alexander Hamilton, and John Jay,The Federalist Papers(New Rochelle, N. Y.: Arlington House),p.78.
them to pursue what they think isfor their own well-being, thoughit be at the expense of others.
The latent causes of faction arethus sown in the nature of man;and we see them everywhere broughtinto different degrees of activity, according to the different circumstancesof civil society. . . . So strong isthis propensity of mankind to fallinto mutual animosities that whereno substantial occasion presents itself the most frivolous and fancifuldistinctions have been sufficient tokindle their unfriendly passions andexcite their most violent conflicts....Those who hold and those who arewithout property have ever formeddistinct interests in society. Thosewho are creditors, and those who aredebtors, fall under a like discrimination. A landed interest, a manufacturing interest, a mercantile interest,a moneyed interest, with many lesserinterests, grow up of necessity incivilized nations....2
The main purpose of Madison'sessay was to refute those who heldthat a confederated (or federal)republic was inappropriate as aform of government for America,since the population was dispersedover a vast area. On the contrary,he held, this was the most propitious situation for such a government. Factions had destroyedsmall republics in the course ofhistory. Pure (or direct) democ-
2 Ibid., p. 79.
1966 THE FLIGHT FROM THE CONSTITUTION, I 47
racy had given too great an opportunity for. the majority to tyrannize over .the minority, whereasin America, the indirectness ofrepresentation and the dispersionof the population would make itmost difficult for factions to usethe government for partisan purposes.
Pressure Groups Discouraged
Indeed, the United States Constitution did place formidable obstacles in the way of any interestgroup which wanted to use government for its ends. Not only isthe population dispersed over acountry of broad extent but alsoany potential faction or interestgroup may be expected to bespread throughout the country.The manner of election of representatives established by the original Constitution made it difficultfor any faction to bring its weightto bear in concert upon the government. Only one body of theFederal government - the Houseof Representatives - was originally chosen directly by the electorate. Provisions were made forRepresentatives to be selected byvoters within states, usually bydistricts. The electors of the Senate came from within even smallerdistricts, for the Senate was to bechosen by state legislatures. Theelectors of the President werechosen by states, and could be se-
lected by whatever electorate thestates might decide upon.
The difficulties of factions werecompounded by dispersing thepowers of government betweenthe general (Federal) governmentand states, and by separating theFederal government into threebranches. For action to be takenby the Federal government bothhouses of the Congress must actby majorities, the President givehis assent, and the courts enforceit. If any bill fails to get a majority in either house, it does notbecome a law. That is to say,either house may prevent legislation from being passed. If thePresident vetoes a measure, ithas to be passed by two-thirds ofthose present and voting of bothhouses. If the courts will not enforce an act, it is of no effect atlaw. In short, it takes the concurrence of both houses of Congressand to considerable degree allbranches of government for government to act, but it requiresonly one house to prevent legislation and any branch of government has considerable power toforestall it.
Constitutional Curbs
The Constitution limits the government both substantively andin the procedures it requires forchanging it. The powers whichthe Federal government may ex-
48 THE FREEMAN August
ercise are specifically granted inthe Constitution. It is prohibitedto exercise certain powers, i. e.,the passing of ex post facto laws,the restriction of free speech, thetaking of property without justcompensation, and so forth. Allpowers not granted to the Federalgovernment by the Constitutionare reserved to the states or to'the people. To make the limitationupon the government as plain aspossible, the Ninth Amendmentsays, "The enumeration in theConstitution of certain rights shallnot be construed to deny or disparage others retained by the people." The Tenth Amendment says,"The powers not delegated to theUnited States by the Constitution,nor prohibited by it to the States,are reserved to the States respectively, or to the people." Moreover,the procedures prescribed foramendment are such as to requireoverwhelming approval throughoutthe country for changes to bemade in the basic instrument ofgovernment. The ordinary routeof amendment is for both housesof Congress to pass a proposedchange by majorities of two-thirdsor more. The measure is then submitted to state legislatures, orconventions within states. Whenthree-fourths of the states indicate their approval, the measurebecomes a part of the Constitution.
Protection, the ObjectiveThe purpose of these complex
checks upon the Federal government (along generally, with similar checks upon state governments) should be abundantlyclear. They were aimed to preventthe use of the government by faction or party for the special endsof interest groups, to protect minorities from abuse by majorities,to keep government action to thatwhich would be in the general interest, and to assure that suchaction as was taken would havebehind it a broad consensus. Tomake this emphatic, the originalConstitution requires that alltaxes, duties, imposts, and excisesbe levied "for the common defenseand general welfare of the UnitedStates. . . ." In short, moneysshould only be appropriated forthe well-being of everyone.
These provisions were, ofcourse, only writings on pieces ofpaper in 1789. They had no forceof their own, no power to makeanyone adhere to them, no inherent strength to make anyone observe them. They might have become dead letters in short order,as so many constitutions have inlater times. Instead, they weregiven vitality and life by menwho found in their attachment tothe Constitution means of achieving goals which they sought andretaining the fruits of victories
1966 THE FLIGHT FROM THE CONSTITUTION, I 49
they had won. For those whosought to forge a Union fromdistinct and disparate states, theConstitution offered them theirbest hope. For those who valuedprotection from an overweeningand arbitrary government, theConstitution was their shelter.Nor were these disparate ends;union and liberty were reconciledfor many men by the Constitution.The Constitution was the primalcontract of the American peoples- the union of peoples by statesestablished by it, the powers ofthe general government stemmingfrom it, the protections againstarbitrary government provided init.
The Constitution did more thanthis: it provided a symbol andsource of continuity to a peoplewho had dispensed with monarchy, who had cast off the hereditary means of continuity, whosought government by law not bymen. At the hands of great jurists- John Marshall, Roger Taney,and others - it became the fundamental law by which all other lawmust be tested, the body of law towhich all must submit when theyoperated within its jurisdiction. Itwas no longer a mere piece ofpaper; it was that to which judgesdeferred when they applied thelaw, that to which Congress andthe President looked for authority,that in terms of which the power
of government could be brought tobear upon individuals.
The point is this. The Constitution provided diverse modes ofelection for those who should holdoffice under it, separated powerswithin the government, limited thepowers to certain specified objects,and provided protections for therights of individuals. It providedprotections for minorities andmade it most difficult for factionsto gain control of the government.These provisions gained greatforce by the sanctity men came toattach to the Constitution. Thewords became flesh, as it were, ascourts deferred to them, as legislators heeded them, as executivesbased their actions upon them.
Coalitions Formed
Yet, for a good many years now,the government of these UnitedStates has been embarked on aprogram of social transformationon and off, but more and more. Theassent to these efforts at social reconstruction has been obtainedmainly by appeals to factions andinterest groups. The art of politicshas become largely the art ofachieving majorities by gainingsupport from a sufficient numberof factions. The reverse of whatMadison predicted has occurred;he held that the mode of election ofrepresentatives and of the exerciseof power would make it extremely
50 THE FREEMAN August
difficult, if not impossible, for thegovernment to fall into the handsof factions. The electorate was sodispersed that factions would beprevented from bringing theirweight to bear as a unit upon thegovernment. Instead, the countryis today divided into factions andinterest groups which wield greatinfluence upon the government andpromote the concentration of power in government. This concentrated power is then used in programsof experimentation at social reconstruction.
There has been a flight from theConstitution. It has not been byconstitutional amendment, thoughone or two amendments have facilitated the flight; for there areconstitutional means for amendingthe Constitution. In any case, theConstitution has been IittIechangedfrom the original, with one exception, in regard to the selection ofrepresentatives. The flight fromthe Constitution has been accomplished without altering the verbalcontent of the document generally:it has been done by extraconstitutional developments, by interpretation, by the assumption of powersnot granted, by the gaining of powers by one branch at the expense ofanother, and by allowing somesafeguards to atrophy or be altered.
Some early extraconstitutionaldevelopments set the stage for the
flight from the Constitution,though in themselves they mayhave been innocent enough. TheConstitution provides that thePresident shall be chosen by anelectoral college. Each state has asmany electors as it has Senatorsand Representatives in the Congress. They are chosen in the manner directed by state legislatures.The assumption was that electorswould be chosen because of theireminence within their states andthat they would select a Presidentwithout reference to anythingother than their own choice. Theoriginal Constitution provided thateach elector should vote for twopersons. The person receiving thehighest number of these votes, provided it constituted a majority,would become President; the onereceiving the next highest wouldbe Vice-President. In case no candidate got a majority, the electionwould revert to the House of Representatives, where each statewould have one vote. Initially,state legislatures often chose electors.
Party Politics
One extraconstitutional development was the growth of politicalparties. Some of the early leaders,notably George Washington, hopedthat political parties would not develop in America. I t was a vainhope. The outlines of parties be-
1966 THE FLIGHT FROM THE CONSTITUTION, I 51
gan to form over the very questionof the ratification of the Constitution. Within a few years they hadtaken definite· shape under theleadership of Alexander Hamiltonand Thomas Jefferson. The Constitution has no reference to suchorganizations; they are given norole to play. But Alexander· Hamilton was a man with a vision, a vision of a unified people in a nationmade great by the vitality and extent of its commerce and manufacturing. He proposed to attainthese objects by an energetic useof the Federal government. J efferson welded together a party to oppose much of this governmentalactivity and intervention, and indefense of a strict construction ofthe Constitution. By 1800, politicalparties had assumed much of theextra-constitutional role they have.continued to play in our history.It has been a fateful role, for itenables factions to determine policy, insofar as political parties determine policy, across the lines ofelectoral districts.
Parties early gained sway in theelectoral college, i. e., electorswere chosen on a party basis. Butthe constitutional mode for thevoting of electors tended to thwartthis. If all of a party's electorsvoted for the same men for President and Vice-President, therewould be a tie between these twomen, and the election would revert
to the House of Representatives.Indeed, this happened in 1800 andmight have been expected to happen regularly thereafter. Instead,the Twelfth Amendment was ratified in 1804; it provided that eachelector should have one vote forPresident and one vote for VicePresident. Thus, the way was prepared for party determination ofcandidates and for electors to become mere figureheads for theirparties.
Additionally, states decided fora whole slate of electors. When, ashappened shortly, the electors werepopularly chosen, all the votes of astate were cast for the party'selectors receiving a majority ofthe votes of the citizenry. Most ofthe electors might have beenchosen in congressional districts,the remaining two in state-wideelections, thus dispersing the vote.This was not done. By having allof them chosen by a state-widemajority the way was opened tothe forging of majorities by appeal to state-wide factions or interest groups. Political partiesprovided the instrument for factional use at the national level.
Early Abuses Insignificant
It would be a mistake, however,to make much of these early developments. They provided a potentiality for the factional use ofgovernment and for the concen-
52 THE FREEMAN August
tration of power. The Federal government was used for interestgroups in the nineteenth centuryon occasion, most notably in thecase of the protective tariff. Butthere were still many obstacles toconcerted party efforts to carryout programs. Most of these developments had to do with thechoice of a President. Members ofCongress were still chosen in theway originally prescribed.
Nominally, congressmen adoptedsome party label, but there werefew effective devices for enforcingparty discipline. A congressmancould vote for a program advancedby his party or not, as he chose,and only those within his districtcould discipline him. Even if onewho had voted against most of theplanks of his party's platformshould be defeated in his district,it would be by no means clear thathis failure to serve as a party manhad led to his defeat. The President had little authority over congressmen; the Founders had tried,with considerable success, to makeit so. Each branch was to be independent of the others. Moreover,the Constitution, as it was observed, placed great substantivelimits upon what could be done bygovernment, in any case. Manyother changes had to be made before the government could be usedfor a sustained effort at socialtransformation.
Reform by AmendmentThree other constitutional
amendments deserve mention. TheFourteenth Amendment, declaredratified in 1868, made all thoseborn within the United States citizens of the United States. Also, itextended in other ways the authority of the Federal government.It prohibited the states to takelife, liberty, or property withoutdue process of law. Moreover, theamendment was rather vaguelyworded, and this ambiguity hasbeen exploited and amplified bythe Supreme Court as it has usedit as a basis for the extension ofthe sway of the general government. The Sixteenth Amendment,which authorizes direct taxeswithout reference to population,enabled the Federal government toenact an income tax, thus greatlyincreasing the revenue availableto it.
But for the empowerment offactions, the Seventeenth Amendment was probably the most important of all. It was ratified in1913, in the same year as the Sixteenth, and it provided for the direct election of Senators. Thereafter, Senators were to be electedby state-wide popular votes. Factions and interest groups couldplay roles in these elections nowthat had formerly been denied tothem. A pivotal minority couldprovide the necessary votes for a
1966 THE FLIGHT FROM THE CONSTITUTION, I 53
majority. An interest group withlarge numbers in it could virtuallydictate the choice of a party candidate in an election. This result hasbeen most noticeable in stateswhich have several importantminority groups, such as organized labor and racial minorities.
IIlndependentll Agencies
Most of the changes and accretions of power, however, havebeen accomplished without benefitof constitutional amendment. Oneof the most effective devices forevading the constitutional separation of powers and enabling theFederal government to exercisegreatly expanded powers has beenthe so-ealled independent commission, e. g., the Interstate Commerce Commission, National LaborRelations Board, and Federal Communications Commission. Sincethese organizations will be treatedin greater detail elsewhere,they need only be alluded to here.They have played a very important role in the attempts at socialtransformation, however. The intricate regulation which reformers have sought could hardly beencompassed in general legislation.The separation of powersmade it very difficult to take action. The executive branch mightapply legislation in ways not contemplated; the courts could, asthey did frequently for many
years, nullify the action as a violation of due process, or some otherconstitutional protection. The independent commissions, however,frequently combined all thesefunctions -legislative, executive,and judicial. Though their powersderive' from Congress, they arenonetheless real.
The change in the role of thePresident, particularly as regardslegislation, too, has been donewithout formal constitutional alteration. The President's formallegislative powers are mainly negative. He may veto bills that comebefore him. Except in foreignaffairs, this is the extent of thegrant of powers over legislationto him. (He is, of course, chargedwith faithfully executing thelaws.) Strong Presidents in thenineteenth century were frequently men distinguished for theirvetoes. Andrew Jackson and GroverCleveland come readily to mind.But by the early twentieth century, as some Presidents bee,ameenthusiastic about meliorism, theybegan to perceive possibilities forthe chief executive to take overmuch more of the leadership andinitiative in legislation. TheodoreRoosevelt showed the way to suchleadership, but it was WoodrowWilson who formulated the theoryof presidential predominance inthe government.
In his early writings,Wilson
54 THE FREEMAN AugU8t
indicated his regret that the President was "merely an administrator." On one occasion, he wrote:
If you would have the present error of our system in a word, it isthis, that Congress is the motivepower in the government and yethas in it nowhere any representativeof the nation as a whole. Our Executive, on the other hand, is national:at any rate may be made so, andyet has no longer any place of guidance in our system. It represents noconstituency, but the whole people,and yet, though it alone is national,it has no originative voice in domestic national policy.s
By the early twentieth century,Wilson had seen the way to changethis situation. Since the Presidentis the leader of his party, he maybecome the leader of. the nation,or at least he
. . . has it in his choice to be. . . .His is the only national voice inaffairs. Let him once win the admiration and confidence of the country, and no other single force canwithstand him, no combination offorces will easily overpower him....If he rightly interpret the nationalthought and boldly insist upon it, heis irresistible; and the country neverfeels the zest of action so much as
3 Quoted in A. J. Wann, "The Development of Woodrow Wilson's Theory ofthe Presidency: Continuity and Change,"The Philosophy and Policies of Woodrow Wilson, Earl Latham, ed. (Chicago:University of Chicago Press, 1958), p.58.
when its President is of such insightand calibre. Its instinct is for unifiedaction, and it craves a single leader.4
Some of the devices by whichthe President's powers were expanded were inherent in the office,or so the proponents of presidential power have argued. The President is charged by the Constitution with notifying each Congressof the State of the Union. He isalso authorized to recommend tothem "such Measures as he shalljudge necessary and expedient...."He is commander-in-chief of thearmed forces. He can make treaties, by and with the advice andconsent of the Senate. His· role inforeign affairs is, by the nature ofthese provisions, an eminent one.Wilson noted that when foreignaffairs are foremost in nationalconcern, the President's stature isapt to increase and his role expand. As commander-in-chief, thePresident is in a position of leadership in making war.
foreign Entanglement
It is worth noting that the samePresidents who have been mostdeterminedly devoted to melioristic reform have also been thosewho have gotten us most deeplyembroiled in foreign affairs whichusually led to war, that is, PresideI!ts Theodore Roosevelt, Woodrow Wilson, Franklin Roosevelt,
4 Quoted in ibid., p. 61.
1966 THE FLIGHT FROM THE CONSTITUTION, I 55
Harry Truman, John Kennedy, andLyndon Johnson. Nor is the connection entirely accidental. Embroilment in foreign affairs notonly increases the role of thePresident in decision-making butit is more than likely to involvethe United States in such wars asoccur. Moreover, twentieth century wars have been leading occasions for the introduction of reformist innovations, regulations,and restrictions, and these can,and have been, blamed upon theexigencies of war.
This is not to say that Presidents have involved the UnitedStates in war in order to advancereform programs. If such a thinghad occurred, it would probably beforever beyond the reach of historical proof.5 Since we lack suchproof, the matter can be sufficiently explained in this way.Presidents with a penchant forintervention can most readily exercise it in foreign affairs, forthe bulk of their interventionistpowers lie in that realm. Intervention is likely to lead to war.Once the country is involved in
5 Witness, for example, the spate ofbooks during and after World War IIattempting to prove that Roosevelt deliberately provoked the attack on PearlHarbor. Yet, they prove only that hemight have done so, that the policies hefollowed did little to inhibit a sneak attack. The chances are good that nothingmore than this will ever be proved, forhidden motives are involved.
war, the President can use it asan occasion and opportunity fordomestic intervention. The penchant to intervene, which is probably rooted in human nature inthe will to power, is, of course,nurtured and provided with intellectualist justifications in meliorist ideologies.
The President as Lawmaker
The President's powers havebeen increased in a number ofother ways. The incidental authorization in the Constitutionfor the President to recommendmeasures to Congress has servedas a base for Presidents to takethe initiative in legislation. Presidents in the nineteenth centurydid not utilize this much for promoting particular acts of legislation.
There were many reasons forthis. The main one is that nineteenth century Presidents werenot committed to extensive reforms. They did not conceive it tobe their mission to transformAmerican society. Had theythought otherwise, however, therewere good and sufficient reasonsfor them to abstain from legislative leadership. The President'sprimary task is administrative,the execution of the laws. If hebecomes involved in the making ofparticular laws, he may take· positions which will unfit him for
56 THE FREEMAN August
executing them, particularly if hehas vigorously opposed measuresthat are subsequently passed overhis veto. Congress might well resent presidential tampering withits prerogatives. The President'sprestige would be at stake in themeasures he promoted.6 Moreover,he does not have sufficient leverageover Congress to get his measuresenacted. Its members are chosenindependently of him.
Most of these objections anddifficulties have, of course, beenovercome or shunted aside in thetwentieth century, for Presidentshave taken over legislative leadership. Woodrow Wilson was thefirst to do so on a large scale,though Theodore Roosevelt hadpointed the way. Wilson ran onthe basis of a program called theNew Freedom, and, once, inaugurated, he proceeded to get the program through Congress. Sincethat time, Presidents have gonemuch farther in assuming legislative responsibilities. Thisreached a peak in two years: 1933and 1965. In 1933 many of thebills which were passed by Congress were actually drawn by menin the executive department, sentto Congress, and, in the case of
6 In parliamentary systems, of course,the Prime Minister does take such leadership. But if he is defeated on an issuehe considers crucial, he may resign orbe forced to do so. No such alternativeexists for a President.
some of them, passed withoutbenefit of committee examination.By 1965, Congress had come toaccept the presidential initiative asstandard procedure. The traditional roles of the two brancheshad been reversed; Congress couldexercise what amounted to a vetoon bills proposed by the executive,but the initiative had passed tothe President.
Platlorms lor Change
The difficulties of doing thiswere overcome in various ways.In the firs't place, Presidents didbecome reformers. It became customary for presidential candidates,at least Democratic ones, to setforth a program of changes whichthey expected to institute ifelected. These programs have oftenbeen given names, as New Freedom, New Deal, Great Society,and so forth. Not only have presidential candidates run on these,but congressional candidates aswell. Once elected, a President isthen assumed to be committed torendering these into bills whichhe is to push through Congress.
Secondly, the prestige of the offlce of President has been builtup, particularly in wartime. Thatof Congress has suffered by comparison. When Congress has failedto pass presidential bills, it hasbeen labeled obstructionist, and hassuffered from both subtle' and not
1966 THE FLIGHT FROM THE CONSTITUTION, I 57
so subtle vilifications by columnists and assorted publicists. Inshort, Presidents-with assistancefrom their numerous helpers inthe media of communication-havefound ways to advance particularproposals without losing face ifthey fail. Instead, Congress issupposed to lose face by failingto pass them.
Third, Presidents have foundways to bring sufficient congressmen to heel to forge majoritiesfor much of their legislation. Inthe main, these consist of patronage, spoils, and pork barrel. Congressmen are brought around bypromises of government projectsto be located in their districts,getting their men appointed tooffice, a new dam, a new post office building, a new Federal officebuilding, a defense plant, a government contra.ct, and so on, adnauseam.
On the face of it, it is difficultto imagine a more ironic development than this latter one. To Congress belongs the power of appropriation, as well as the initiationof acts. Yet, congressmen truckleto the President to get a portionof the largess they have voted todistribute. There is an explanationfor this, however, and it will getus to the nub of the matter. Acongressman is one man amongmany men. Theoretically, his votecounts for no more than any other,
and in the course of a few yearsof legislating, his district shouldcome out on a par with all otherdistricts in getting Federal largess. Of course, not all men areequally influential in Congress,some have important seats oncrucial committees, others not.Such a congressman can parlayhis influence in Congress into sizeable gains for his district by alsoserving the President faithfully.Presidential discretion in handingout benefits greatly augmentswhat a congressman could get onhis own.
Budgetary Difficulties
These are but accommodations,however, by which some congressmen get their quid pro quo foryielding up their legislative prerogatives. The prerogatives hadto be yielded up as Congress gaveits assent to the building of an evervaster Federal establishment. Thefact is that it is no longer practicable for Congress to devise abudget, or, what amounts to thesame thing, initiate appropriations. Congress cannot oversee thevast Federal establishment effectively; it cannot devise the intricate regulations and restrictionswhich now govern the Iives ofAmericans. It cannot do the workwhich a huge Federal bureaucracynow performs, nor could any otherlegislative body.
58 THE FREEMAN August
The flight from the Constitutiondoes not consist simply of thepower which factions can now exercise, of the concentration ofpower, or of shifts in the relativeweight of the branches of government. It stems from the overriding of the substantive limitationsupon the powers of the Federalgovernment. In short, much ofthe huge Federal establishmenthas been built by the exercise ofpowers that were not granted inthe Constitution. Most of the regulations, restrictions, expenditures(excepting for defense) and farflung activities were not authorized by the Constitution. Nor havethey been authorized by amendments. Instead, they have beenacquired by reading into the Constitution what is not there, and promulgating mystifications aboutwhat is there.
A Word for the Court
Those seeking a scapegoat toblame for the flight from the Constitution may find it convenient toplace the burden of responsibilityupon the Supreme Court. Yet suchan historical interpretation wouldbe a gross injustice to many·of themen who have made up that august body. It is true· that the· majority of the Court have nowjoined the flight from the Constitution, may even be in the forefront of it, but this is a recent de-
velopment. The members of allbranches of the government arecharged with observing the Constitution, the members of Congress and the President no lessthan the courts. A majority ofeither house of the Congress canjust as surely nullify a bill on thegrounds of its unconstitutionality- by refusing to pass it - as theSupreme Court can nullify an actof Congress - by refusing to enforce it. The President can veto abill on the grounds of its unconstitutionality. It could still bepassed over his veto, but thiswould be no reason for a President to fail to do his duty by theConstitution. It is true that theSupreme Court has the last say,but to the extent that the flightfrom the Constitution has beenby the regular legislative route,the courts have only concurred inflights already made by otherbranches.
Moreover, the Supreme Courtheld out much longer against thegeneral flight from the Constitution than did any other branch.Initially, it greatly circumscribedthe activities of the InterstateCommerce Commission, made oflimited effect for a number ofyears that strange piece of legislation known as the Sherman Antitrust Act, only very reluctantlyaccepted the privileged status oforganized labor. It did not readily
1966 THE FLIGHT FROM THE CONSTITUTION, I 59
concur in the piecemeal absorptionof property rights by governmentin regulatory measures. The Federal courts held out for four yearsor more against· the drastic measures' of the New Deal after theCongress had become a rubberstamp for executive measures. Itnullified the central acts- of theearly New Deal when it invalidated the N.R.A. and A.A.A.
But there are limits to what canbe expected of men, and thoselimits apply to justices of the Supreme Court as well as other men.For years before 1937, a literaryassault upon the Constitution hadbeen going on. Writers had pro-claimed that the Constitution wasitself a class document, that it hadbeen drawn by well-to-do merchants and planters to serve theirinterests. It was outmoded, otherssaid, perhaps well enough suitedto an agrarian society but hardlyfit for an industrial one. Newtimes require new measures, othermen proclaimed. A new outlookhad been developed; in terms ofit government was supposed toact in accord with the needs ofthe moment, not in accord withsome "ossified" eighteenth century "piece of paper." In theory,the Court's position is secure;in practice, it is not certain how
long it can hold out against thecombined Congress and Pre,sident.The men who make up thesebranches are popularly elected.They are the voice of the people,so the argument ran. Could ninemen withstand the wrath of anation, prevented from going inthe direction it wanted to go? TheCourt might have held out withimpunity. At any rate, it did not.After 1937, it capitulated, forwhatever reasons following Roosevelt's ill-fated Court Reorganization Bill (popularly known ashis "Court Packing Scheme").Since that time it has only rarelycalled a halt to some particularreconstructionist activity.
The above is to set the recordstraight. The role of the- Court indefense of the Constitution whenthe other branches were irresponsibly evading its limitations hasgone unsung. The point needed tobe made, too, that, legends to thecontrary notwithstanding, theCourt is not the sole keeper of theConstitution. This is a solemn responsibility enjoined upon thosewho serve in all branches of thegovernment. The courts have,however, played an increasing rolein the flight from the Constitution, and that story needs to betold also. ~
The next article in this series 'Will further describe"The Flight from the Constitution-II."
A REVIEWER'S NOTEBOOK JOHN CHAMBERLAIN
KONRAD ADENAUER'S Memoirs1945-53 (Regnery, $10) is a workthat is best described by such adjectives as "dogged" and "slogging." But if there is no genius inthe telling of this story, there wasgenius in the way Adenauer, asthe postwar leader of West Germany's Christian DemocraticUnion, lived it. A seventy-year-oldex-Mayor of Cologne when thewar was nearing its end, he wasthe figure on whom the history ofWest Germany - and therefore theentire West -was to pivot. Hislife since 1945, both as party leader and as his country's Chancellor,may be taken as a virtually complete refutation of the materialist,or economic determinist, theory ofhistory.
If it hadn't been for his presence on the scene, West Germanywould surely have returned to the
60
so-called comity of nations as aMarxist state, or group of states,complete with nationalized industries, planning boards, directedlabor, and all the rest of it. Thisis what Dr. Schumacher's SocialDemocratic PaTty was proposing,and this is what the British, whowere in charge of Adenauer's stateof North Rhine-Westphalia, weredisposed to accept. After all, therewas a labor government in Londonafter Churchill's dismissal in 1945,and "planning" was what ClementAttlee, Ernie Bevin, and HerbertMorrison, the British socialists,thought they understood.
As a pa.rty with a long Germantradition, the Social Democratsshould have walked away with thecrucial election in 1949 that signaled the rebirth of a German nation. But Adenauer, the Rhinelander who had been thrown out
1966 ADENAUER'S MEMOIRS 61
of his job as Mayor of Cologne bythe Nazis, tapped spiritual resources that had been dormant inGermany for well over a decade.He was not an economist himself,but, as a Christian philosopher, hebelieved in the, primacy of thefreely-choosing individual. Hewent up and down West Germanypreaching that the· sort of centralized economic control that wasadvocated by Dr. Schumacher's socialists would not differ, in essence, from what the Germans hadknown under Hitler. It was hisgenius as a politician to recognizethe. voltage in the phrase, "thesocial market economy." Erhard,the present Chancellor of WestGermany, had brought this to himas a disciple of the Roepke schoolof neoliberal economics, and it wassemantically right for the times.For, in its implicit assertion thatthe market creates social valuesout of individual and group competition, the new phrase challenged the Marxist shibboleths ona ground that could appeal to theChristian conscience.
The Marlcet Economy
As Erhard, who was to becomeAdenauer's Minister of Economics, put it, the social market economy would produce a maximum ofwell-being and social justice byletting free individuals make anefficient contribution to an order
that embodies a social conscience.Where state welfare was necessary to sustain war cripples intheir hospitals, and to provide forthe stream of refugees and displaced persons from the Communist East, the affluence created bythe market economy could betaxed. A government committed tosocial market competition wouldsee to it that taxes were not leviedin a way to discourage incentive,and it would also insist on an independent control of monopolies tosafeguard genuine competition.
No doubt the coupling of theadjective "social" with the noun"market" could be utilized to justify the wildest aberrations of statewelfarism. We in America are wellaware of what can be done bycanny manipulation of the "general welfare" clause of the Constitution. But the Christian Democratic Union governments of WestGermany have not been sophisticalin their application of the RoepkeErhard theories. They have provided incentives to invest, theyhave steered cle,ar of inflation, andthey have done more than theirpart in the attempt to create awide free-trade area in westernEurope.
A Touchy Situation
Looking back on the history of1945-53 which is covered in thismost impersonal of autobiogra-
62 THE FREEMAN August
phies, the whole story may seeminevitable. The Soviet Russians,by their aggressive post-1945 behavior, forced the nations of theWest to regard West Germany astheir own particular buffer againstcommunism. It would have beensilly to pulverize a buffer by applying the Morgenthau plan forturning West Germany into a region without industry; this wouldhave created such chaos that theCommunists would have been ableto take over from within. So thedecision to rebuild the British,American, and French zones as aviable modern economic unit wasmade. The Marshall Plan took holdat the end of 1948, raw m,aterialspoured in, individuals were permitted to start their own businesses, and to support everythingelse there was a currency reform.
Yet it was actually touch and gowhen it came to creating a formfor the first new national government in West Germany in 1949.After the Christian Democratshad won their surprising victory,many in Adenauer's own partywished to form a coalition withthe Social Democrats. The SocialDemocrats were willing, but theydemanded the Ministry of Economics as their price for collaboration. After all, they held 131seats in the new Bundestag asagainst the Christian Democrats'139. Potentially, this made them
an extremely powerful opposition,and in a parliament in which tenseparate parties were representedthere was always a possibility thatthey might have their way. Sothey felt justified in wishing tohave the power to create the industrial shape of the new nation.
Principle Prevailed
Adenauer, however, was convinced that the election constituted a mandate for a generallyfree economy. The Social Democrats and the Communists hadpolled eight million votes, which,presumably, had been cast for socialism of one kind or another.But thirteen million votes hadbeen cast for the antisocialistparties. The CDU's Minister President Altmeier of the RhinelandPalatinate spoke plausibly for acoalition with the Social Democrats, and his words were greetedwith applause. He raised the fearthat a strong Social Democraticopposition in the Bundestag woulduse nationalist arguments to attack every effort at understandingwith the occupying powers.
But Adenauer insisted that acoalition would be taken as abreach of faith by a vast majorityof the voters if the Social Democrats were to get the Ministry ofEconomics as their share of thebargain. "There is a great difference," he said, "between our-
1966 ADENAUER'S MEMOIRS 63
selves and the Social Democratsregarding the principles of Christian conviction. Moreover, there isan unbridge,able gap between ourselves and the Social Democrats inthe matter of economic structure.There can only be either a plannedeconomy or a social market economy. The two will not mix. Inview of these differences it wouldnot even be possible to have aChristian Democrat as Minister ofEconomics and a Social Democratas Under-secretary of State. Wecould never get things moving."
The words of Der Alte Adenauer were convincing, and a coalition of anti-Marxist parties followed. So it was Erhard, and notthe Social Democrats' ProfessorNolting, who took charge of WestGermany's economic future. TheGerman "miracle" followed. Andwhen relative stagnation and inflation continued to dog the effortsat recovery in "Keynesian" nationssuch as Britain, the Erhard-supported economies of Roepke-and,incidentally, the Mt. Pelerin Society- began to take on a lusterwhich nobody save a few FEE diehards would have deemed possible.
Adenauer's reconstitution offar-off things and battles long agolack Churchillian sparkle. But theevents create their own drama.This is a document for FEE-ers toread with pride. •
.. THE INTEMPERATE PROFES
SOR AND OTHER CULTURALSPLENETICS by Russell Kirk.(Baton Rouge: Louisiana State
University Press, 1965. 163 pp.$5.00.)
Reviewed by Robert M. Thornton
RUSSELL KIRK'S credentials as acritic of higher education are impeccable. A well-educated, widelytraveled man of letters, he has observed at first hand teachers andstudents and administrators onthe 200 or more campuses wherehe has lectured in the past dozenyears. He does not like what hesees.
Many professors are more interested in indoctrinating' thosesitting under them than in developing a disinterested love oftruth. Embracing relativism and/or nihilism, some teachers areeager to upset whatever ideals andconvictions their students bringwith them from home. Studentsshould learn to think for themselves, but our institutions oflearning were founded to conserveand extend the nation's heritage,not to destroy it.
Dr. Kirk, unlike many todaywho write on the subject,understands education to be, not thepouring of facts or techniques intoa young person's head, but a spiritual process, if you will - a certainrelation between teacher and pupil
64 THE FREEMAN August
and the object of their studies.This being the case, the remedyfor the ills of education is notmore money, bigger plants, ormore classroom gimmicks; anddefinitely not more funds fromWashington which will be followed, quite naturally, by Federalcontrols.
The most provocative essay inthis collection of fourteen is, inmy opinion, "The Rarity of theGod-Fearing Man." We like to betold that God is love, a "Chum,never to be dreaded because He isindiscriminately affectionate."This notion would have scandalized the tough-fibered Calvinistwho settled our land and developedits institutions. Such a man,"knowing that divine love and divine wrath are but different as-
peets of a unity, is sustainedagainst the worst this world cando to him; while the good-naturedunambitious man, lacking religion,fearing no ultimate judgment,denying that he is made for eternity, has inhimno iron tomainta.inorder and justice and freedom.. . . If the fear of God is obscured," Kirk continues, "then obsessive fear of suffering, poverty,and sickness will come to thefront; or if a well-cushioned statekeeps most of these worries atbay, then the tormenting neurosesof modern man, under the labels of'insecurity' and 'anxiety' and 'constitutional inferiority,' will be thedominant mode of fear." This isspiritual bondage, and once it settles in, political and economic enslavement are not far behind. ~
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'" ' ~~:I~O=--J
~ of MAINSPRING (279 pp., indexed) was published in 1947. Since Mr. Weaver'spassing, this great book has been the property ofFEE. Previous to this new paperback edition, 350,000 copies have been printed.
One large company's circulating library for employees required 150 volumes to meet the demand.
Based on FEE's experience, MAl NSPRING topsall books as a starter for any aspiring student ofliberty. Easy reading - indeed, exciting - the beginner becomes so interested in freedom that hecan hardly help pursuing the subject further.
FEE's recommendation: Keep a good supply ofthe paperbacks on hand to present to any individualwho shows a spark of interest in freedom.
THE FOUNDATION FOR ECONOMIC EDUCATION, INC.
IRVINGTON-ON-HUDSON, NEW YORK, 10533
TO ESTABLISH A DESPOTISM
• A general State education is a mere contrivance for
moulding people to be exactly like one another: and the
mould in which it casts them is that which pleases the
predominant power in the government, whether this be a
monarch, a priesthood, an aristocracy, or the majority of
the existing generation; in proportion as it is efficient and
successful, it establishes a despotism over the mind,
leading by natural tendency to one over the body.
J. S. MIL L, On Liberty