VOLUME 58, NO 10 DECEMBER 2008 · borrowed money, they buy mortgages from original lenders, ......

Features8 The Nationalization of the Mortgage Market by Robert P. Murphy

14 Do Patents Encourage or Hinder Innovation? The Case of the Steam Engine

by Michele Boldrin, David K. Levine, and Alessandro Nuvolari

18 The Right to Earn a Living Under Attack by Bob Ewing

22 The Threat of Tax Centralization Hovers Over Europe by Pierre Bessard

27 Eimi Mine by Bruce Edward Walker

Columns4 Ideas and Consequences ~ Mr. President, Meet Mr. Smith by Lawrence W. Reed

12 The Therapeutic State ~ The Burden of Responsibility by Thomas Szasz

20 Peripatetics ~ Lost in Transcription by Sheldon Richman

25 Our Economic Past ~ Andrew Mellon:The Entrepreneur as Politician by Burton Folsom, Jr.

32 Give Me a Break! ~ Tear Down the Stop Signs! by John Stossel

40 The Pursuit of Happiness ~ Fuzzy Thinking by Walter E.Williams

Departments2 Perspective ~ Bailing Out Statism by Sheldon Richman

6 The Free Market Is Failing? It Just Ain’t So! by Steven Horwitz

Book Reviews

35 Is the Welfare State Justified?

by Daniel Shapiro Reviewed by George C. Leef

36 Milton Friedman: A Biography

by Lanny Ebenstein Reviewed by E.C. Pasour, Jr.

37 The Age of Abundance: How Prosperity Transformed America’s Politics and Culture

by Brink Lindsey Reviewed by J.Wilson Mixon

38 The Big Three in Economics: Adam Smith, Karl Marx, and John Maynard Keynes

by Mark Skousen Reviewed by David L. Littmann

42 Index 2008

Page 36

Page 14

Page 4

VOLUME 58, NO 10 DECEMBER 2008

The key to understanding the saga of Fannie Maeand Freddie Mac—the newly nationalized twingovernment-sponsored enterprises (GSEs) that

dominate home financing—is this:They were created—intentionally—to distort the

housing and mortgage markets. That is, governmentplanners were not content to let voluntary exchangeand spontaneous market forces configure those indus-tries unmolested. So—holding the taxpayers hostage—they intervened.

Make no mistake: The collapse of Fannie and Fred-die is government social engineering predictably gone bad.

In a free society supply and demand would governmarkets. The demand for houses would be determinedby people’s preferences and the wealth and income attheir disposal. Supply would be determined by relativeprofit expectations, which is to say, by the demand forhousing and the competing demand for the requiredinputs.

A distortion occurs when government planners andrent-seeking corporate allies, under cover of humanitar-ian social policy, engineer a deviation from natural mar-ket outcomes. (Rent-seeking here refers to the quest forpolitically derived as opposed to market-derived prof-its.) Dressed up as promotion of the American Dreamthrough homeownership, the planners used the politicalmeans—ultimately, the threat to imprison uncoopera-tive taxpayers—to channel wealth to the construction,real-estate, and financial industries.The primary instru-ments of this social engineering were Fannie Mae, cre-ated as a government agency during the New Dealand—cough—“privatized” in 1968 to get it off-budget,and Freddie Mac, created as a “private” GSE in 1970.

The GSEs don’t make mortgage loans. Rather, usingborrowed money, they buy mortgages from originallenders, encouraging banks to make more loans andimmediately pass them on to others. Pooling lots ofmortgages together, the GSEs create mortgage-backedsecurities (MBS) and either sell them or (more fre-quently) keep them, assuming the risk of default. In factFreddie and Fannie created the secondary mortgagemarket that has come in for criticism since the sub-prime problem developed.

2T H E F R E E M A N : I d e a s o n L i b e r t y

Bailing Out StatismPerspective

Published byThe Foundation for Economic Education

Irvington-on-Hudson, NY 10533Phone: (914) 591-7230; E-mail: [email protected]

www.fee.org

President Lawrence W. ReedEditor Sheldon Richman

Managing Editor Beth A. HoffmanBook Review Editor George C. Leef

ColumnistsCharles Baird David R. Henderson

Donald J. Boudreaux Robert HiggsStephen Davies John Stossel

Burton W. Folsom, Jr. Thomas SzaszWalter E.Williams

Contributing EditorsPeter J. Boettke Dwight R. Lee

James Bovard Wendy McElroyThomas J. DiLorenzo Tibor Machan

Joseph S. Fulda Andrew P. MorrissBettina Bien Greaves James L. Payne

John Hospers William H. PetersonRaymond J. Keating Jane S. Shaw

Daniel B. Klein Richard H.TimberlakeLawrence H.White

Foundation for Economic Education

Board of Trustees, 2008–2009

Wayne Olson, ChairmanLloyd Buchanan Walter LeCroy

Jeff Giesea Frayda LevyEthelmae Humphreys Kris Mauren

Edward M. Kopko Roger ReamDonald Smith

The Foundation for Economic Education (FEE) is anon-political, non-profit educational champion ofindividual liberty, private property, the free market,

and constitutionally limited government.The Freeman is published monthly, except for combined

January-February and July-August issues. Views expressed by the authors do not necessarily reflect those of FEE’s officers and trustees. To receive a sample copy, or to have The Freemancome regularly to your door, call 800-960-4333, or e-mail [email protected].

The Freeman is available on microfilm from University MicrofilmInternational, 300 North Zeeb Road,Ann Arbor, MI 48106.

Copyright © 2008 Foundation for Economic Education,except for graphics material licensed under Creative CommonsAgreement. Permission granted to reprint any article from this issue, with appropriate credit, except “Tear Down the StopSigns!”

Cover photo; Chris Revie

3 D E C E M B E R 2 0 0 8

P E R S P E C T I V E : B a i l i n g O u t S t a t i s m

Freddie’s and Fannie’s activities were designed tochannel money to mortgage lenders so that they couldloan widely, especially to people who might have beenpriced out of a fully private mortgage market.The sys-tem inevitably lowered lending standards and interestrates. If these activities had been performed not by GSEsbut by real private companies, they would have beensubject to market checks. But they were not. They’re notcalled government-sponsored enterprises for nothing. As suchthey have special advantages over real private compa-nies, permitting them to do things on a scale larger thanwould have occurred in a free market. The advantagesinclude tax exemption, government loans, an implicitbailout promise, and lower capital requirements.

The result was a far more concentrated lending mar-ket and hence greater vulnerability to changing condi-tions. Fan and Fred hold or insure $5.4 trillion inmortgage debt—half the national total—making thetaxpayers ultimately responsible now that the GSEs areunder federal conservatorship. Three-quarters of newmortgages are GSE-backed. So the government has justbecome the country’s major mortgagee.

The GSEs have lost well over $10 billion since themortgage meltdown occurred, and they were gettingclose to being unable to borrow enough money to rollover their debt. This and fear of a more general eco-nomic meltdown are what prompted the government tostep in, exposing the taxpayers dramatically.The bailoutwill begin with a billion-dollar infusion.Then the gov-ernment will start buying shaky Freddie- or Fannie-backed mortgage securities in the marketplace. A $5billion purchase will get things going, but up to $200billion has been promised. It will no doubt be more.

Where will this money come from: taxation, borrowing, orthe printing press? What will that do to our economicwell-being?

The New York Times is wrong. This is not “anextraordinary federal intervention in private enter-prise.” It is the state bailing out statism. Let’s hear no moreabout the “laissez-faire” Republicans.That myth servesonly to protect advocates of state intervention regard-less of party.

It is with deep sadness that I note the death in October ofour long-time contributing editor Norman Barry after a long ill-ness. Over the years Norman kept Freeman readers informedabout free-market and statist developments in Europe and else-

where, always with optimism about the future of liberty. He wasa professor of social and political theory at the University inBuckingham, which, he proudly noted, is the United Kingdom’sonly private university.Among his many Freeman articles, myfavorite is “Freedom and Morality in the Plays of Tom Stop-pard” (August 1999, http://tinyurl.com/6h9s5s). He was agentleman, a prolific scholar, and a pure pleasure to work with.

* * *The consequences and bailout of Freddie Mac and

Fannie Mae are big subjects deserving more than ashort treatment here. Robert Murphy gives a fulleraccount inside.

A standard argument for the patent system is thatwithout it innovation would shrivel. But what if it’spatents, not their absence, that impede innovation?Michele Boldrin, David Levine, and Alessandro Nuvolaritell the story of the steam engine that couldn’t . . . untilthe patents expired.

The right to earn a living in one’s own way isincreasingly under assault by special interests success-fully lobbying for licensing and other protectionistrestrictions. Bob Ewing says people are fighting back.

Centralization of power always threatens liberty. SoPierre Bessard is justifiably nervous about the tax “har-monization” taking place in the European Union.

The poet E.E. Cummings alienated himself from hisleft-wing friends when he wrote a book in 1931 onhow the Soviet Union crushed individuality. BruceWalker has the details.

Our hard-working columnists have delivered onceagain. Lawrence Reed teaches the politicians aboutAdam Smith.Thomas Szasz sees the therapeutic state asan escape from and threat to self-responsibility. BurtonFolsom examines the record of Andrew Mellon. JohnStossel wonders if we need all those stop signs. WalterWilliams picks through fuzzy thinking. And StevenHorwitz, encountering the claim that the free markethas failed, replies,“It Just Ain’t So!”

Books coming under review this issue are about thewelfare state, Milton Friedman, abundance, and threeinfluential economists.

Since it’s December, the issue concludes with theyear-end index, prepared by Managing Editor BethHoffman.

—Sheldon [email protected]

B Y L AW R E N C E W. R E E D

Mr. President, Meet Mr. Smith

Ideas and Consequences

As I listened to this year’s presidential candidatesdiscuss economic matters, one thought camerepeatedly to mind: Oh, how much they could

learn from Adam Smith! Since it’s obviously possible forpeople to reach the pinnacle of politics without seem-ing to know much about either economics or Smith,perhaps we’re overdue for a little reminder about both.

Smith was baptized on June 5, 1723, in Kirkcaldy,Scotland. It’s not known for certain, but it is presumedthat he was either born on that very day or a day ortwo before.Whichever date it was, he entered a worldthat his reason and eloquence wouldlater transform.

For 300 years before Smith, west-ern Europe was dominated by an eco-nomic system known as mercantilism.Though it provided for modestimprovements in life and liberty overthe feudalism that came before, it was asystem rooted in error that stifledenterprise and treated individuals aspawns of the state.

Mercantilist thinkers believed theworld’s wealth was a fixed pie, givingrise to endless conflict among nations.After all, if you think there’s only somuch and you want more, you’ve gotto take it from someone else.

Mercantilists were economic nation-alists. They thought foreign goodswere sufficiently harmful that government policyshould promote exports and restrict imports. Exportswere to be paid for in gold and silver, not products.Tothe mercantilist, the precious metals were the very def-inition of wealth, especially to the extent that they piledup in the coffers of the monarch.

Because they had little sympathy for self-interest, theprofit motive, and the operation of prices, mercantilists

wanted governments to bestow monopoly privilegeson a favored few. In Britain the king even granted a protected monopoly—to a particular, highly placednoble—over the production of playing cards.

Economics in the late eighteenth century was notyet a focused subject of its own, but rather a poorlyorganized compartment of what was known as “moralphilosophy.” Smith’s first book, The Theory of Moral Sen-timents, was published in 1759, when he held the chairof moral philosophy at Glasgow University. He was thefirst moral philosopher to recognize that the business of

enterprise—and all the motives andactions in the marketplace that giverise to it—was deserving of careful,full-time study as a modern disciplineof social science. The culmination ofhis thoughts in this regard came in1776. As American colonists weredeclaring their independence fromBritain, Smith was publishing his ownshot heard round the world, An Inquiryinto the Nature and Causes of the Wealthof Nations, better known ever since assimply The Wealth of Nations.

Smith’s choice of the longer title isrevealing in itself. Note that he didn’tset out to explore the nature andcauses of the poverty of nations.Poverty, in his mind, was what hap-pened when nothing happens, when

people are idle by choice or force, or when produc-tion is prevented or destroyed. He wanted to knowwhat brings the things we call material wealth intobeing and why. It was a searching examination thatwould make him a withering critic of the mercantilistorder.


Lawrence Reed ([email protected]) is the president of FEE.

The world’s first major public monument toAdam Smith, in Edinburgh, Scotland. Thestatue, unveiled on July 4, 2008, wasfinanced entirely by private contributions.Courtesy, Adam Smith Institute

Wealth was not gold and silver in Smith’s view. Pre-cious metals, though reliable as media of exchange andfor their own industrial uses, were no more than claimsagainst the real thing. All of the gold and silver in theworld would leave one starving and freezing if theycouldn’t be exchanged for food and clothing.Wealth tothe world’s first economist was plainly this: goods andservices. Whatever increased the supply and quality ofgoods and services, lowered their price, or enhancedtheir value made for greater wealth and higher stan-dards of living.The “pie” of national wealth isn’t fixed;you can bake a bigger one by producing more.

Baking that bigger pie, Smith showed, results frominvestments in capital and the division of labor. Hisfamous example of the specialized tasks in a pin factorydemonstrated how the division of labor works to pro-duce far more than if each of us acted in isolation toproduce everything himself. It was a principle thatSmith showed works for nations precisely because itworks for the individuals who make them up. He wasconsequently an economic internationalist, one whobelieves in the widest possible cooperation betweenpeoples irrespective of political boundaries. He was, inshort, a consummate free trader at a time when tradewas hampered by an endless roster of counterproduc-tive tariffs, quotas, and prohibitions.

Exploding an Old Fallacy

Smith wasn’t hung up on the old mercantilist fallacythat more goods should be exported than imported.

He exploded this “balance of trade” fallacy by arguingthat since goods and services constituted a nation’swealth, it made no sense for government to make surethat more left the country than came in.

Self-interest, frowned on for ages as acquisitive, anti-social behavior, was celebrated by Smith as an indispen-sable spur to economic progress. “It is not from thebenevolence of the butcher, the brewer, or the baker,that we can expect our dinner,” he wrote, “but fromtheir regard to their own interest.” Moreover, self-inter-est was an unsurpassed incentive:“The natural effort ofevery individual to better his own condition . . . is sopowerful, that it is alone, and without any assistance, not

only capable of carrying on the society to wealth andprosperity, but of surmounting a hundred impertinentobstructions with which the folly of human laws toooften encumbers its operations.”

In a free economy, he reasoned, no one can put acrown on his head and command that others providehim with goods. To satisfy his own desires, he must produce what others want at a price they can afford.Prices send signals to producers so that they will knowwhat to make more of and less of. It wasn’t necessary forthe king to assign tasks and bestow monopolies. Pricesand profit would act as an “invisible hand” with far moreefficiency than any monarch or parliament. Competitionwould improve quality and reduce prices.

Smith displayed an understanding of governmentthat eclipses that of many citizens today when hewrote,“It is the highest impertinence and presumption,therefore, in kings and ministers, to pretend to watchover the economy of private people, and to restraintheir expense . . . . They are themselves always, andwithout any exception, the greatest spendthrifts in thesociety. Let them look well after their own expense, andthey may safely trust private people with theirs. If theirown extravagance does not ruin the state, that of theirsubjects never will.”

The ideas of Adam Smith exerted enormous influ-ence before he died in 1790 and especially in the nine-teenth century.America’s founders were greatly affectedby his insights. The Wealth of Nations became requiredreading among men and women of ideas the worldover. A tribute to him more than any other individual,the world in 1900 was much freer and more prosperousthan anyone imagined in 1776.

Ideas really do matter.America’s new president shouldtake time to get acquainted with Adam Smith.

Postscript: In a recent essay in the New York Times SundayBook Review, Newsweek editor Jon Meacham revealedthat when he e-mailed Barack Obama about the booksthat have most influenced him, Obama included TheWealth of Nations and The Theory of Moral Sentiments onhis list.The country would benefit if the president-electwould give them a second read before January 20.

5 D E C E M B E R 2 0 0 8

M r. P r e s i d e n t , M e e t M r. S m i t h

There is no doubt the U.S. economy has hit arough patch over the last several months. As isoften the case when economic problems make

headlines, pundits rush to declare that capitalism is “introuble,” or “is ailing” or even “has failed.”This reactionto economic bad news is as old as capitalism itself. It isalso consistently wrong.What the pundits fail to realizeis that economic problems, from therecent housing and credit crisis tothings like the Great Depression, arefar more often, if not always, the resultof attempts to intervene into the freemarket rather than failures of capital-ism itself.

An excellent example of this tun-nel-vision punditry is E.J. Dionne Jr.’sNew York Times column of July 11.Dionne argues that a variety of prob-lems facing the economy in 2008 hasled to “the collapse of assumptionsthat have dominated our economicdebate for three decades.” Theassumptions he refers to are that“Regulation is the problem andderegulation is the solution. The dis-tribution of income and wealth does-n’t matter . . . [and] free trade produceswell-distributed economic growth,” among others. InDionne’s view, these ideas are “failing” and “even con-servatives recognize that capitalism is ailing.”

Unfortunately for Dionne, it just ain’t so.Dionne spends much of the column arguing that the

current housing crisis and its spillover effects on thefinancial industry are the result of, in Rep. Barney

Frank’s words, “excessive deregulation.”There has beensome deregulation of the financial markets in the lastcouple of decades, and much of that deregulation hasactually produced incredible benefits for the Americanpublic.Aside from the customer-service gains that havecome from the legalization of interstate banking andthe ability of banks to offer an array of products under

one roof, the expanded range ofinvestments that banks can take onenables them to diversify and lowertheir exposure to risk.

Yes, a number of banks have hadproblems in the last year (morebelow), but the number of bank fail-ures since the 1999 deregulation hasbeen exceptionally low. Between1999 and 2007 only 40 U.S. banksfailed, which is substantially lowerthan the same nine-year periodsstarting in 1969, 1979, and 1989.Only two years since 1934 have hadno bank failures: 2005 and 2006. Ifthe 1999 overturning of the Depres-sion-era Glass-Steagall regulations issuch a problem, why were the eightyears to follow among the healthiestin U.S. banking history? Assuming

deregulation did not have a built-in time delay, thisyear’s banking problems must have some other source.

Those problems are almost all linked to the troublesin the housing market. Here too, blaming deregulation

The Free Market Is Failing?It Just Ain’t So!


B Y S T E V E N H O R W I T Z

Steven Horwitz ([email protected]) is the Charles A. Dana Professorof Economics at St. Lawrence University.

Economic problems,from the recenthousing crisis tothings like the GreatDepression, are farmore often, if notalways, the result ofattempts to interveneinto the free marketrather than failures ofcapitalism itself.

7 D E C E M B E R 2 0 0 8

is at odds with some important facts. True, financialfirms have developed many new tools during the last25 years. Some of those, such as the adjustable-ratemortgages at the center of the difficulties, were neces-sitated by previous government intervention in mar-kets—in this case, the Fed-generated inflation of the1960s and ’70s.

More important, though, is the role played by insti-tutions such as Freddie Mac and Fannie Mae, both ofwhich are not the products of laissez-faire capitalism or any sort of “deregulation.” Those government-sponsored enterprises have artificially supported ele-ments of the housing market that might not have beeneconomically justified. Other government regulations,such as the Community Reinvestment Act, whichrequires that banks make a certain proportion of loansto low-income customers in their communities, haveforced banks to take on excessively risky investmentsin housing. Finally, meddling politicians can causebanks to fail by spreading unwarranted concern abouttheir balance sheets, as some have argued SenatorCharles Schumer did in the case of the now-failedIndyMac Bank.

In sum, nothing in the current housing and bankingtroubles indicates some sort of systematic failure of cap-italism that can be laid at the feet of deregulation.

Problematic ClaimDionne also makes a passing comment about the way

in which “The Great Depression discredited the radicallaissez-faire doctrines of the Coolidge era.”This claim isproblematic in three ways. First, the 1920s were hardly“laissez-faire,” especially in the financial markets. TheUnited States had a government-run central bank alongwith a host of banking regulations, not to mention all theother economic regulations born out of the ProgressiveEra and World War I. Second, the Great Depression itselfresulted not from the failures of capitalism, but the Fed’smonetary mismanagement in the 1920s and 1930s, andits length and depth were caused by the protectionismand interventionism of the Hoover and Rooseveltadministrations.The New Deal and World War II did notget us out of trouble; only the explosive growth gener-

ated by the freer postwar economy did so.Third, many ofthe very regulations that emerged from the GreatDepression, such as federal deposit insurance, enabledbanks to do exactly what Dionne wrongly blames on themarket: profiting when they lent well, but shifting lossesto others when they messed up.

Finally, Dionne’s claim, echoed by Frank, that freetrade and capitalism more generally have benefited thewealthy at the expense of the poor also does not holdup to scrutiny. Frank’s concern for the “most vulnerablepeople in the country” is admirable, but free trade, bymaking cheaper imports available to lower-incomeAmericans and by creating jobs in export industries, hasdone more for “the most vulnerable” than any govern-ment program.

It is also ironic that a man of the left would focusonly on the vulnerable in the United States and ignorethe massive increase in well-being that free trade hasproduced for the most vulnerable people in the rest ofthe world.The billions of Chinese and Indians who haverisen out of abject poverty in the last decade or so are amajor accomplishment of free trade, and that increasein wealth has benefited American citizens as well. Theliving standards of poor Americans today, measured bywhat they are capable of consuming, exceeds that of theaverage American 35 years ago. If free trade is so awfulfor the poor, Dionne and Frank need to explain how anera of expanding free trade has also produced theseincreases in the well-being of poor Americans and bil-lions of others across the world whom they seem tothink do not matter.

Once again, the pundits grab onto any bit of badnews to declare the death of capitalism, all the whileignoring the ways in which our larger-than-ever govern-ment has intervened in the market, producing the veryproblems they try to blame on the free market. Theirmisguided analysis is matched only by their continuedpromulgation of the idea that American living standardsare declining, despite abundant data to the contrary. Evenwith all the government intervention, the (hampered)market continues to improve the lives of everyone, espe-cially the poor. Imagine if the politicians and punditsstopped trying to prevent it from doing so.

T h e F r e e M a r k e t I s F a i l i n g ? : I T J U S T A I N ’ T S O !

On Sunday, September 7, the United Statesgovernment took control of more than halfthe U.S. mortgage market, through its

seizure—and that is the word used in mainstream pressaccounts—of Fannie Mae and Freddie Mac, two colos-sal government-sponsored enterprises (GSEs), hybridorganizations owned by private individuals yet createdby the government. The likes of this and other recentactions taken by Treasury Secretary Henry Paulson andFederal Reserve Chairman Ben Bernanke have notbeen seen since the 1930s. Will theGSE takeover someday be viewed as adecisive step in bringing state socialismto the United States?

What is especially noteworthy isthe process through which the Ameri-can public has been desensitized to theexplicit expansion of state power ineight short years. It is a virtue thathumans adapt quickly to new environ-ments, but this strength can be turnedinto a weakness by clever politicians.

The housing boom and bust was aproduct of interventionist monetarypolicy, namely Alan Greenspan’s deci-sion to slash interest rates after the dot-com crash.Thecrash in real-estate prices has in turn led to largedefaults on mortgage payments, inflicting billions inlosses for investment banks and other large institutionsthat had bet heavily on mortgage-backed assets. Theheavily regulated financial sector was vulnerable tothese unexpected events. What should have been alarge hit to real estate and a few institutional investorshas now spread and is currently threatening the global

financial system itself. (We should keep this episode inmind whenever someone claims that the free market istoo unstable and requires wise government oversight topromote stability.)

Villains and Saints

Apanicked citizenry looks about for villains andsaints, and the government is only too happy to

dispense the labels. The villains are predatory lenders,short-selling speculators, and “do nothing” officehold-

ers and regulators allegedly blindedby their laissez-faire faith, while theheroes (naturally) are the populistpoliticians who promise to clean upthe greed and irresponsibility of thenefarious financial industry. If citi-zens would just suspend their abstractaversion to nationalization of largesectors of the economy, the govern-ment could keep them safe from fur-ther economic harm.

The Federal National MortgageAssociation—FNMA or Fannie Mae—was founded as an agency of thefederal government as part of the

New Deal in 1938. Its function was to create a second-ary market for mortgages, meaning that Fannie Mae,rather than originating loans to homebuyers, wouldbuy mortgages (and their expected payment streams)from community banks and thrifts. In 1968 Fannie Maewas transformed into a private-sector company withshareholders, and its official connection with the gov-

B Y R O B E R T P. M U R P H Y

The Nationalization of the Mortgage Market


Robert Murphy ([email protected]) is the author of The Politically Incorrect Guide to Capitalism.

What should havebeen a large hit toreal estate and a fewinstitutional investorshas now spread and iscurrently threateningthe global financialsystem itself.

ernment was transferred to the Government NationalMortgage Association (GNMA or Ginnie Mae). TheFederal Home Loan Mortgage Corporation (FreddieMac) was chartered in 1970 as another government-sponsored enterprise in the secondary mortgage mar-ket; it too is owned by shareholders.

The ostensible purpose of Fannie and Freddie is topromote homeownership. The two GSEs buy mort-gages and bundle them into mortgage-backed securi-ties, which are sophisticated derivatives that slice anddice the incoming monthly mortgage payments suchthat outside investors can (in theory) limit the risk oftheir real-estate investments. By providing a huge andliquid secondary market for mortgages, Fannie andFreddie make it more lucrative for others to originatemortgages. Make no mistake about it: The official mission of Fannie and Freddie is to cause banks to lendto applicants who would be rejectedin the absence of government med-dling. This point needs to be stressedas analysts wonder, “Why did banksmake so many bad loans?”

All of this raises an obvious ques-tion. How exactly do Fannie andFreddie achieve their goal of promot-ing more mortgage origination thanwould have occurred in a free mar-ket? The answer is that these GSEsenjoyed implicit—and now explicit—government backing. Until quite recently, the officialposition of the federal government has been that Fan-nie and Freddie were private companies, earning pri-vate profits to be distributed to private shareholders.No taxpayer money stood behind them. However,investors suspected the GSEs were too big and toosymbolic to be allowed to fail. Consequently, investorswere willing to lend money to Fannie and Freddie—bybuying bonds issued by these two GSEs—at lowerinterest rates than these same investors would havecharged a truly private firm that performed Fannie’sand Freddie’s operations. Because their bonds were pre-sumably guaranteed by the “full faith and credit” of theU.S. government—meaning the IRS and printingpress—Fannie and Freddie were able to gain a hugeshare of their market; they directly owned or guaran-

teed roughly $6 trillion in mortgages.To repeat an ear-lier observation:The vulnerability of the overall systemto a few giant firms is itself a product of intervention inthese markets. If the government suddenly promisedthat it would use tax dollars to make creditors whole ifApple defaulted on its bonds, then we would expect itto become more “profitable,” cut prices, and gain mar-ket share from Microsoft.

It is worth pointing out that plenty of insiders gotrich during the good times. Former Fannie chairmanFranklin Raines earned some $90 million in compensa-tion from 1998 to 2003. Even during the “bad times,”things weren’t so tough for the people running the twopolitically connected firms. As part of its takeover, thegovernment ousted CEOs Daniel Mudd (Fannie) andRichard Syron (Freddie), yet they are entitled to com-pensation packages that could be worth up to a com-

bined $24 million.

A Culture of Recklessness

Besides the implicit backing oftheir debt, the GSEs also enjoyed

less regulation than their purely privatecounterparts. This bred a culture ofrecklessness and short-term thinking.To hit targets and trigger bonus pay-ments to top executives, Fannie Maemanipulated its earnings over theperiod 1998–2004. Yet even when it

was “caught,” Fannie was only fined $400 million inwhat was an $11 billion accounting scandal. Further-more, one suspects that the full $400 million penaltydid not fall entirely on the executives who defraudedtheir own investors, meaning the gamble was wellworth it from their narrow point of view. Students ofpolitical economy know that regardless of the officialmotivation for a new government agency or program,once it is up and running, politicians, bureaucrats, andcorrupt businesspeople will find ways to enrich them-selves at taxpayer expense.

What is particularly insidious about governmentdebt guarantees and rescue loans—whether the implicitbacking given to Fannie and Freddie for decades or theexplicit guarantee given to the Mexican governmentduring its own credit crisis in 1995—is that they can

9 D E C E M B E R 2 0 0 8

T h e N a t i o n a l i z a t i o n o f t h e M o r t g a g e M a r k e t

The vulnerability ofthe overall system toa few giant firms isitself a product ofintervention in these markets.

often seem costless. Indeed, the U.S. Treasury actuallymade money on its “bailout” of Mexico because theMexican government didn’t default on the bonds it hadsold to investors around the world. In similar fashion, itdidn’t cost the government anything for its implicitprotection of the GSEs when housing prices werebooming in the mid-2000s.

All of this changed, however, once house pricesbegan sharply falling. Speculative buyers and those whohad planned to refinance out of ARMs were nowcaught with mortgage payments they couldn’t afford,and so they began walking away.The stream of monthlypayments into the bundled securities created by Fannieand Freddie was now drying up, and so the giants beganlosing money because as part of theirnormal operations they had guaran-teed some of these payments. Fromthe fourth quarter of 2007 throughthe second quarter of 2008, the tworeported combined losses of $11.7 bil-lion. Now the cost of the government’sbacking would be evident.

Parsing Paulson

It will be instructive to parse theactual announcement of the Fannie

and Freddie seizure. Right out of thechute, Paulson explained:

In July, Congress granted the Treasury, the Federal Reserve andFHFA new authorities with respect to the GSEs,Fannie Mae and Freddie Mac. Since that time, wehave closely monitored financial market and businessconditions and have analyzed in great detail the cur-rent financial condition of the GSEs—including theability of the GSEs to weather a variety of marketconditions going forward. As a result of this work,we have determined that it is necessary to takeaction.

Note that the Congress didn’t send a bill to Presi-dent Bush asking to nationalize the two corporations.On the contrary, it merely gave the relevant agenciesthe legal permission to take such actions if deemed

“necessary.”This latter strategy is far harder to contain,because who could possibly object to giving the exec-utive branch options? That seems to be a different issuefrom the question of which options were good ones.Thus members of Congress can truthfully say that theymerely voted in the interest of preparedness for atakeover. The president and his minions can take theblame or praise for the specific exercise of the powersso delegated.

Paulson went on to say:

Since this difficult period for the GSEs began, I haveclearly stated three critical objectives: providing sta-bility to financial markets, supporting the availability

of mortgage finance, and protectingtaxpayers—both by minimizing thenear-term costs to the taxpayer and bysetting policymakers on a course toresolve the systemic risk created by theinherent conflict in the GSE structure.

The problem here is that the “crit-ical objectives” are incompatible.When Paulson talks of “supporting the avail-ability of mortgage finance,” thismeans making mortgages more avail-able than they would be in a purelyfree market.To achieve that objective,then, the government must exposetaxpayers, and the skewed incentiveswill necessarily distort the financial

markets. Again, there is no way around this. If the gov-ernment induces lenders to make loans that they origi-nally thought were too risky, then the government hasobviously made the overall system more volatile.

After Paulson’s opening remarks, he turned thepodium over to James Lockhart, director of the newregulator, the Federal Housing Finance Agency. Lock-hart explained that the GSE structure was inherentlyflawed because private shareholders pocketed gainswhile the taxpayers were ultimately on the hook formassive losses. Even so, Lockhart further explained thatas part of the takeover, Fannie and Freddie wouldexpand their portfolios of mortgage-backed securitiesbefore reducing them steadily starting in 2010. As usual


R o b e r t P. M u r p h y

When Paulson talksof “supporting theavailability ofmortgage finance,”this means makingmortgages moreavailable than theywould be in a purelyfree market.

with government, when something isn’t working, thesolution is to make the problem grow—call it a “surge”in mortgage portfolios. No doubt future administra-tions will continually revisit whether conditions “onthe ground” warrant a reduction in the monstrousagencies.

Lockhart also revealed that in exchange for its guar-antee, the Treasury received senior preferred equityshares and warrants (similar to call options) that entitlethe Treasury to purchase up to 79.9 percent of thecommon stock of the two companies under certainconditions. (To the best of my knowledge, those “cer-tain conditions” were not revealed to the public—it’snot merely that reporters have omitted the precisedetails out of laziness.)

It is significant to point out that the preferred andarguably even the common shareholders were robbedin this procedure. The Treasury’s “senior preferredequity shares” bump the original preferred shareholdersdown a peg, forcing them to absorblosses before the Treasury takes a hit.On the other hand, if things turnaround and Fannie and Freddie stocksrecover, then the Treasury would findit profitable to exercise its warrantsand thereby dilute the values of the other shareholders.For these reasons, the term seizure is far more accuratethan rescue to describe the government’s actions withrespect to Fannie and Freddie.

The government cannot create wealth. Although heis very smart and understands financial markets, HenryPaulson cannot centrally plan the mortgage market toimprove on the spontaneous outcome of voluntaryinteractions among millions of professionals in the pri-vate sector. The fundamental causes of our currentfinancial crisis were mortgages granted to unqualifiedapplicants, as well as investors making very risky bets onassets derived from these mortgages. The bailout ofthose who lent to Freddie and Fannie, and the easing ofthe GSEs’ regulatory limits, will only sow the seeds fora potentially worse crisis down the road.

The Trend Toward State Socialism

Beyond the harmful effects on the real-estate andmortgage markets, the seizures of Fannie and

Freddie—as well as the bailout of AIG the followingweek—reinforce the trend toward outright state social-ism. Investors are looking less at fundamentals and moreat government announcements. The idea that thesemoves are encouraging “stability” is ludicrous, as theonce-mighty Lehman Brothers was allowed to fail inbetween the two massive bailouts.

During normal economic times, if the governmentbegan seizing firms and disbursing hundreds of bil-lions of dollars to particular institutions, and further-more if each action were discretionary and impos-sible to predict even one week in advance, then every-one would recognize these policies as incredibly destabilizing. Yet this destabilizing effect still existswhen laid over a backdrop of massive losses, and in fact hurts even more because of the victim’s initialweakness.

Hard as it is to believe, the best course of actionwould have been for the government to allow these

troubled firms to fail. This would beakin to pulling the Band-Aid offquickly, which is temporarily painfulbut soon forgotten. But with the pos-sibility of federal bailouts and othernovel techniques to revive the hous-

ing sector, troubled firms have been postponing theinevitable, hoping for a reversal of misfortune. As thefinancial crisis has now entered its second year,Bernanke and Paulson are pulling off the Band-Aidvery slowly indeed.

As government-sponsored entities, Fannie Mae andFreddie Mac allowed their private executives to profitgreatly from implicit taxpayer support over a period ofdecades. However, now that their excessive risk-takinghas finally caught up with them, the GSEs’ shaky bal-ance sheets have been absorbed by the federal govern-ment, which at the same time has announced that thetwo failing giants will take on even more obligations.Besides the further bilking of the taxpayer, the seizure isan ominous sign of just how much power the executivebranch has accumulated. The takeover of Fannie andFreddie will do nothing to promote stability in thefinancial markets in the long run, but it will serve as aprecedent for further “necessary” expansions of govern-ment control of the economy.

11 D E C E M B E R 2 0 0 8

T h e N a t i o n a l i z a t i o n o f t h e M o r t g a g e M a r k e t

The governmentcannot create wealth.

B Y T H O M A S S Z A S Z

The Burden of Responsibility

The Therapeutic State

Life is an unending series of choices and, there-fore, “problems in living.” Ordinary choices—what to have for breakfast—we ignore as trivial.

Extraordinary choices—whether to kill ourselves (orworse)—we dismiss as the symptoms of mental illness.The profession of psychiatry rests on, and caters to,the ubiquitous human desire to avoid, evade, and denythe very possibility of morally “unthinkable” choices.We use the rhetoric of psychiatry to transform suchchoices into medical-technical problems and “solve”them by appropriate “medical treatments.”This is whydeception and prevarication are intrinsic to the princi-ples of psychiatry, and fraud and force are intrinsic to its practices.

We humans are choice-makinganimals. The freedom to makechoices is both a blessing and a curse.Depending on age, temperament,information, and alternatives, somepeople experience the opportunityfor choice as exhilarating, others astormenting. Traditionally, it was oneof the functions of religion to relievepeople of choices. Today, psychiatryand the therapeutic state perform the same job.

Karl Jaspers (1883–1969)—the great twentieth-century German psychiatrist-turned-philosopher—understood this. But he identified only one part of this drama, the patient’s: “Generally formulated, we may say that these people [“neurotics”] are determinedthat events for which they are accountable and inwhich they are understandably concerned shall betaken as mere happenings, for which they are entirelyirresponsible.” Psychiatrists were, and are, happy to playthe other part, authenticating the person’s false self-definition as mental patient—medical object, not moralactor.

Lord Acton

There is important religious precedent for theauthoritative declaration of falsehood as truth. In

1870, under the leadership of the legendary Pope PiusIX—Pio Nono, the longest-reigning and one of themost colorful popes in history—the Vatican declaredthe dogma of papal infallibility. This was anathema toLord Acton (1834–1902), the most respected Catholiclayman in Europe in his time. Alienated from theChurch, Acton did not leave it; and, probably becausehe had not been ordained, he was not excommuni-cated. It was in the context of this moral conflict that,in 1887, in a letter to Bishop Mandell Creighton,Acton

made his famous pronouncement:“I cannot accept your canon that

we are to judge Pope and King unlikeother men, with a favorable presump-tion that they did no wrong. If there isany presumption it is the other wayagainst the holders of power, increas-ing as the power increases. Historicresponsibility has to make up for wantof legal responsibility. Power tends tocorrupt and absolute power corruptsabsolutely.”

Most people who quote Lord Acton’s famous dic-tum today are unaware it refers to papal power and wasmade by a devout Catholic. In 1882 Acton, now alien-ated from his great teacher and lifelong friend, FatherJohann Ignaz von Döllinger, who was excommunicatedfor opposing the infallibility doctrine, writes him:

“I came, very slowly and reluctantly indeed to theconclusion that they [the great Catholic notabilities]were dishonest. And I found out a special reason for


Thomas Szasz ([email protected]) is professor of psychiatry emeritus atSUNY Upstate Medical University in Syracuse. His latest books, bothfrom Syracuse University Press, are The Medicalization of EverydayLife: Selected Essays and Psychiatry: The Science of Lies.

We humans arechoice-makinganimals.The freedomto make choices isboth a blessing and a curse.

their dishonesty in the desire to keep up the credit ofauthority in the Church. . . .When I got to understandhistory from the sources, especially from unpublishedsources, the reason of all this became obvious. Therewas a conspiracy to deceive. . . .That men might believethe Pope it was resolved to make them believe that viceis virtue and falsehood truth.”

Acton regarded the claim of papal infallibility as evidence of intolerable religious arrogance and power.I regard psychiatric infallibility—the unfalsifiability and irrefutability of psychiatric diagnoses backed by mental-health laws—as evidence of intolerable psy-chiatric arrogance and power.

Acton thought “he witnessed the triumph of errorin history.” Indeed, he had. Today, we witness a simi-lar—but more ominous—triumph of error in medi-cine-psychiatry. In addition to persuadingthe public and the government thathuman problems are medical diseases,psychiatrists have succeeded in abolishingthe concepts of responsibility, guilt, andinnocence, and in replacing punishmentwith the irrefutable and ineradicable stig-mata of psychiatric “diagnoses” and“treatments.” “Modern psychiatry,” Iwrote in 1970, “dehumanize[s] man bydenying . . . the existence, or even thepossibility, of personal responsibility, cen-tral to the concept of man as moralagent.” It accomplishes that evil by treating responsibil-ity, following Ambrose Bierce, as “a detachable burdeneasily shifted to the shoulders of God, Fate, Fortune,Luck or one’s neighbor.” In our day, it is not merelycustomary but, in matters that really count, mandatoryto unload responsibility on Mental Illness (“hesnapped,” “had a breakdown,” “battled his demons,”“was on drugs,” “went off prescribed medication,” andso forth).

In Acton’s day the separation of church and state wasan established political practice in many countries.Hence, the Church’s moral failures and self-arrogatedpowers affected only persons who chose to be its adher-ents. Our predicament is more serious.We live at a timewhen the alliance of medicine-psychiatry and the stateis taken for granted—viewed as an unalterable social fact

and undoubted moral and social good. Everyone,regardless of personal choice, is affected, directly or indi-rectly, by the powers of the therapeutic state.

Psychiatry and the State

Given its limited legal-political powers, the Vaticancould not have tried to purge the world of its crit-

ics, much less intimidate them into becoming itscrypto-supporters. In contrast, in our day the alliance ofpsychiatry and the state has enabled pharmacracy to dojust that. Its so-called critics—who call themselves“antipsychiatrists,” “critical psychiatrists,” “ethical psy-chiatrists,” and so on—oppose one or another psychi-atric “diagnosis” or “treatment,” rarely even psychiatriccoercion. But they all support the view that the misbe-havior of individuals afflicted with/suffering from so-

called mental illnesses ought not beregulated by the same rules as are the mis-behaviors of individuals not so denomi-nated: They recoil from defending an ethicbased on personal responsibility for publicactions (as distinct from private actions,called “thoughts”) and of every individ-ual’s inalienable right to his or her life anddeath, lest they appear uncompassionateand, perish the thought, unscientific andilliberal (in the modern, statist sense of“liberal”). Thus they endorse—explicitlyor by the assent of silence—psychiatry’s

war on responsibility, epitomized by the wars on drugs,mental illness, and suicide and by the insanity defense.

“Truth,” said Thomas Jefferson,“will do well enoughif left to shift for herself. She seldom has received muchaid from the power of great men to whom she is rarelyknown and seldom welcome. She has no need of forceto procure entrance into the minds of men. . . . It iserror alone which needs the support of government.”Jefferson was right in applying this principle to reli-gion: modern states should not (and for the most partdo not) lend their coercive powers to the support of theclerical lies of priests. Nor should they lend their coer-cive powers to the support of the clinical lies of psychi-atrists. As long as they do, serious persons ought not totake psychiatry seriously—except as a threat to reason,responsibility, and liberty.

13 D E C E M B E R 2 0 0 8

T h e B u r d e n o f R e s p o n s i b i l i t y

Lord Acton

Many economists are in love with the idea of anatural experiment. A natural experiment isa turn of events that enables a clean compar-

ison between two different economic-policy alterna-tives. For many economic policies we do not have thegood fortune of a natural experiment. In these caseseconomists must fall back on otherless-reliable modes of econometricanalysis. Fortunately for other eco-nomic policies nature has been kindenough to provide us with the labo-ratory we need.

The Patent Controversy

Today one of the most contro-versial issues in economic pol-

icy is that of patent law. Is a patentjust an extension of property rightsto the realm of ideas? Or is it anunwarranted interference by thegovernment into the rights of indi-viduals who have purchased goodsand services to use them as they seefit? Should the Western system ofpatents be extended worldwide? Orshould we get rid of patents entirely? Is the patent sys-tem responsible for modern miracle drugs? Or is it toblame for the millions dying of HIV in Africa? Do patents lead to greater innovation and economic growth? Or dothey kill the goose that lays the golden egg?

The issue of whether patents are genuine propertyrights or unwarranted government interference cannotof course easily be answered by a natural experiment.We will leave that discussion to philosophers. The

impact of patents on innovation does have an objectiveanswer. In this case history instead of nature has beenkind enough to provide us with a wonderful naturalexperiment.This experiment took place in the countyof Cornwall, England, between 1772 and 1852. It wasthere, in the extreme southwest of England, in the wet

depths of the Cornish copper and tinmines, far removed from the supplyof coal in Wales, that the steamengine was pioneered.

To examine innovation in steamtechnology, we need a measure ofhow good a steam engine is. Oneimportant measure is the amount ofwork delivered by a given amount offuel. This can be measured by theduty of a steam engine: the numberof pounds of water that can be liftedone foot for each 94 pounds of coalconsumed.

In 1772 steam engines were ofthe so-called Newcomen design ofwhich the best had a duty of 10 mil-lion foot-pounds (10M). In 1777Matthew Boulton and James Watt

began selling the first steam engines with a separatecondenser. These initially had a duty of 18M, rising

B Y M I C H E L E B O L D R I N , D AV I D K . L E V I N E , A N D A L E S S A N D R O N U V O L A R I

Do Patents Encourage or Hinder Innovation?The Case of the Steam Engine


Michele Boldrin ([email protected]) and David Levine([email protected]) are professors of economics at Washington Universityin St. Louis. Boldrin is co-editor of the Review of EconomicDynamics. Levine is president of the Society of Economic Dynamics.Alessandro Nuvolari ([email protected]) is an assistant professor ofthe economics of science and technology at Eindhoven University ofTechnology in the Netherlands.

A nineteenth-century drawing of a Cornishsteam engine

by 1792 to a peak of 26M. There things rested until1814 when the use of the high-pressure design ofRichard Trevithick led to engines with a duty of 55M.The duty then rose relatively continuously until itreached a peak of 110M in 1852.

To summarize: During the 42 years from 1772 to1813 duty rose 3.8 percent per year; during the 38 yearsfrom 1814 to 1852 duty rose more than twice as fast—8.5 percent per year. The evolution of the duty ischarted in the figure. The state of innovation is bestrepresented by the best engine currently being pro-duced, but for completeness the average and minimumduty of constructed engines is reported.The decline induty growth after 1852 reflects both the general declineof the Cornish mining industry and the more difficultconditions in which steam engines were forced tooperate due to the deepening of the mines.

As it happens there is one critical differencebetween the earlier period and the later period. Bypatenting the separate condenser Boulton and Watt,from 1769 to 1800, had almost absolute control on thedevelopment of the steam engine. They were able to

use the power of their patent and the legal system tofrustrate the efforts of engineers such as JonathanHornblower to further improve the fuel efficiency ofthe steam engine. By way of contrast, and fortunately,Trevithick did not patent his equally innovative high-pressure design.

Ironically, not only did Watt use the patent system asa legal cudgel with which to smash competition, but hisown efforts at developing a superior steam engine werehindered by the very same patent system he used tokeep competitors at bay. An important limitation of theoriginal Newcomen engine was its inability to deliver asteady rotary motion. The most convenient solution,involving the combined use of the crank and a fly-wheel, relied on a method patented by James Pickard,which prevented Watt from using it. Watt also madevarious attempts at efficiently transforming reciprocat-ing into rotary motion, reaching, apparently, the samesolution as Pickard. But the existence of a patent forcedhim to contrive an alternative less-efficient mechanicaldevice, the sun and planet gear. It was only in 1794,after the expiration of Pickard’s patent, that Boulton

15 D E C E M B E R 2 0 0 8

D o P a t e n t s E n c o u r a g e o r H i n d e r I n n o v a t i o n ?

and Watt adopted the economically and technicallysuperior crank. The impact of the expiration of Watt’spatents on his empire may come as a surprise as well.Far from being driven out of business, Boulton andWatt for many years were able to charge a premiumover the price of other steam engine manufacturers.

Here we see clearly the upside and the downside ofthe patent system in action.The upside is that it may bethe case that the prospect of a 31-year monopolyinduced Watt to spend three and a half years of hislife—between late 1764, when he first was asked torepair a steam engine, and mid-1768, when he appliedfor patents on his improved design—working toimprove steam technology.

The downsides are two. The first is that the rewardto success bears no relation to the costof invention. In what respect is it nec-essary, reasonable, or fair to grant a 31-year monopoly and make a manfabulously wealthy because he spent afew years working on a project thatbenefited his fellow man? Certainlythis kind of inducement was notneeded for Trevithick, whose contri-bution to steam technology raised theduty 110 percent as against Watt’s con-tribution, which raised the duty only80 percent.

The second downside of the patentsystem is the devastating effect it hason incremental innovation. From 1786 to 1800 therewas no increase in the duty of steam engines at all, asBoulton and Watt successfully sought to prevent com-petition by suppressing innovation. This should be acautionary note for people who think that the currentwave of patent litigation triggered by a system of soft-ware patents created by the courts is likely to have abeneficial impact on software innovation.

Collaborative Innovation

For the 11 years following the end of the Boultonand Watt monopoly, Cornish mining activities

underwent a period of slackness, as the mine adventur-ers were content with the financial relief coming fromthe cessation of the premiums they had paid to Bolton

and Watt.As a consequence they neglected the mainte-nance and the improvement of their engines.This situ-ation lasted until 1811, when a group of mine captainsdecided to begin the publication of a monthly journalreporting the relevant technical characteristics, theoperating procedures, and the performance of eachengine. Their explicit intention was twofold. First, thepublication of the reports permitted the rapid individu-ation and diffusion of best-practice techniques. Second,it introduced a climate of competition among the engi-neers entrusted with the different pumping engines,with favorable effects on the rate of technical progress.Joel Lean, a highly respected mine captain, wasappointed as the first engine reporter. The journalwould later be called Lean’s Engine Reporter. During the

31 years after 1811 this collaborativecompetitive effort at innovationraised duty by more than the great“breakthrough” of Watt ever did.

It is worth remarking anotherimportant feature of the process oftechnical change in Cornish enginesduring the collaborative period. Mostengines were single-cylinder, high-pressure, single-acting engines, with aplunger pump of the type originallyerected by Trevithick in 1812. Inter-estingly enough, however, alternativedesigns were never completely ruledout. For example, in different peri-

ods, engineers such as Arthur Woolf and James Simscontinued to experiment with compound engines.Throughout this period, the development of the Cor-nish engine remained a fluid state and this facilitated amore thorough exploration of alternative designs.

The astute reader will no doubt notice that the col-laborative innovation occurring after the expiration ofthe Watt patents resembles nothing so much as modernopen-source software development. Like with open-source software, altruism and socialism played no role—just good old-fashioned capitalist incentives. Engineerswere recruited by captains of the mine on a one-offbasis to build and design an engine. Engineers were incharge of the design and they supervised the erection ofthe engine that was commissioned to them. They also


M i c h e l e B o l d r i n , D a v i d K . L e v i n e , a n d A l e s s a n d r o N u v o l a r i

The collaborativeinnovation occurringafter the expiration ofthe Watt patentsresembles nothing somuch as modernopen-source softwaredevelopment.

provided directions for day-to-day working and mainte-nance of the engines they were entrusted with.Thus thepublication of technical information concerning thedesign and performance of different steam engines per-mitted the best engineers to consolidate their reputationand improve their career prospects. Over time, this prac-tice gave rise to a professional ethos favoring sharingand publication of previous experiences.

Much of the free/open-source-software industryoperates this way today, with software engineers com-peting for future business through the quality of theircurrent innovations. Sharing of information is a keypart of this competition. If Linus Torvalds, creator of theLinux kernel, is not nearly so rich as Bill Gates, he isnevertheless richer than most of us. (See MicheleBoldrin and David K. Levine, “Open-Source Software:Who Needs Intellectual Property?” The Freeman,January 2007, http://tinyurl.com/6hnyxf.)

Even the modern controversy over the currenteffort of the Free Software Foundation to limit softwarepatents through the General Public License Version 3finds reflection in the earlier Cornwall experience.Familiar with the negative impact of the Watt patentson innovation, Cornwall mine engineers were reluctantto patent their inventions. From 1781 to 1852 Cornishresidents took out a grand total of 15 patents on steam

technology—against 994 patents on steam technologyin all of England during that period.Will it surprise youto learn that the area with the fewest patents also wasthe area that contributed the most to the innovationand development of steam technology?

One may wonder why development in an obscurecorner of England should draw our attention.As it hap-pens, the design of fuel-efficient high-pressure steamengines did not only serve to improve the efficiency ofpumping water out of mines in one small region. It isthe fact that efficient high-pressure engines can bemade light and compact and do not require muchweight of fuel that made possible such modest advancesas . . . the steam train, the steam boat, the steam jenny,and the steam just-about-everything-else. In short—thesteam engine that we imagine as the centerpiece of theIndustrial Revolution, the key link that took us fromriding horses to being frequent fliers—was not theproduct of the inventive genius of James Watt. Whenthe Boulton and Watt monopoly expired in 1800 steamengines were used only to pump water out of mines.The earth-shattering innovation of widely usable steamengines was the product of the efforts of Joel Lean anddozens of other equally anonymous Cornwall miningcaptains and engineers. It is equally a tribute to theirsteady innovation without making use of patents.

17 D E C E M B E R 2 0 0 8

D o P a t e n t s E n c o u r a g e o r H i n d e r I n n o v a t i o n ?

Checking your holiday gift list?Give a year of The Freeman!

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“Laws are like cobwebs which may catch small flies, butlet wasps and hornets break through.”

—Jonathan Swift,“A Critical Essay upon theFaculties of the Mind,” 1709

In Louisiana it is illegal to sell and arrange flowerswithout permission from the government.Aspiringflorists must pass a subjective licensing exam that is

graded by existing florists, who havea direct incentive to keep new com-petitors from entering the market.Thus the failure rate is higher thanthat of the Louisiana bar, whichresults in hundreds of well-qualifiedwould-be entrepreneurs beingdenied the ability to work in theirchosen profession.

No one can honestly believe thatLouisiana’s flower cartel is necessaryto protect consumers from renegadeflower sellers. Rather, it is a classiccase of protecting favored groups atthe expense of consumers andentry-level entrepreneurs.

Such is the state of economicliberty in America today. Across thenation, the basic right to earn an honest living is underattack. Legislators and bureaucrats are teaming up withentrenched special interests to create needless obstaclesto countless entrepreneurs’ pursuit of the AmericanDream. In the past few decades there has been a nation-wide explosion of protectionist regulations—whilethere were about 80 occupations with such barriers toentry in 1981, today there are over 1,000.

An Institute for Justice (IJ) case that recentlyattracted international media attention vividly illus-trates the uncontrolled growth of occupational licens-ing and the outrageous lengths that a cartel will go toprotect all facets of its business from the most harmlessof trades.

Mercedes Clemens was threatened with thousandsof dollars in fines and criminal prosecution unless she

stopped . . . massaging horses. InMaryland two powerful groupsdecided to monopolize the grow-ing field of animal massage byrequiring all practitioners tospend four years in veterinaryschool—where massage is noteven taught.

Suggesting that only peoplewith veterinary degrees are capa-ble of massaging animals is likesuggesting that only people withmedical degrees are capable ofmassaging humans. PreventingClemens—who is a licensedhuman-massage therapist and cer-tified in equine massage—fromworking in her chosen trade has

absolutely nothing to do with consumer or animalsafety and everything to do with the financial interestsof the veterinary cartel.

In 2004 the Tenth U.S. Circuit Court of Appealswrote in Powers v. Harris, “[W]hile baseball may be the

B Y B O B E W I N G

The Right to Earn a Living Under Attack


Bob Ewing ([email protected]) is the assistant director ofcommunications for the Institute for Justice.

Mercedes ClemensCourtesy, Institute for Justice

national pastime of the citizenry, dishing out specialeconomic benefits to certain in-state industries remainsthe favored pastime of state and local governments.”And for decades, following the instructions of the U.S.Supreme Court, federal and state courts have stood bywhile legislators engage in this “favored pastime” at theexpense of consumers and entrepreneurs.

Government Protects Special Interests

In the absence of meaningful judicial supervision,politicians have gone to almost any imaginable

length to protect special interests. When a powerfullobby demands protection from competitors, govern-ments have been all too willing to invent—and courtsall too willing to accept—patently ludicrous excuses for shutting down entrepreneurs. A court upheldLouisiana’s florist-licensing scheme, for example,because requiring florists to take a test, which would begraded largely on the subjective beauty of their floralarrangements, might help protect the public from“infected dirt.”

The true victims of this new “favored pastime” arepeople like Clemens and countless other Americans,honest individuals whose lives have been turned upsidedown solely to protect the politically powerful. Suchexamples are seemingly endless.

In Texas, all computer-repair technicians must nowbecome private investigators. “If you’re investigating oranalyzing data, then you should need a little more cre-dentials than someone who just repairs computers,” thelegislative sponsor said.The PI license requires a crimi-nal-justice degree—or a three-year apprenticeshipunder a licensed private investigator. If a consumerknowingly takes his computer to get repaired by anunlicensed specialist, he faces thousands of dollars infines and a year in jail. This law no doubt benefits special interests, but those benefits come directly at the expense of ordinary repair technicians and theircustomers.

A new law in Philadelphia will make it a crime inthe coming weeks to talk about the Liberty Bell formoney without the government’s permission. Unli-censed tour guides will be subject to hundreds of dol-lars in fines for talking about the place where theDeclaration of Independence was written.

Perhaps the most well-organized cartelization effortunderway in the United States today is in the interior-design industry. A powerful faction of insiders hasalready put thousands of its competitors, mainly mid-dle-aged and elderly women, out of work.

The American Society of Interior Designers (ASID)represents less than 3 percent of all designers, but itsmembers have designated themselves as spokespeoplefor the entire industry. In over 30 years of lobbying,ASID has never presented a single shred of evidence tosupport its extraordinary claim that literally “everydecision an interior designer makes affects life safetyand quality of life.”

ASID has been relentless in teaming up with legisla-tures coast to coast in its strategy for total cartelization.IJ has documented these efforts in a study titled“Designing Cartels” (http://tinyurl.com/6y6aqg).

Such laws exist today for one reason: Our nation’sjudicial system fails to protect the right to earn a living.Courts have decided that this fundamental right—eco-nomic liberty—is simply not as important as otherrights, and less-important rights are thus not subject tomeaningful judicial scrutiny and rarely are affordedprotection under the law. If the government can simplydream up a conceivable reason for violating economicliberties, even if that reason is based on no facts, theregulations are generally upheld. Amazingly, courts willeven help by inventing their own hypothetical ratio-nales for economic protectionism.This system does notjust stack the deck—it gives the politically powerful ahand full of jokers.

Thankfully, entrepreneurs are fighting back. Taxicabdrivers,African hair-braiders, sign-hangers, waste haulers,casket sellers, and others have battled the odds (with helpfrom IJ) to strike down occupational-licensing schemes.

Mercedes Clemens’s lawsuit has already caused oneof the licensing boards to backpedal. The Philadelphiatour guides, now represented by IJ, had a hearing infederal court on October 6. In Texas, computer-repairtechnicians and interior designers are standing up fortheir constitutional rights.

F.A. Hayek famously wrote that “the great aim of thestruggle for liberty has been equality before the law.”That is precisely what the fight for economic liberty isall about.

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T h e R i g h t t o E a r n a L i v i n g U n d e r A t t a c k

B Y S H E L D O N R I C H M A N

Lost in Transcription

Peripatetics

Following rules, such as the rules of language, ofthe market, or of just conduct, is more about“knowing how” than “knowing that.” This is a

lesson taught by many important thinkers, amongthem, Gilbert Ryle (who used these terms in the titleof chapter 2 of The Concept of Mind), F.A. Hayek, andLudwig Wittgenstein. On many matters, we knowmore than we can say.Yet we are tempted to identifyknowing with saying. It’s a temptation best resisted.

Language, economic activity, and law did not beginwhen someone published a grammarbook, an economics text, or a politi-cal treatise that people then used toguide their actions. On the contrary,the books were written after the factto codify what people had long beendoing. And, importantly, the bookscould never fully describe what peo-ple had been doing or would do inthe future. At best they were imper-fect codifications that couldn’t possi-bly capture all the details involved in applying the rules to the variedcircumstances of everyday life. Intruth, they weren’t rules—in the for-mal, self-conscious sense—until thebooks were written. Yet they “gov-erned” behavior.

“For not only do we not think of the rules ofusage—of definitions, etc.—while using language, butwhen we are asked to give such rules, in most cases wearen’t able to do so,” Wittgenstein writes. Think howchildren learn something as complex as language andsocial roles.

Ryle puts it this way: “Rules of correct reasoningwere first extracted by Aristotle, yet men knew how toavoid and detect fallacies before they learned his les-sons, just as men since Aristotle, and including Aristotle,

ordinarily conduct their arguments without makingany internal reference to his formulae.They do not plantheir arguments before constructing them. Indeed ifthey had to plan what to think before thinking it theywould never think at all; for this planning would itselfbe unplanned.”

Important Implications

This fact about rules has important implications forthe struggle for the free society. The belief that

basic rules and social institutions are andcan be the product of conscious designleads to the social engineer’s convictionthat society can be redesigned accordingto a detailed plan.That conviction easilyleads to intolerance of those who won’tgo along with the plan. It’s a short stepto proposing that the uncooperative beliquidated—for the common good.

If in fact society could not have beensuccessfully designed, it follows that itcannot be successfully redesigned. Soci-eties are too complex, and people willstubbornly cling to their tacit rules evenin the face of draconian penalties.

What might this tell us about theclassical-liberal notion of individual

rights? It seems to say that no society went from illib-eral to liberal the day some political philosopher readhis treatise of government to the assembled masses inthe public square. By the time the treatise would havebeen written, the customs of ordinary people wouldalready have largely embodied what we call naturalrights. It is even possible—perhaps likely—that the for-mal expression of those rights got them wrong. Some-thing was lost in the transcription.


Sheldon Richman is the editor of The Freeman and a contributor to The Concise Encyclopedia of Economics.

Language, economicactivity, and law didnot begin whensomeone published agrammar book, aneconomics text, or apolitical treatise thatpeople then used toguide their actions.

This is largely what the legal philosopher John Hasnas is getting at in his remarkable paper “Toward aTheory of Empirical Natural Rights,” published inSocial Philosophy and Policy in 2005.The juxtaposition of“empirical” and “natural” only appears contradic-tory. What Hasnas sets out to do is to show how individual rights could “evolve in the state of nature,”that is,“in the absence of established government, [but]not in the absence of any mechanism of interpersonalgovernance.”

How might that happen? In the state of nature thereare problems to be solved. A small number of peopleuse violence in attempting to live off the productiveefforts of others. Besides that, disagreements over con-tracts and ownership arise among even the peaceful.In response, and contra Hobbes, “Various methods ofproviding for mutual protection andfor apprehending or discouragingaggressors are tried. . . . Simultane-ously, nonviolent alternatives forresolving interpersonal disputesamong the productive members ofthe community are sought. . . .Those[methods] that effectively resolve thedisputes with the least disturbance tothe peace of the community con-tinue to be used and are accompanied by ever-increas-ing social pressure for disputants to employ them.

“Over time, security arrangements and dispute set-tlement procedures that are well-enough adapted tosocial and material circumstances to reduce violence togenerally acceptable levels become regularized. Mem-bers of the community learn what level of participationin or support for the security arrangements is requiredof them for the system to work and for them to receiveits benefits.”

Self-interest impels these developments. The over-riding aim of the trial-and-error process is to minimizeviolence so the business of flourishing through socialcooperation may proceed. Rights are thus born ofproblem-solving.

From Theory to Practice

Now this is a nice theory, but what about practice?Hasnas illustrates the validity of his story by

pointing to two “state of nature” episodes in history:Anglo-Saxon and early Norman England, and the riseof the Law Merchant in medieval Europe. In the firstinstance, “The process of negotiating settlements ofpotentially violent conflicts and repeating and eventu-ally institutionalizing successful resolutions graduallyproduced a broad body of customary law that served asthe basis for the England common law.”

In the second, beginning in the eleventh century,and in the absence of a transnational government, mer-chants from different cultures and language groups whowere engaged in global commerce looked for a way toprotect themselves from predation and conflict whenaway from home. “[M]erchants sought arrangementsthat provided the needed assurance. . . . The merchantcourts that evolved in this way eventually grew into

a European system of commercialcourts in which merchant judgesquickly applied the tenets of the Law Merchant to resolve commercialdisputes.”

In both of Hasnas’s examples, effec-tive law respecting individual freedomwas generated apart from the state andonly later was absorbed—with state-serving distortions—into a formal

governmental system.Today we think law is somethingonly legislatures produce, but that is not the case.Strictly speaking, legislatures do not produce law at all.They issue decrees.

The “rights” that grew out of these spontaneousprocesses are recognizable as the rights to life, liberty,and property. Yet, Hasnas acknowledges, they did notperfectly match the natural rights of the philosophicaltreatises. Nevertheless, the process Hasnas describes getsus a long way down the road to freedom.

No law book will ever be able to describe rights andtheir application down to the minutest detail once andfor all. As noted at the outset, rules are not of thatnature. Conflict-resolution procedures that address par-ticular disputes between particular parties as they arisewill always be necessary, and such resolution will pro-duce (or identify) additional law. The question iswhether we want competition or monopoly in the production of law.

21 D E C E M B E R 2 0 0 8

L o s t i n Tr a n s c r i p t i o n

Today we think law is something onlylegislatures produce,but that is not the case.

Are Europe’s politicians about to undo one ofthe most decisive safeguards for freedom on theOld Continent? These days the talk in Euro-

pean chancelleries is all about clamping down on citi-zens who seek to protect their wealth in more amicableenvironments. The European Union and its predeces-sors have been progressively centralizing tax systems in Europe since the 1960s. But with bloated, unre-formed welfare states confronted with unfavorabledemographics, politicians are now more desperate thanever for revenue. The consequences are increasingly disquieting.

One of the most visible measuresagainst European citizens is the Ger-man secret service’s purchase earlierthis year—for 4.2 million euros—ofclient data stolen by an employee of a private Liechtenstein bank. PeerSteinbrück, Germany’s finance minister,described it as “an investment with asensational return, the deal of my life.” It is expectedthat the German government will confiscate at least300 million euros of undeclared wealth. In a gestureakin to sharing the loot among comrades-in-arms, theGerman government passed on banking dataconcerning citizens of other countries to its respectivecounterparts. The support of both the EU and theOrganization for Economic Cooperation andDevelopment (OECD) for the German government’saction left no doubt that from now on the end wouldjustify any means.

Meanwhile, the most productive Germans arefleeing the country, most to take up residence just southof the border, in non-EU Switzerland, causing even

more frustration in Berlin. In the last four years nofewer than 68,000 Germans chose to emigrate to theAlpine republic, where the tax burden is on average athird lower. In 2007 alone, 29,309 German citizensmade Switzerland their home—a historical record.But the Germans, as the French and Italians havenotoriously done for a long time, are also evading thestate within its own borders. With the largest taxincrease since the end of World War II implemented by the Merkel government in 2007, the Germanunderground economy is estimated to have grown to14.7 percent of gross domestic product last year. Faced

with such trends, no wonder Europe’spoliticians are becoming increasinglynervous.

In their fight for self-preservation,the EU is a welcome tool. It can beused to make less competitive thosecountries deemed too attractive andthereby stem the citizens’ option of

last resort: “voting with their feet” and leaving theircountry altogether. The EU is even reintroducingcontrol of cash movements. Travelers entering orleaving the EU are now required to make a declarationto customs authorities if they are carrying “cash of anamount of 10,000 euros or more (or its equivalent inother currencies or easily convertible assets such asnon-crossed checks).” Undeclared cash may be“detained.” Almost 20 years after the fall of the BerlinWall, the European Union is busy building newbarricades.

B Y P I E R R E B E S S A R D

The Threat of Tax Centralization Hovers Over Europe


Pierre Bessard ([email protected]) is president of the Liberales Institut inZurich and executive director of the Institut Constant de Rebecque inLausanne, Switzerland.

Politicians are nowmore desperate thanever for revenue.

“Coordinating” Tax Policy

Tax centralization at the EU level progresses at amuch faster pace than is generally perceived.

Although the EU denies being concerned about taxrates, the European Commission, backed by high-taxgovernments, openly pursues the protection of itsmember states’ tax revenues against “harmful tax com-petition” and promotes the “coordination” of tax pol-icy. The Commission thinks that upholding theunanimity rule for all tax decisions—a rule that stillapplies—will make it difficult to achieve the tax coor-dination it strives for. It has therefore proposed a switchto qualified-majority voting in many tax areas.To facil-itate short-term advances, the Commission has alsobegun to favor “soft” but politically influential measuresby drawing up “codes of conduct”and recommendations rather thanlegislative proposals. Closer forms ofcooperation among groups of statessharing the same position are alsopursued.

The EU seeks to track Europeantaxpayers by aiming for as extensivean exchange of information amongtax authorities as possible. The moststriking example of this is the SavingsTax Directive, in effect since mid-2005, under which each member statemust set up an “automatic exchangeof information” to notify othermember states when their citizens earn interest incomeoutside their home countries. Only Belgium,Luxembourg, and Austria are being permitted atransitional period during which they levy awithholding tax instead of violating bank secrecy.The EU so far has also signed equivalent withholdingagreements with five nonmember European states,including Switzerland, that have refused to set up anautomatic exchange of information. Although the EUdirective has been downplayed as being full ofloopholes, in 2007 the withholding tax resulted in anadditional burden of 653 million Swiss francs for EUresidents saving their assets in Switzerland, and the EUnow seeks to extend the agreement to other financialtransactions.

Faced with the global mobility of capital, theEuropean Commission is also attempting to includeHong Kong and Singapore in its international chase ofEU savers, though unsuccessfully so far. The Asianjurisdictions are more reluctant to turn themselves intoagents for the European tax authorities. In the UnitedStates, where according to an official survey Europeanresidents have deposited more than $1.7 trillion, thegovernment refused to reply to the EuropeanCommission’s invitation to abide by the directive. TheCommission is also contemplating the inclusion ofBahrain, the Bahamas, Canada, Dubai, Macao, and evenJapan in its plans.This is clearly the next logical step inthe EU’s ambitions: a global tax cartel designed tofollow European “tax evaders” fleeing from what must

be seen, by the same analogy, as theEU’s “tax prison.”

On the corporate front, Euro-pean governments are even bolder.The German and French financeministries intend to push the long-standing proposal of a “commonconsolidated corporate tax base”—astandardized measure for corporateincome taxes. It is obvious that such aproject is an important step toward taxcentralization. The German financeminister makes no secret of it and hasalready called for a minimal tax rate of30 percent on corporate income. He

can count on support from the European commissionerfor taxation, Lázsló Kovács, a former Hungariancommunist apparatchik, who insists that “tax obstacles”would be lifted by a uniform approach. In much thesame way as the planned economy was supposed toeliminate the costly duplication of market competition,the common tax base is supposed to eliminate thecompliance costs of 27 tax authorities. Althoughcompetition between states, which enjoy territorialmonopolies, cannot really be compared to marketcompetition, experience shows where tax centralizationleads.

In the case of the value-added tax (VAT), the EUsimilarly started by homogenizing the different taxbases. Later, at the insistence of the German

23 D E C E M B E R 2 0 0 8

T h e T h r e a t o f Ta x C e n t r a l i z a t i o n H o v e r s O v e r E u r o p e

The EU seeks totrack Europeantaxpayers by aimingfor as extensive an exchange ofinformation amongtax authorities as possible.

government, it ended up standardizing the minimumVAT rate at 15 percent. At that time all countries wentalong because few governments could resist thecomfort of a Europe-wide tax floor for a tax thatcollects more than a third of all revenues across the EU.Besides the VAT, the EU has also standardized excisetaxes on alcoholic beverages, manufactured tobaccos,and energy products.With the customs union, the EUhas also standardized tariffs and agricultural duties,which go directly into its budget. Estonia, for example,which had a more open trade policy, had to adopt the10,794 tariffs in effect in the EU when it joined theorganization.Tariff centralization prevents any countryfrom moving to a more open trade policy and initiatinga virtuous circle of trade liberalizationsthrough emulation.

“Fiscal State Aid”

The Commission also uses thedubious concept of “fiscal state

aid” to force more “competitive” gov-ernments to discontinue attractive taxregimes. This conceptual drift is haz-ardous in more than one respect. First,by considering less onerous taxation asequivalent to a subsidy, the Commis-sion makes no distinction between “nottaking” and “giving.” Second, by char-acterizing less-heavy taxation as “aid,”the Commission explicitly implies thatall resources belong to the state, whichis then entitled to allocate thembetween the private and state sectors. This politicalappropriation of resources is striking when the Com-mission defines state aid—including “fiscal state aid”—as “state resources in any form whatsoever whichdistorts or threatens to distort competition.”

No other tax dispute demonstrates the EU’s badfaith as clearly as its current disagreement withSwitzerland. Last year the Commission declared that some longstanding Swiss tax rules applicable toadministrative, holding, and service companies

constitute a form of state aid incompatible with theproper functioning of the 1972 free-trade agreementbetween Switzerland and the other European nations.The Commission was only taking up complaintsintroduced by some member governments, members ofthe European Parliament, and corporations. There canbe no doubt that the intervention against Switzerlandserves to protect the least competitive member states’tax revenues and, in the case of corporations, to raisethe production costs for competitors headquartered inSwitzerland.

The Swiss government has until now steadfastlyrefused to enter into negotiations with the EU.But both the German and French governments,

emboldened by the recentLiechtenstein case, have promisedto intensify their fight against “taxhavens.” The political pressure onfiscally more attractive locations, aswell as the pursuit of Europeansavers who attempt to protect theirassets outside their own countries,is steadily undermining Europe’sgreatest strength: its diversity.Jurisdictional diversity and thedispersion of power were decisivefactors for the Renaissance, theEnlightenment, the Industrial Re-volution—and the great prosperitythat followed.

By limiting the ability of peopleto vote with their feet and take

their capital with them, tax centralization favors highertax burdens and undermines property rights. It alsoencourages unsustainable welfare policies and pervasivemarket regulation, while hampering institutionalinnovation through observation and emulation of bestpractices. The European tax cartel-in-the-makingthreatens to undo the conditions responsible forEurope’s exceptional success and lift some of the lastconstraints on its high-spending, hopelessly paternalisticgovernments.


P i e r r e B e s s a r d

Jurisdictional diversityand the dispersion of power weredecisive factors for theRenaissance, theEnlightenment,the IndustrialRevolution—and thegreat prosperity that followed.

B Y B U R T O N F O L S O M , J R .

Andrew Mellon:The Entrepreneur as Politician

Our Economic Past

Rarely do spectacular entrepreneurs leave theirrealm of business for the political arena. Oneexception is Andrew Mellon, the third-

wealthiest American of his era, who left a dazzlingcareer in American industry to become secretary oftreasury under Presidents Warren Harding, CalvinCoolidge, and Herbert Hoover.

Mellon established his career in Pittsburgh as a suc-cessful banker—always on the lookout for profitableinnovations to back. His investments in Gulf Oil chal-lenged the legendary John D. Rockefeller, and Mellon’sestablishment of Alcoa introduced lightweight alu-minum as a significant industrial metal.

Should Mellon have given up run-ning these and other profitable venturesin 1921 to work under President Hard-ing, a career politician who had littleunderstanding of economics? Mellonhesitated. But when Harding persisted,Mellon joined the president’s cabinet.Atage 65, Mellon had experienced a fullcareer in business; his country, whichwas in economic chaos after World WarI, had 11.7 percent unemployment andneeded his financial guidance.

Confronting Crises

As treasury secretary Mellon con-fronted three major crises: a spiraling national debt,

near confiscatory tax rates, and the repayment of largeloans owed the United States by most European nations.

The soaring national debt required immediateattention. During the 140 years from the AmericanRevolution to 1916, the United States had accumulateda national debt just over $1.2 billion. But during WorldWar I the debt had skyrocketed to more than $24 bil-lion. The annual interest payments alone exceeded theentire national debt before the war.

The U.S. tax system, which generated the revenue topay the debt, was in disarray. Under President WoodrowWilson, Harding’s predecessor, the income tax hadbecome part of American life.Wilson started with a topmarginal rate of 7 percent, but he argued that the warrequired a drastic rise in taxes. Congress agreed, and by1920, Wilson’s last full year in office, the top ratereached 73 percent.Tax avoidance was rampant, and theannual revenue did not offset expenses.

Finally, the debts that the European allies owed theUnited States for food and materials during the warwere over $10 billion. Britain and France, which owed

the most, were balking at repayment.Few secretaries of the treasury have

ever encountered such formidableproblems, and Harding (who died in1923) and Coolidge relied on Mellonfor financial advice. Mellon’s attack onthe debt was twofold. First, he renego-tiated almost one-third of the debt atlower interest rates; second, he helpedchop federal spending from $6.5 bil-lion in 1921 to $3.5 billion in 1926.Coolidge, in particular, obliged byvetoing special-interest legislation—abill to give a bonus to veterans andanother to subsidize wheat and cottonfarmers.

Mellon was not always consistent in his free-marketarguments. He supported high tariffs for many prod-ucts, but he recognized that a “subsidy can be paid onlyby taking money out of the pockets of all the people inorder that it shall find its way back into the pockets ofsome of the people.”

25 D E C E M B E R 2 0 0 8

Burton Folsom, Jr. ([email protected]) is a professor of history atHillsdale College, FEE’s senior historian, and author of New Deal orRaw Deal? (Simon & Schuster, 2008).

Andrew Mellon

Mellon, meanwhile, did his part to promote thrift.He cut staff at the Treasury Department, and hereduced the size of America’s paper money; the smallerbills were more durable and saved ink and paper.

The slashing of the tax rates, however, was whereMellon did his most good. He carefully studied theeffects of confiscatory rates and concluded that mostwealthy Americans were avoiding payment of taxes byexploiting tax loopholes—foreign investments, thebuying and selling of art and coins, and the purchase oftax-exempt bonds.

Why not, Mellon argued, cut the top rate from 73 to25 percent? In fact, why not chop all rates by the sameproportion? That idea—which would be called the Mel-lon Plan—would not only encourage the rich to investin the American economy, it might actually generatemore revenue. “It seems difficult forsome to understand,” he wrote, “thathigh rates of taxation do not necessarilymean large revenue to the Government,and that more revenue may often beobtained by lower rates.”

Coolidge fully backed the MellonPlan, and Congress passed it in stagesduring the 1920s. Cutting both federalspending and tax rates across the boardworked wonders for the Americaneconomy. American businessmenplowed capital into radios, cars, refrigerators, vacuumcleaners, telephones, and a variety of new inventionsfrom the air conditioner to the zipper. Entrepreneursknew they would be able to keep most of what theyinvested, and the American economy grew rapidly dur-ing the 1920s.

Measuring Misery

One measure of prosperity is the misery index,which combines unemployment and inflation.

During Coolidge’s six years as president, his miseryindex was 4.3 percent—the lowest of any president dur-ing the twentieth century. Unemployment, which hadstood at 11.7 percent in 1921, was slashed to 3.3 percentfrom 1923 to 1929.What’s more, Mellon was correct onthe effects of the tax-rate cuts—revenue from incometaxes steadily increased from $719 million in 1921 to

over $1 billion by 1929. Finally, the United States hadbudget surpluses every year of Coolidge’s presidency,which cut about one-fourth of the national debt.

On the issue of the Allied loans, Mellon was less suc-cessful.When the Europeans refused to begin paymentson their debts, Mellon substantially lowered the interestrates on the loans and gave the Europeans 62 years torepay. At first, they agreed, and even began making small payments, but only Finland paid off its entire debt.The other countries eventually asked for a moratorium on payments, and then abandoned their debts entirely.

Oddly, the Allies had one good argument for reneg-ing on their debts. In 1930, when the United Statespassed the Smoot-Hawley Tariff, the highest in Ameri-can history, Europeans asked how they could repaytheir loans when the United States was refusing to

accept their imports? Hoover ulti-mately appointed Mellon as ambas-sador to England—in part to nudgethe British into honoring their debtcommitment—but with the GreatDepression under way, even Mellon’spowers of persuasion failed to movethe British.

By 1933, with the arrival ofFranklin Roosevelt and the NewDealers, the times had changed forMellon. Hoover had raised the top

marginal income tax rate to 63 percent, and Roosevelthiked it to 79 percent in 1935. Moreover, Rooseveltplayed politics and pressured the IRS to assess Mellon a$3 million fine for tax evasion. Mellon gladly went tocourt and was vindicated of all charges of wrongdoing.David Blair, the former commissioner of internal rev-enue, called the tax investigation “unwarranted abuseby high officials of the government.”

Mellon, despite the trumped-up charges, alwaysfocused optimistically on the art of the possible. Beforehis death in 1937 he donated his superb art collectionto the United States. In doing so, he wanted to avoid all federal expense, so he built the National Gallery ofArt in Washington, D. C., to house the paintings andthen donated all of it to his country. When Mellonwent to Washington, he changed it more than itchanged him.


B u r t o n F o l s o m , J r.

Cutting both federalspending and taxrates across the boardworked wonders for the Americaneconomy.

E. E. Cummings is one of the most belovedAmerican poets of the twentieth century. Heperhaps is best known to contemporary readers

for his experimental and playful verse in the Modernisttradition. But he also wrote two important prose worksthat unfortunately have been relegated to relativeobscurity. The first, The Enormous Room, is a fictional-ized retelling of his incarceration inFrance for alleged treason duringWorld War I. The second, Eimi, whichcelebrates the 75th anniversary of itsfirst publication this year, is a rework-ing of his travel journals to the USSRin 1931.

Eimi is a difficult yet rewarding lit-erary exercise, depicting as it does thetrue nature of collectivist ideology aspracticed during the relatively earlyyears of the Stalinist regime. AlthoughCummings regarded the work as anovel, some critics consider it a travelbook, while others consider it apolemic against communism as prac-ticed in the Soviet Union. This readerwould argue that Cummings’s pen-chant for coining new words by com-bining two or more terms—technicallyreferred to as portmanteau words—carried over to his expansion of his coded travel journals for Eimi,which, like his poetry, is wildly inventive, syntacticallyjumbled, frequently comic, presented in a fashion thatmust’ve given typesetters nightmares, and unmistakablyoriginal. In short, Eimi is all of the above—a novel,travel journal, and polemic. Most of all, however, it is a

deeply personal expression of the author’s primary the-matic concerns of retaining one’s individuality in theface of social and political pressures to conform to thecollective.

An Unpopular Work

Immensely unpopular with the Western cultural left because of its negative assessment of the restric-

tive nature and infertile artistic soilinherent under tyrannical rule, Eimiburned Cummings’s bridges with ahost of writers and editors. Accord-ing to teacher and editor Jenny Pen-berthy, writing in the Dictionary ofLiterary Biography:

During the writing of “Eimi,”Cummings’ antagonism to theSoviet Union became an obses-sion. He grew to despise bothCommunists and liberals. . . . Before“Eimi” he had been regarded as avoice from the left because of the antiauthoritarian demeanor ofhis poems and “The EnormousRoom.” He lost friends and theonce unquestioning support of aliterary world now increasinglysympathetic to literature fueled bya social conscience.

B R U C E E D W A R D W A L K E R

Eimi Mine

27 D E C E M B E R 2 0 0 8

Bruce Edward Walker ([email protected]) is communications managerfor the Property Rights Network of the Mackinac Center for Public Policy.He has been an adjunct professor of literature and academic writing at theUniversity of Detroit Mercy.

E.E. CummingsLibrary of Congress

In fact, the book was briefly out of print after its ini-tial 1933 publication, was reprinted in 1949 and 1958—the same year Cummings was awarded the BollingenPrize—then wasn’t reprinted again until 2007.

The tenor of the times during which Eimi wasinspired and written—colored as it was by the remem-bered horrors of World War I—was rife with leftistpolitical remedies to perceived social ills. Freedom andfree markets all took a beating from the New Deal pro-grams of the Roosevelt administration; the rise ofMarxist governments in Spain, Eastern Europe, andAsia; fascism in Italy; and national socialism in Ger-many.The cultural intelligentsia servedas useful idiots for centralized govern-ments, from Wyndham Lewis writingof his favorable impressions of earlyNazi Germany to Ezra Pound notori-ously broadcasting fascist propagandato Allied troops from Italy duringWorld War II.

The Literati and Marxism

Marxism in general and the Sovietexperiment in particular, how-

ever, held an even greater appeal forthe literary cognoscenti, beginningwith playwright George BernardShaw’s work espousing socialist ideasin the early twentieth century andblossoming with the Oxford poetsStephen Spender, W.H. Auden, andCecil Day-Lewis in the 1930s and such American writ-ers disillusioned with capitalism as the Group Theatreplaywright, folk singers Woody Guthrie and PeteSeeger, and novelist John Steinbeck. Other notablewriters immersed in communist folly included ArthurKoestler, Richard Wright, Ignazio Silone, Louis Fischer,and André Gide—all of whom repudiated their youth-ful indiscretions in five individual essays (joined byanother essay by Spender) collected in The God ThatFailed (1949). As for Auden, he famously rejected polit-ical solutions when he wrote, “[P]oetry makes nothinghappen” in his “In Memory of W.B.Yeats,” which waswritten as the world once again prepared for wide-scalewar in the late 1930s.

Eimi also found disfavor among literary critics andthe public at large because of the experimental andsometimes impenetrable nature of Cummings’s prosestyle. Even Pound, not known for writing easily under-stood poetry, complained that a work exceeding 400pages could benefit from extended passages of clarity:“BUT, the longer a work is the more and longer shd.be the passages that are perfectly clear and simple toread.” Indeed, reading the book does require patienceand intense concentration; even then, whole pages can leave even the most dedicated reader scratching his head. Some of this confusion was alleviated by a

preface Cummings added for the1958 edition.

Yet the book’s importance as botha literary achievement and exposé ofSoviet repression can’t be expressedsufficiently. No less a critic thanPound assessed Eimi as the final vol-ume of the quintessential Modernistprose trilogy begun with JamesJoyce’s Ulysses (1922) and WyndhamLewis’s The Apes of God (1930). Thepoet Marianne Moore declared thatEimi wasn’t a prose work at all, but “alarge poem” in the Modernist tradi-tion of, presumably, T.S. Eliot’s “TheWaste Land,” Archibald MacLeish’s“The Hamlet,” and Pound’s “TheCantos.” Critic Richard Kennedy’sclose reading of the book contains a

fitting depiction of Cummings’s attempt to reveal thedehumanizing elements of the Soviet system:

Soviet Russia as pictured in Eimi seems the com-plete negation of Cummings’ philosophy of “Is,“that human beings should live so as to express theirown individuality—to be “alive”; to place a value onfeeling, on growing, on diversity, on “being continu-ally born”; to pursue happiness; to cherish freedom;to rejoice in pleasure; to give and respond to love.Cummings felt that the Soviet system was stiflingthe life out of its people. Everywhere in Moscow hesensed “nonlife” or mere “undeath.” He found fear,guilt, and a dispirited sameness; a “whichness and


B r u c e E d w a r d Wa l k e r

The tenor of thetimes during whichEimi was inspired and written—coloredas it was by theremembered horrorsof World War I—was rife with leftistpolitical remedies toperceived social ills.

whatness” instead of a “whoness”; a lack of laughter;a suspicion of pleasure (“in Russia, everybody’sleisure is organized,” . . .); and emphasis on forcedbehavior.

The Artist and Individuality

Prompted by fellow writer John Dos Passos, Cum-mings traveled to Russia via Paris to witness first-

hand the presumed artists’ paradise. Dos Passos,incidentally, also passionately and famously denouncedcommunism as “groupthink” after his extended stint asa fellow traveler—with the concomitant decline inbook sales and popularity all too common for writerswho failed to adhere to the Communist Party line.

In Eimi, as in most of his poetry, Cummings wasmore interested in the ideal circumstances under whichan artist could express his or her individuality ratherthan aligning with one political solution over another.Nowhere is this theme more apparent than in the titleof the book, which is Greek for “I am.” For Cummings,to live in the “was” rather than the “is” or “am” is amanner of existence that he perceived as subhuman andlifeless.

Appreciating Cummings’s idiosyncratic sensibility iscritical to understanding the bulk of his art. Cum-mings’s worldview was shaped by his youth in Cam-bridge, Massachusetts, where his father was a Unitarianminister and sociology professor at Harvard. As a poetand painter, he fully adopted the tenets stressing theartistic freedom and individuality of the New EnglandTranscendentalist and English Romantic traditions,which he later adapted to the Modernist ambition ofcapturing a moment or movement as espoused byPound, Gertrude Stein, and the Cubist painters. He alsowas an ardent follower of popular culture, especiallyburlesque theater. He wrote in the preface to his poetrycollection “is 5” (1926):

My theory of technique,if I have one,is very farfrom original; nor is it complicated. I can express itin fifteen words, by quoting the Eternal Questionand Immortal Answer of burlesk, viz.‘Would you hita woman with a child?—No, I’d hit her with abrick.’ Like the burlesk comedian, I am abnormallyfond of that precision which creates movement.

Documenting the Effect of Soviet Rule

An adherent of no specific political stripe, but astaunch defender of his own individuality, Cum-

mings documented the grayness of what he called theun-people populating the Russian cities he visited, aswell as what he perceived as the sorry state of art in acountry that required its poets, filmmakers, dancers, andcomposers to celebrate the proletariat.

Cummings’s first experience with the stifling natureof Soviet rule appears in the book’s opening chapter.He approaches a half-bald clerk at a Polish railway sta-tion, which leads to the following encounter:

Why do you wish to go to Russia?Because I’ve never been there.(He slumps,recovers). You are interested in eco-nomic and sociological problems?no.Perhaps you are aware that there has been a changeof government in recent years?yes(I say without being able to suppress a smile).And your sympathies are not with socialism?may I be perfectly frank?Please!I know almost nothing about these important mat-ters and care even less.(His eyes appreciate my answer). For what do you care?my work.Which is writing?and painting.What kind of writing?chiefly verse; some prose.Then you wish to go to Russia as a writer andpainter? Is that it?no; I wish to go as myself.(An almost smile). Do you realize that to go as whatyou callYourself will cost a great deal?I’ve been told so.Let me earnestly warn you(says the sandyhairedspokesman for the Soviet Embassy in Paris)that such isthe case.Visiting Russia as you intend would be futilefrom every point of view.The best way for you to gowould be as a member of some organization—but,sofar as I know,I’m not a member of any organization.

29 D E C E M B E R 2 0 0 8

E i m i M i n e

Much as Joyce borrowed the framework for hisModernist novel Ulysses from Homer’s Odyssey, Cum-mings borrows the schematic for Eimi from Dante’sDivine Comedy, with his Soviet experience echoingDante’s descent into Hell. As he clarified in his 1958preface:

eimi,first published in 1933,is the diary(May 10-June 14 1931)which I kept during most of a tripfrom Paris to Russia, thence to Turkey,& back toParis. When my diary opens,I’m on a train boundfor the Polish-Russian border. At N(negereloe)Ienter a ‘world of Was’(p 8)—the subhuman commu-nist superstate,where men are shadows & women are nonmen;the preindividual Marxist unworld.This unworld is Hell. In Hell I visit Moscow,Kiev,Odessa. From Hell an unship takes me to Istan-bul (Constantinople)where I reenterthe World(pp 393-403)—returningto France by train.

A Modern Inferno

In Cummings’s novel, the role ofDante’s Underworld guide Virgil is

filled by the American theater criticHenry Wadsworth Longfellow Dana.Dana was a longstanding friend of Cummings’s fromtheir days at Cambridge and an ardent communist andpromoter of Soviet theater.

After falling out with Dana—whom he eventuallyfinds too ideologically hidebound—Cummings aban-dons him without leaving so much as a goodbye note.Cummings then takes up with Joan London, daughterof Jack London (another American writer with socialistsympathies), and her husband, Charles Malamuth.Cummings, after Dante, nicknames London “Beatrice.”By the time Cummings (referred to as Comrade Kem-min-kz in the book) arrives in Moscow, the couple hasreached the end of their patience with the Sovietdesign, as articulated by Malamuth to a MidwesternAmerican tourist couple the trio encounters:

[N]ot all of these knowing millions can tell you asingle god damned thing; because they’re Russians.Do you understand? Russians.All of them are inside

communism; not outside it, as you are. All of themare actually living(or dying)an unprecedented exper-iment, not merely observing it with an analytic eye;far less dreaming about it with a sentimental brain.. . . Russians in Russia must suffer and shut up. . . .But correspondents in Russia have special privileges.They can’t get a really good story past the Russiancensor, of course:but they don’t have to swallowtheir tongues while they’re here and they’re notobliged to be here forever.

By the time Cummings leaves the USSR, he hasseen enough to color his view of the collective spiritand government sponsorship of the arts for the remain-der of his life. As his train nears the Turkish border, heseethes:

USSR a USSR a night-USSR anightmare USSR home for thepanacea Negation haven of all(in life’s name)Deathworshippers hop-per of hate’s Becausemachine(U forun- & S for self S for science and Rfor-reality)how it shrivels:how itdwindles withers; how it wiltsdiminishes wanes; how it crumbles

evaporates collapses disappears—the verily consub-stantial cauchemar of premeditated NYET.

Throughout Eimi Cummings describes the SovietUnion as a shut window. The book opens: “SHUTseems to be The Verb”; and closes powerfully as Cum-mings returns to Paris with the lines:

“Voice(Who:Loves;Creates;Imagines)OPENS

Learning from Eimi

Poetry is seldom taught thoroughly in many schoolstoday, and when it is, the canon has become shock-


B r u c e E d w a r d Wa l k e r

Throughout EimiCummings describesthe Soviet Union as a shut window.

ingly slight. If Cummings is taught at all, it is only a fewof his thousands of poems that remain anthologized:“next to of course god america i,” “Buffalo Bill’s,” and“the Cambridge ladies who live in furnished souls”; orisolated incidences of poetic devices such as “anyone livedin a pretty how town” and “the world is mud-luscious . . . and puddle-wonderful.” Even sparser in class curriculais the gravity of Cummings’s documentation of his brief

but memorable visit to the Soviet Union in 1931, whichcould serve as a beneficial entrée into the oeuvre of awriter who has for far too long received short shrift bycultural arbiters. More important, however, is the value ofEimi as a social-studies lesson for students, public-policywonks, government officials, and artists willing to endurea first-person account of government oppression of thearts disguised as patronage.

31 D E C E M B E R 2 0 0 8

E i m i M i n e

B Y J O H N S T O S S E L

Tear Down the Stop Signs!

Give Me a Break!

Day after day in Warren, Michigan, people waitin a long line to pay traffic fines. Many arethere because police say they didn’t come to a

full stop at a stop sign. Often the policeman saying thatis Officer David Kanapsky.

On a “20/20” segment earlier thisyear viewers heard a motorist in courtinsist that she did come to a completestop.The judge replied, as judges thereoften do: “I find Officer Kanapsky’stestimony to be credible. He is anunbiased witness.”

But the officer is not really unbi-ased. The more tickets he writes, themore overtime he gets. Last year,Kanapsky spent so much time in courthe increased his pay by $21,000.

Rolling through a stop sign inMichigan puts two points on yourdriving record. That hikes your carinsurance premium. Fighting theticket could cost even more. So toavoid the points and legal fees, mostpeople plead guilty to a lesser offense:impeding traffic.The court sounds likean assembly line, “. . . no points . . . $135 . . . .”

Last year, the town made half amillion dollars from such fines. Somedrivers told us it “seems like a money-making scam.”

I don’t know if that’s true, butwhen some angry motorists complained to HeatherCatallo, reporter for Detroit’s ABC affiliate, she tookher cameras out to see if the cops themselves stopped atthe stop signs. Most didn’t.

Her exposé caused a ruckus in town. The mayorhired a new police commissioner, who told me the

cops might have been on emergency calls. “They don’tnecessarily have to have their lights and sirens on,”Commissioner William Dwyer said.

I told him the tape showed police cars rollingthrough stop signs on the way back to the police

station.“Did some officers make mistakes?

Perhaps so,” he said.Dwyer denied the tickets were a

moneymaking scam. He said he did-n’t think it odd that Kanapsky wrotethousands of tickets. “It’s not unusualfor a traffic officer to write 10 to 20traffic violations a day, if not more.”

Arbitrary PowerPlease. I’m all for highway safety,

but I suspect that America’s roadshave too many rules, and that givescops too much arbitrary power toharass people or profit off them.As the ancient Chinese philosopher Lao-Tse said, “The more laws that are written, the more criminals areproduced.”

I bet most Americans roll throughstop signs. I do. It makes for asmoother ride, and it saves gas.

“ABC News” put cameras by stopsigns in Warren and in New YorkCity. The video showed that in War-ren, 72 percent of drivers did not

come to a complete stop. In New York, 82 percent keptgoing.


John Stossel is co-anchor of ABC News’“20/20” and the author ofMyths, Lies, and Downright Stupidity: Get Out the Shovel—WhyEverything You Know is Wrong, now in paperback. Copyright 2008 byJFS Productions, Inc. Distributed by Creators Syndicate, Inc.

I’m all for highwaysafety, but I suspectthat America’s roadshave too many rules,and that gives copstoo much arbitrarypower to harasspeople or profit offthem.As the ancientChinese philosopherLao-Tse said,“The more laws that are written, themore criminals are produced.”

Warren and other towns probably have too manystop signs. There’s no proof that more signs save lives.Studies show that sometimes installing stop signs lowersaccident rates, but in some cases more accidents occurafter signs are installed.

More Signs, Less Safety

In Atlantic recently, John Staddon argued that thatAmerica’s omnipresent stop signs make us less safe.

He wrote, “Stop signs are costly to drivers and bad forthe environment: Stop/start driving uses more gas,and vehicles pollute most when starting up from rest.. . . [T]he overabundance of stop signs teaches drivers to be less observant of cross traffic and to exercise less judgment when driving—instead, they look forsigns. . . .

“The four-way stop deserves special recognition as a masterpiece of counterproductive public-safety efforts.Where should the driver look?”

One Dutch town experimented by getting rid ofmost of its traffic signs.The result? Fewer accidents andfewer injuries.

Drivers look out for people instead of signs, andthey negotiate their way through town.

Remember the stop sign in Warren, where OfficerKanapsky wrote many of his tickets? It’s been changedto a yield sign. One result: fewer accidents.

Police say, “[B]etween Jan. 16, 2008, and May 21,2008, there have been no accidents reported. Duringthat same time frame in 2007, there were four crashesreported.” Good. Let’s get rid of more signs.

And to all the cops who eagerly punish us for doingwhat they do, give me a break.

33 D E C E M B E R 2 0 0 8

Te a r D o w n t h e S t o p S i g n s !


Book ReviewsIs the Welfare State Justified?by Daniel ShapiroCambridge University Press • 2007 • 309 pages • $80.00hardcover; $27.99 paperback

Reviewed by George C. Leef

Americans have lived with thewelfare state for so long—

more than 70 years—that for most,it is simply a fact of life. Ask-ing whether it is justified wouldseem about as pointless as askingwhether rain is justified. Further-more, among the relatively few peo-ple who might be inclined to

ponder the ethics of the welfare state, most subscribe tophilosophies (for example, egalitarianism, positive-rights liberalism, and communitarianism) that find nofault with our panoply of welfare programs. Indeed,they generally favor expanding welfare.

Those of us who oppose the welfare state thereforehave a Herculean task before us if we want to see vol-untary programs replace coercive government ones.Fortunately, we have just gotten some help.

Professor Daniel Shapiro’s book, Is the Welfare StateJustified?, makes a strong effort at persuading nonliber-tarians that, based on their own philosophical princi-ples, they ought to give up their support forgovernment programs such as Social Security andMedicare. It is a first-rate effort that should get intellec-tually honest defenders of the welfare state saying,“Well, that is a good point. . . .”

Readers should understand, however, that this is awork of scholarship. If you’re simply looking for a fewanti-welfare anecdotes to use against political oppo-nents, you will have to go elsewhere. Throughout hisanalysis, Shapiro’s writing displays a refreshing humility;he isn’t looking for quick “gotcha!” points, but grapplesearnestly with opposing perspectives.

Perhaps the reason Shapiro is so successful is that heused to be one of those liberal welfare advocates. Butthen he began to consider the libertarian critique. He

writes, “Once I realized how free markets reallyworked, and how government programs that were sup-posed to realize their seemingly compassionate or justgoals didn’t really do so, I realized that the attitude ofdistrust I had toward government power and the view Ihad about the value of individual freedom applied toeconomic as well as personal matters.” For quite a fewyears Shapiro (who teaches philosophy at West VirginiaUniversity) has been writing articles with titles like“Why Rawlsian Liberals Should Support Free MarketCapitalism.” In this book he brings decades of profes-sional thought to bear on this important project.

All right, then—is the welfare state justified? No, buta short review can’t do justice to Shapiro’s work. Hecovers a great array of philosophical arguments, objec-tions to arguments, and rejoinders to objections.

Let’s briefly consider health care. Overwhelmingly,those on the political left reject free-market provisionof health care, contending that everyone has a right to“adequate” medical services and concluding that wemust adopt some version of a single-payer system toeffectuate that claimed right. Shapiro responds thatevery sort of health-care system must deal with therationing problem, then strongly argues that the freemarket more fairly solves that problem than any politi-cally driven system can.

Similarly with old-age insurance and support for theindigent, Shapiro carefully shows why voluntary andmarket-based systems are preferable for meeting theneeds of people—preferable from the standpoint ofthose who are inclined to believe that government doesa better job.

In my view, Shapiro’s most devastating argumentagainst all forms of government welfare is his observa-tion that there is no such thing as a governmental wel-fare guarantee. Here is what he writes:

[W]elfare rights create significant conflicts with eachother because even in an affluent society not every-one’s needs can be met.The state must then pick andchoose which needs are to be met (or whose needsare to be met or in what form they will be met) andin doing so, the sense in which there really are wel-fare rights becomes diluted if not transformed.Rather than one having a right to well-being that

35 D E C E M B E R 2 0 0 8

others (especially the government) must respect orhonor, welfare beneficiaries become closer to sup-plicants who are at liberty to press their claims butare not entitled to them in a full-blown sense.[Emphasis in original]

Exactly! It is merely an illusion that government cancreate rights to welfare. All that politicians can do is topromise that they (including future officeholders) willuse their coercive powers in an effort to deliver money,medical care, or other things to certain members of thepopulation. But political promises are completely unen-forceable, unlike contracts.That’s one of the main rea-sons why Shapiro regards individual saving forretirement, medical care, and other needs as better thanreliance on the state. With respect to money you haveearned and saved, you really do have rights—contrac-tual rights.You aren’t just a supplicant begging politi-cians to tax others for your benefit.

A splendid book that throws welfare state advocateson the defensive.

George Leef ([email protected]) is book review editor of The Freeman.

Milton Friedman: A Biographyby Lanny Ebenstein Palgrave Macmillan • 2007 • 286 pages • $27.95

Reviewed by E.C. Pasour, Jr.

In Milton Friedman: A Biography,Lanny Ebenstein presents a

highly readable account of Fried-man’s life and an introduction tohis economics, including his advo-cacy of libertarian ideas and gov-ernment reform.The book is basedon published material and personalinterviews, and it was completed

shortly before Friedman’s death in late 2006. Theappendix contains a “Bibliographical Essay” furtherelaborating on Friedman’s life, work, and influence.

The first chapters describe Friedman’s youth andearly career. His family life, the TV program and bookFree to Choose, his Nobel Prize, the Friedman Prize, andhis work as adviser to Barry Goldwater and Presidents

Nixon and Reagan are all discussed, but the book’smajor focus is on Friedman’s mature career(1946–1976) at the University of Chicago. This is fol-lowed by a discussion of his life as a public figure fol-lowing retirement.

Personal interviews reveal a number of interestingtidbits about him that will be new to most readers. Forexample, his family was apolitical and for much of hisearly life he was not much interested in politics.

Friedman is known worldwide now for his viewthat “Inflation is always and everywhere a monetaryphenomenon.” His early views on inflation, however,were quite different. In congressional testimony onhow to avoid inflation during the early years of WorldWar II, he focused on taxation as a way to reduce con-sumer spending.

Early on he proposed the free market as the mostsuitable vehicle to achieve “political freedom, eco-nomic efficiency, and substantial equality of economicpower,” even though he supported the welfare aspectsof Roosevelt’s New Deal as a young man. At the timethe conventional wisdom among the public, as well aseconomists, was that government could manage theeconomy better than the market order could.

Friedman identified the Chicago school of econom-ics with three attributes—efficacy of free markets, skep-ticism of government regulation, and emphasis onquantity of money in producing inflation. He con-tended that the University of Chicago was never pri-marily free market in outlook, but only seemed so; thedistinguishing characteristic of Chicago “was not thepresence of market-oriented scholars at Chicago butrather the absence of them elsewhere.”

Friedman’s A Monetary History of the United States,1867–1960, coauthored with Anna Schwartz, was amajor critique of Keynesianism. That work suggestedthat the economic turmoil of the 1930s was not due toexcesses in the market order, but Federal Reserve pol-icy that allowed the money supply to fall, which turnedwhat might have been an ordinary recession into theGreat Depression.This book had an important effect oneconomists’ views on the appropriate role of govern-ment generally, but Ebenstein says little about the pol-icy implications drawn by Friedman from thepathbreaking work in A Monetary History.


B o o k R e v i e w s

For much of his professional career Friedman wasviewed as a heretic on the fringe of economics. It ishard to overstate the hostility to his policy ideas whenCapitalism and Freedom—a libertarian guide to publicpolicy—was published in 1962. It was reviewed only bythe American Economic Review, even though accessible toa wide audience.

Ebenstein stresses Friedman’s philosophical debt toF.A. Hayek, a colleague at Chicago from 1950 to 1962.Friedman considered Hayek the most important intel-lectual figure in the worldwide movement toward freermarkets. Although each favored freer markets and lessgovernment, Hayek disagreed with Friedman’s mone-tarism and his positivist approach to economics. Fried-man, in contrast, considered his work in positiveeconomics to be his primary intellectual contribution.Ebenstein discusses the shortcomings of the Hayekiansubjectivist approach to economic analysis, but a similardiscussion of the limitations of Friedman’s positivistapproach would have been informative.

The book’s shortcomings mainly relate to what isomitted—discussion of Austrian, Keynesian, and othercritiques of Friedman’s work. It would have been inter-esting, for example, if Ebenstein had queried Friedmanon his response to the Austrian position that govern-mental control over the supply of money and credit isso dangerous to economic stability that we would bebetter off if we could replace the Federal Reserve withsome market alternative. Friedman once said that thegold standard led to the waste of resources in mininggold, but even if that is a waste, how does it comparewith the damage done by governmental manipulationof money and credit?

Friedman’s libertarian ethical view of the world wasrooted in John Stuart Mill’s On Liberty. Most readerswill be surprised to learn that Mill put forth the idea ofschool vouchers almost a century before Friedman.Friedman’s views on the financing of education evolvedover time, and eventually he came to view vouchers asa means, not an end; by 2005 his ideal was governmentcompletely out of education.

Readers interested in Friedman’s ideas, work, andpersonal life will gain by reading this book.

E. C. Pasour, Jr. ([email protected]) is Professor Emeritus of Agriculturaland Resource Economics at North Carolina State University.

The Age of Abundance: How ProsperityTransformed America’s Politics and Culture

by Brink LindseyCollins Business • 2007/2008 • 400 pages • $26.95hardback; $14.95 paperback

Reviewed by J.Wilson Mixon

f you’re depressed about thestate of politics these days, read

The Commanding Heights. . . . Stepback and look at the big picture, apicture that spans the whole planetand comes into focus over decades.Look at the big picture and seethat our side—the side of humanfreedom—is winning.”This review,

written by Brink Lindsey in Reason in 1998 could bethe first paragraph of his The Age of Abundance, a bookthat celebrates the virtues of liberty.

Lindsey, vice president for research at the Cato Insti-tute, documents the advances in human freedom thatAmericans have enjoyed during the past century. Hesees this age as one in which “most Americans wereinsulated from nature by an enormous edifice ofhuman-created technologies and institutions.” Amer-ica’s “age of abundance,” he contends, is a product ofand a contributor to Western modernity, whose fourkey elements are: reliance on open-ended experimenta-tion rather than received knowledge; reliance on freemarkets and the trust required for their functioningrather than on command and personal ties; a politicalsystem in which government (at least in principle)arises from and answers to the people rather than des-potism; and a social life in which individual and groupadvancement challenges traditional stratification.

In one of the book’s many felicitous phrases, Lindseyasserts, “Despite all of the talk of raging ‘culture wars,’most Americans are nonbelligerents.” He concludes thatmost Americans are libertarians, happy to enjoy theeconomic fruits of the market system and willing toaccept, if not embrace, the social diversity that systemengenders.

Lindsey acknowledges the existence and importanceof the culture wars. Indeed, he states the dilemma of the libertarian majority in an unpromising fashion:

I“

37 D E C E M B E R 2 0 0 8


“The prevailing ideologies of left and right are mirrorimages of one another. . . .The . . . left celebrates massaffluence’s diversity and inclusiveness, while lacking dueappreciation for the institutional and moral frameworkthat sustains and advances progressive values.The right . . . defends that framework, but does so on the basis ofdogmatic beliefs that remain unreconciled to massaffluence’s cultural openness. [Politically, those in thelibertarian majority must] choose which illiberal bed-fellows they dislike least.”

The disproportionate influence of voices on the leftand right militates against the articulation of the liberalposition that Lindsey thinks those in the upwardlymobile middle class would favor.

As a result,“the modus vivendi that has emerged . . .is an unspoken and unloved compromise rather than awell-articulated and widely embraced consensus.”

Here the author might have fruitfully incorporatedsome insights offered by Bryan Caplan in his book, TheMyth of the Rational Voter. Caplan’s analysis warns thatthe problem is not just lack of confidence. Rather, theaverage voter’s economic sophistication compares tothe average flat-earther’s geographic sophistication.Thisendemic lack of sophistication, coupled with thestrength with which statists hold on to their views, sug-gests that Lindsey’s admirable attempt to show the wayto a truly liberal society will convince too few.

The book’s generally excellent review of history suf-fers from a related pair of weaknesses. His treatment oflabor reads like New Deal court history. “Confronta-tions between capital and labor were frequentlybloody,” says Lindsey. Then he cites cases that actuallyshow that the violence was among laborers:“On May 3,1884, labor trouble . . . sparked a confrontation betweenlocked-out workmen and strikebreakers.” The ingrainednotion that workers and capitalists are opponents is anobstacle to a more liberal society, but unfortunatelyLindsey gives it some support.

A second point is that much of the advancement byminorities before 1950 is underplayed. Thomas Sowellhas shown that economic progress among blacks wassubstantially greater prior to the Great Society pro-grams aimed at assisting them, but he isn’t mentioned.This early progress strongly backs Lindsey’s thesis thatfreedom works.

Readers, libertarian or otherwise, will find The Ageof Abundance a pleasure to read. Almost every page contains at least one phrase that either amuses orenlightens—sometimes both. Entertaining anecdotesand witty writing pepper the book throughout. On asingle page, for example, Marilyn Monroe, HughHefner, Peyton Place, Brigitte Bardot, and “Itsy BitsyTeenie Weenie Yellow Polka Dot Bikini” appear. Lind-sey also weaves together disparate and seemingly unre-lated events, such as the “Human Be-In” in Berkeleyand the founding of Oral Roberts University in 1967.These and other memorable illustrations add to theconsiderable enjoyment of this book.

J.Wilson Mixon ([email protected]) is Dana Professor of Economics,Emeritus, Berry College.

The Big Three in Economics: Adam Smith, KarlMarx, and John Maynard Keynesby Mark SkousenM. E. Sharpe • 2007 • 256 pages • $25.95

Reviewed by David L. Littmann

It is a rare book that treats read-ers—even those who’ve never

taken economics—to a compre-hensive understanding of the forcesand policies that ultimately deter-mine prosperity and liberty forthemselves and future generations.The Big Three in Economics by MarkSkousen accomplishes that, supply-

ing essential historical perspective on the best-knownnames and evolutionary developments in economics.

This fascinating study focuses on the luminaries thathave dominated economic conversations and debatessince 1776. Adam Smith’s eighteenth-century Wealth ofNations inquires into and documents the causes ofwealth and prosperity. Karl Marx’s nineteenth-centuryDas Kapital is a treatise on victimization by an eco-nomic system rooted in individual property rights and“natural liberty.” It calls for centralization of authorityin government that would facilitate redistribution ofincome and wealth. J.M. Keynes’s twentieth-centuryGeneral Theory outlines a framework to justify specific



policy prescriptions for reestablishing systemic stabilityand maintaining economic security during businesscycles.

Not only do Skousen’s succinct examinations of the“Big Three” clarify the principles of economics forunsophisticated readers, they also furnish insights intoand resonate marvelously with 2008’s election-yearpolemics. The entire book crystallizes basic economicissues and delivers the intellectual tools to differentiaterhetoric from reality. For example, during 2008 alone,we’ve had the spectacle of one presidential candidatelabeling the oil industry’s barely average profit margins“egregious,” while the other candidate (along withCongress and various regulatory bureaucracies) fingersso-called “oil speculators” for possible criminal investi-gations. Thanks to Skousen’s research and dozens ofprescient quotations, the curious investigator—laymanor Ph.D. economist—can separate hyperbole and scape-goating from objective analysis.

Equally enlightening, Skousen surrounds Smith,Marx, and Keynes with their contemporary and histor-ical disciples, who served to reinforce the message. Anexcellent example of this “reinforcement” effect, whichhelped Adam Smith’s economic principles win the day,is the work of Jean-Baptiste Say.

Despite its title, the book isn’t exclusively aboutSmith, Marx, and Keynes. It describes the influence ofDavid Hume and the French Physiocrats on AdamSmith; the impact of Reverend Thomas RobertMalthus, David Ricardo, and Friedrich Engels onMarx; and the works of Alfred Marshall plus the Eng-lish marginalist school, which provided the broadshoulders on which Keynes stood.

Skousen is at his best when he describes the lives ofthe three economists. For example, we learn the per-sonal story of Marx and his life as a writer-agitator-theorist. At one point, Skousen quotes Marx’s motherwho complained:“If only Karl had made capital instead

of writing about it!” Several documents from Marx’spen are so shocking they cannot be reproduced in thisreview.

By acquainting us with the dichotomy betweenwhat Marx envisioned and modeled versus how hebehaved, Skousen’s manuscript becomes a true guide-book. Beware hypocrisy, the author seems to say. Scru-tinize those who expound elaborate economic theoriesand then violate them at their earliest convenience.Marx condemned stock-market trading yet indulgedfully in the buying and selling of shares.While excori-ating the capitalist system, he exploited the accumu-lated wealth of his in-laws, father, and closest associate.

An important spin-off from this three-century tourof economic thought is the growth of and respect foreconomics as a science. A particular strength of thebook is how Skousen traces the continuity of economicchallenges and problem-solving across the centuries.Readers will see how advances in economic thinkingmade it possible for later economists to resolve ques-tions that befuddled Smith, Marx, and Keynes. More-over, readers will be surprised by how many of today’spopulist political campaign slogans (such as “change”and “race to the bottom”) were common parlancemore than 150 years ago.

Of the many moments of delight and edification, Iespecially enjoyed Skousen’s elegant construction of Milton Friedman’s refutation of Keynesian theory and itsso-called “revolution.” Contributions largely from Fried-man’s Chicago School disciples and other Nobel laureatesconclude the final chapter on a hopeful note. With overwhelming relevance to our nation’s current eco-nomic challenges, Skousen recapitulates Adam Smith’sfundamental theme underscoring the prescription forgrowth and material well-being of nations: “Peace, easytaxes, and a tolerable administration of justice.”

David Littmann ([email protected]) is senior economist withthe Mackinac Center for Public Policy.

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B Y W A LT E R E . W I L L I A M S

Fuzzy Thinking

The Pursuit of Happiness

George Orwell warned, “But if thought cor-rupts language, language can also corruptthought.”That is the challenge—not allowing

language and ill-defined terms to corrupt thought—that I face teaching economics to both graduate andundergraduate students.Terms that are widely used canhave considerable emotional worth but little or no ana-lytical value, ambiguous meaning, or unappreciatedimplications. In analytical usage precise, operationaldefinitions must be found.

“Equality of opportunity” is awidely used term, but what does itmean? Sometimes I ask students ifthey are for or against equal opportu-nity. Most say they are for it. Then Iask how can they tell if equality ofopportunity exists in a given activity.For example, does everyone in theclass have an equal opportunity toearn an A? If not, how would theycreate equal opportunity? I ask themwhether it is unfair when another isdenied equal opportunity.Then I citeexamples where I have denied othersequal opportunity. For instance, notevery woman was given an equalopportunity to marry me. I systemati-cally discriminated against white and Asian women,handicapped women, women with criminal records,and women who did not bathe regularly. None of mycriteria for setting up a long-term contractual arrange-ment would have met EEOC standards.

Occasionally, a student might rejoin by saying mar-riage and earning an A are different—equality ofopportunity mostly refers to employment or collegeadmission.At that point I ask whether they think everyemployer should give them equal opportunity to behired or every college give them equal opportunity to

be admitted. Most often the reply is yes, at which pointI ask whether they plan to give every employer equalopportunity to hire them or gave every college equalopportunity to admit them. Most often their answer isno; they plan to discriminate among employers, andthey have already discriminated in choosing a college. Ithen ask them, if they’re not going to give everyemployer an equal chance to hire them, why shouldevery employer give them an equal chance to be hired?

Part of the justification for various labor-marketrestrictions, such as minimum-wagelaws, collective-bargaining legislation,and work-hour legislation is to pro-tect workers from the alleged supe-rior bargaining power of employers.What is meant by superior bargainingpower? Let’s see. The president ofGeorge Mason University, where Iam employed, has the power to tellme that the maximum wage he iswilling to pay me is $20,000 a year. Ihave the power to tell him how manyhours I am willing to work at$20,000 a year, namely, zero. So whohas the superior bargaining power,me or the president? He has thepower of price and I have the power

of quantity. Alternatively, I have the power to tell himthat I refuse to work for less than $500,000 a year. Hehas the power to decide how many hours he is willingto hire me at that price. Again, who has the superiorbargaining power? I think it is impossible to say. Whatsets the minimum price the president pays for my laborservices? If he wants my services, the minimum salaryhe can pay me is the salary I could earn at some other


Walter Williams is the John M. Olin Distinguished Professor of Economicsat George Mason University.

Terms that are widely used can have considerableemotional worth butlittle or no analyticalvalue, ambiguousmeaning, orunappreciatedimplications.

university. What sets the maximum salary I could getfrom him is the salary some other economist willaccept to do the same job that I am doing. Bargainingpower is a vacuous concept. What truly protects theworker is the number of employers competing for hisservices. Similarly, what protects the employer is thenumber of employees competing for his job.

The Perils of Majority Rule

Another example of fuzzy thinking involves theword “democracy.” So often we hear that our

nation is a democracy. Somehow Americans have come to accept whatever our congress-men, state legislatures, or city councilcan muster a majority vote on.There isnothing benign about majority-ruledecision-making. In fact, majority rulegives an aura of legitimacy to acts thatwould otherwise be deemed tyranny.Let’s look at it while asking ourselveshow many decisions in our daily liveswould we like to be settled throughmajority rule.

How many people would like themajority to decide whether we haveturkey or ham as the main course forThanksgiving dinner? If turkey won thevote, it would be illegal to serve ham.What about the kind of car that we drive? If Lexus wonthe vote, it would be illegal to drive other cars. I amsure that if majority rule were the decision-making cri-teria in these and most other areas of our lives, wewould deem it tyranny. Is it not the same when major-ity rule is used to dictate how we provide for our healthcare, how we prepare for retirement, or whether restau-rants permit smoking, use trans fats, or serve foie gras?

In addition to majority rule being a form of tyranny,it is a major contributor to human conflict.The reason

is that majority rule can be a zero-sum game. Onegroup of people has their wishes satisfied at the expenseof another group of people who do not have theirwishes satisfied. In the Thanksgiving-dinner example,turkey lovers have their wishes satisfied at the expenseof ham lovers. Ham lovers then have high incentives toenter into conflict with turkey lovers because theyknow that if turkey lovers win it will be at theirexpense.There would be no conflict if, as it is now, thedecision on what to have for Thanksgiving dinner ismade by individuals. In general, decision-making at the individual or market levels is conflict-reducing,

while making decisions collectivelyor at the political level is conflict-enhancing.

Our nation’s founders hadabsolute disdain for democracy andmajority rule. James Madison, inFederalist 10, said in a pure democ-racy, “[T]here is nothing to checkthe inducement to sacrifice theweaker party or the obnoxiousindividual.” During the 1787 Con-stitutional Convention, EdmundRandolph said that “in tracing theseevils to their origin every man hadfound it in the turbulence and follies of democracy.” John Adams

said, “Remember, democracy never lasts long. It soonwastes, exhausts, and murders itself. There was never ademocracy yet that did not commit suicide.” Chief Jus-tice John Marshall added,“Between a balanced republicand a democracy, the difference is like that betweenorder and chaos.”The founders knew that a democracywould lead to the same kind of tyranny suffered underKing George III.The term democracy appears in noneof our founding documents. Their vision for us was arepublic and limited government.

41 D E C E M B E R 2 0 0 8

F u z z y T h i n k i n g

In general, decision-making at theindividual or marketlevels is conflict-reducing, whilemaking decisionscollectively or at thepolitical level isconflict-enhancing.

INDEX:THE FREEMAN:IDEAS ON LIBERTYVOLUME 58JANUARY–DECEMBER2008

Prepared by Beth A. Hoffman, withthe assistance of Linda Newton

NOTE: In page references, the numberpreceding the colon designates the month,the numbers following refer to the pages.For example, 1/2:47–48 refers to pages47–48 of the January–February issue.Articles have at least three entries—author,title, and subject—except in cases when thetitle and subject coincide. Books reviewedare listed alphabetically by author on page 48.

AAGRICULTURE. See FoodAKERS, Becky

Big brother is watching as he’s neverwatched before. 7/8:27–28

Congestion pricing: the road to thesurveillance state. 1/2:18–22

Language, loyalty, and liberty. 10:21–25A million terrorists? 11:20–21

ALCOHOL, prohibition, and the revenuers(Boudreaux) 1/2:16–17

AMERICAN history Alcohol, prohibition, and the revenuers

(Boudreaux) 1/2:16–17Slick construction under the Articles

of Confederation (Stromberg) 4:23–27

Times that tried men’s economic souls(Reed) 3:13–14

See also Davies; Folsom; HiggsANDERSON,William L., Jr.

See Book reviews (Terry Anderson et al.)ANTI-COERCION is not anti-psychiatry

(Szasz) 5:26–27ARE the voters qualified to pick a

president? (Richman) 4:2–3ARE you being served? (Henderson)

11:47–48ARTICLES of Confederation

Constitution or liberty (Richman)1/2:23–24

Slick construction under the Articles of Confederation (Stromberg) 4:23–27

BBAETJER, Howard, Jr.

Inflation 101: cause versus transmission.9:11–15

BAILOUT hypocrisy (Richman) 6:24–25 BAIRD, Charles W.

The pursuit of happiness column Faculty unions versus academic

legitimacy. 6:47–48 Stealing for union bosses. 3:47–48Worker freedom in peril. 10:47–48

BANDOW, Doug. See Book reviews (Higgsand Close)

BANNING payday loans deprives low-income people of options (Leef)4:17–18

BASEBALL and capital markets, on(Grunewald) 7/8:18–19

BATEMARCO, Robert. See Book reviews(Lerner)

BENSON, Bruce L.How land-use planning benefits big

business over small. 5:19–25BESSARD, Pierre

The threat of tax centralization hoversover Europe. 12:22–24

BEYOND municipal wireless (Titch)10:34–36

BIG brother is watching as he’s neverwatched before (Akers) 7/8:27–28

BILL of rights dayHoliday that isn’t (Reed) 10:4–5

BIOGRAPHY, historical profiles Commerce, markets, and peace: Richard

Cobden’s enduring lessons (Stringham)10:28–33

E.E. Cummings: Eimi mine (Walker)12:27–31

Albert Jay Nock and alternative history(Stromberg) 11:32–38

John D. Rockefeller and his enemies(Folsom) 5:33–34

Constitutional republicanism of JohnTaylor of Caroline (Stromberg)5:35–39

Political economy of John Taylor ofCaroline (Stromberg) 6:26–30

BLESS the speculators (Stossel) 11:39–40BLOCK,Walter (coauthor with J.H. Huebert)

Environmentalists in outer space. 3:30–34BOAZ, David

The politics of freedom. 5:28–32 BOLDRIN, Michele (coauthor with David

K. Levine and Alessandro Nuvolari)Do patents encourage or hinder

innovation? the case of the steamengine. 12:14–17

BOUDREAUX, Donald J.Thoughts on freedom columnAlcohol, prohibition, and the revenuers.

1/2:16–17

BOUDREAUX, Donald J., continuedI won’t vote! 4:15–16 The ideas of liberty and FEE. 11:13–14Interpreting the state of the world.

6:17–18 Sad democracy. 9:16–17See also Book reviews (Warsh)

BOVARD, JamesFreedom is not the issue? It just ain’t so!

9:6–7Torture and liberty. 7/8:31–34

BULLIES (Stossel) 6:39–40 BURDEN of responsibility (Szasz) 12:12–13

CCALLAHAN, Gene

Consumption must be curtailed tosustain the human race? It just ain’t so!4:6–7

Is fair trade a fair deal? 3:8–12See also Book reviews (Clark; Greenspan)

CAN the Feds save the housing market?(Horwitz) 6:8–13

CAPITAL letters 1/2:38–41; 9:40–41; 10:39–41; 11:41

CARSON, Kevin“Free market” reforms and the reduction

of statism. 9:28–31Hierarchy or the market. 4:10–14 The subsidy of history. 6:33–38

CARSON, Stephen W.A property-rights theory of mass murder.

9:32–37CHARACTER, liberty, and economics

(Reed) 7/8:4–5CLARK, JR. (coauthor with Dwight R.

Lee)Making Social Security more harmful.

10:19–20COERCION is the only way to ensure

health? It just ain’t so! (Skoble) 6:6–7COMMERCE, markets, and peace: Richard

Cobden’s enduring lessons (Stringham)10:28–33

COMPROMISE, principles, and politics(Galles) 5:13–16

CONCEIT of the regulators (Stossel)7/8:40–41

CONGESTION pricing: the road to thesurveillance state (Akers) 1/2:18–22

CONSTITUTION or liberty (Richman)1/2:23–24

CONSTITUTIONAL republicanism ofJohn Taylor of Caroline (Stromberg)5:35–39

CONSTRUCTION boom and bustbetween the world wars (Higgs)6:31–32

CONSUMPTION must be curtailed tosustain the human race? It just ain’t so!(Callahan) 4:6–7


I n d e x

CORDATO, Roy E.Too much freedom. 7/8:10–11

COURT holds California’s homeschoolersin suspense (Greenhut) 5:8–12

CUMMINGS, E.E.: Eimi mine (Walker)12:27–31

CURRENT economic crisis and theAustrian theory of the business cycle(Ebeling) 6:4–5

DDAVIES, Stephen

Our economic past columnHistorical reputations. 11:22–23Migration, markets, and governments.

4:28–29 The recurring crisis. 7/8:29–30

DEMOCRACY Sad democracy (Boudreaux) 9:16–17

DEPARTMENT of homeland happinesssecurity? only if we want to beunhappy! (Ebeling) 3:4–5

DISCRIMINATION How free markets break down

discrimination (Henderson) 4:47–48DO patents encourage or hinder

innovation? the case of the steamengine (Boldrin, Levine, and Novulari)12:14–17

DOES governmental vicarious liabilitymake any sense? (Foley) 3:26–29

DON’T look to government to cool downthe planet (Stossel) 1/2:36–37

DOWNTOWN revitalization: citygovernments versus consumers(Huebert) 4:8–9

DRUG legalization Legalize all drugs (Stossel) 10:37–38

DRY-CLEANING economics in one lesson(Stephenson) 9:18–20

DUKE University lacrosse case Prosecutorial indiscretion (McElroy)

1/2:25–28

EEATING disorder: how governments raise

food prices (Foulkes) 9:8–10EBELING, Richard M.

From the president column:The current economic crisis and the

Austrian theory of the business cycle.6:4–5

A department of homeland happinesssecurity? only if we want to beunhappy! 3:4–5

The free market versus the interventioniststate. 1/2:4–5

Freedom and the right of self-determination. 5:4–5

EBELING continuedThe German economic miracle and the

“social market economy.” 4:4–5See also Book reviews (Boudreaux)

ECONOMICS and property rights(Williams) 1/2:47–48

ECONOMICS Bless the speculators (Stossel) 11:39–40Consumption must be curtailed to

sustain the human race? It just ain’t so!(Callahan) 4:6–7

Current economic crisis and the Austriantheory of the business cycle (Ebeling)6:4–5

Department of homeland happinesssecurity? only if we want to beunhappy! (Ebeling) 3:4–5

Dry-cleaning economics in one lesson(Stephenson) 9:18–20

German economic miracle and the“social market economy” (Ebeling)4:4–5

Great escape from the Great Depression(Higgs) 10:26–27

Hierarchy or the market (Carson)4:10–14

How free markets break downdiscrimination (Henderson) 4:47–48

Misunderstanding efficiency (Galles)3:37–39

Presidents can’t manage the economy(Stossel) 4:40–41

Profit: not just a motive (Horwitz)3:21–23

Unpleasant economists (Williams)9:47–48

Who’s afraid of prosperity? (Stossel)3:40–41

ECONOMISTS and scarcity (Horwitz)6:14–16

EDUCATION Court holds California’s homeschoolers

in suspense (Greenhut) 5:8–12 Exporting and importing at the

university (Van Cott) 4:38–39Faculty unions versus academic

legitimacy (Baird) 6:47–48 Government education is “broken”? It

just ain’t so! (Schaeffer and Fritz)11:6–7

Government schools and the housingmess (Richman) 6:2–3

Why on earth do we have a “studentloan crisis”? (Leef) 11:28–31

EIMI mine (Walker) 12:27–31ELAND, Ivan. See Book reviews (Coyne)ENERGY

Gas prices: the latest excuse to reengineersociety (Greenhut) 11:24–27

Hands off “windfall” profits (Richman)7/8:2–3

Let’s not be energy independent(Henderson) 10:8–11

ENERGY continuedPoliticians eye the oil market (Murphy)

10:12–16Whom should we thank for high gas

prices? (Heberling) 7/8:8–9ENGLISH-only movement

Language, loyalty, and liberty (Akers)10:21–25

ENVIRONMENT Don’t look to government to cool down

the planet (Stossel) 1/2:36–37Environmentalists in outer space (Block

& Huebert) 3:30–34EQUALITY, markets, and morality

(Folsom) 9:26–27ERNST, Diana M. See Book reviews (Jost)EUROPE

Threat of tax centralization hovers overEurope (Bessard) 12:22–24

EWING, Bob The right to earn a living under attack

12:18–19EXPORTING and importing at the

university (Van Cott) 4:38–39

FFACULTY unions versus academic

legitimacy (Baird) 6:47–48 FAIR trade

Is fair trade a fair deal? (Callahan) 3:8–12FED didn’t bail out Wall Street? It just ain’t

so! (Murphy) 1/2:6–7FED should inflate to end the financial

crisis? It just ain’t so! (Pongracic)7/8:6–7

FINANCIAL crisis Bailout hypocrisy (Richman) 6:24–25 Current economic crisis and the Austrian

theory of the business cycle (Ebeling)6:4–5

Fed didn’t bail out Wall Street? It justain’t so! (Murphy) 1/2:6–7

Fed should inflate to end the financialcrisis? It just ain’t so! (Pongracic) 7/8:6–7

Free market is failing? It just ain’t so!(Horwitz) 12:6–7

Nationalization of the mortgage market(Murphy) 12:8–11

Recurring crisis (Davies) 7/8:29–30Subprime crisis shows that government

intervenes too little in financialmarkets? (White) 10:6–7

Unstimulating idea (Richman) 3:2–3FOLEY, Ridgway K., Jr.

Does governmental vicarious liabilitymake any sense? 3:26–29

FOLSOM, Burton, Jr.Our economic past column:Equality, markets, and morality. 9:26–27Madison’s veto sets a precedent.

1/2:29–30

43 D E C E M B E R 2 0 0 8

I n d e x

FOLSOM, Burton continuedMellon: the entrepreneur as politician.

12:25–26John D. Rockefeller and his enemies.

5:33–34FOOD, agriculture

Eating disorder: how governments raisefood prices (Foulkes) 9:8–10

U.S. agricultural programs: who pays?(Pasour) 11:15–19

FOULKES,Arthur E.Eating disorder: how governments raise

food prices. 9:8–10FOUNDATION for Economic Education

Ideas of liberty and FEE (Boudreaux)11:13–14

FREE market is failing? It just ain’t so!(Horwitz) 12:6–7

“FREE market” reforms and the reductionof statism (K. Carson) 9:28–31

FREE market versus the interventioniststate (Ebeling) 1/2:4–5

FREE market’s invisibility problem (Packer)4:35–37

FREEDOM and the right of self-determination (Ebeling) 5:4–5

FREEDOM is not the issue? It just ain’t so!(Bovard) 9:6–7

FREEDOM or free-for-all? (Reed) 9:4–5FREEDOM works: the case of Hong Kong

(Morriss) 11:8–12FREEDOM, drugs, and the workplace

(Henderson) 7/8:47–48FREE-market money: a key to peace

(Horwitz) 1/2:13–15FRIEDMAN, Milton, ideas of

Equality, markets, and morality (Folsom)9:26–27

FRITZ, Marshall (coauthor with AlanSchaeffer)

Government education is “broken”? Itjust ain’t so! 11:6–7

FROM the President. See Ebeling

GGALLES, Gary M.

Compromise, principles, and politics.5:13–16

Misunderstanding efficiency. 3:37–39GALLES, Gary See also Book reviews

(O’Toole)GAME of politics (Leef) 1/2:31–32GAS prices: the latest excuse to reengineer

society (Greenhut)11:24–27GASOLINE. See EnergyGENOCIDE Property-rights theory of

mass murder (S. Carson) 9:32–37GERMAN economic miracle and the

“social market economy” (Ebeling)4:4–5

GIULIANO, Michael N.The “risk” of liberty: criminal law in the

welfare state 9:21–25GIVE me a break! See StosselGLOBAL warming

Don’t look to government to cool downthe planet (Stossel) 1/2:36–37

GOVERNMENT education is “broken”? Itjust ain’t so! (Schaeffer and Fritz)11:6–7

GOVERNMENT intervention is neededto solve the housing crisis? It just ain’tso! (Horwitz) 5:6–7

GOVERNMENT schools and the housingmess (Richman) 6:2–3

GOVERNMENT stifles the wisdom ofcrowds (Stossel) 9:38–39

GOVERNMENT workers are America’snew elite 7/8:22–26

GOVERNMENT intervention andregulation

Banning payday loans deprives low-income people of options (Leef)4:17–18

China’s one-child disaster (McElroy)6:19–23


Free market versus the interventioniststate (Ebeling) 1/2:4–5

Matter of priorities (Richman) 1/2:2–3

New Deal and the state and localgovernments (Higgs) 3:35–36

Right to earn a living under attack(Ewing) 12:18–19

GOVERNMENT service, employment Are you being served? (Henderson)

11:47–48Wildfires and state-worship (Greenhut)

1/2:8–12GOVERNMENT surveillance

A million terrorists? (Akers) 11:20–21Congestion pricing: the road to the

surveillance state (Akers) 1/2:18–22GREAT BRITAIN

Volunteer railways in Britain (Payne)1/2:33–35

GREAT escape from the Great Depression(Higgs) 10:26–27

GREAVES, Bettina Bien. See Book reviews(Doherty; Hulsmann)

GREENHUT, Steven Court holds California’s homeschoolers

in suspense. 5:8–12 Gas prices: the latest excuse to reengineer

society. 11:24–27Government workers are America’s new

elite. 7/8:22–26The militarization of American police.

3:15–20Wildfires and state-worship. 1/2:8–12See also Book reviews (Main)

GRUNEWALD, Donald F.On baseball and capital markets.

7/8:18–19

HHABEAS corpus, writ of

Stable bulwark of our liberties (Richman)9:2–3

HANDS off “windfall” profits (Richman)7/8:2–3

HEALTH care is worse here thanelsewhere? It just ain’t so! (Henderson)3:6–7

HEALTH-care cons (Richman) 4:21–22HEALTH care. See MedicineHEBERLING, Michael

Whom should we thank for high gasprices? 7/8:8–9

HENDERSON, David R.Health care is worse here than elsewhere?

It just ain’t so! 3:6–7 Let’s not be energy independent. 10:8–11 The pursuit of happiness column:Are you being served? 11:47–48Freedom, drugs, and the workplace.

7/8:47–48How free markets break down

discrimination. 4:47–48HIERARCHY or the market (K. Carson)

4:10–14 HIGGS, Robert

Our economic past columnConstruction boom and bust between

the world wars. 6:31–32 The great escape from the Great

Depression. 10:26–27The New Deal and the state and local

governments. 3:35–36See also Book reviews (Victor)

HISTORICAL reputations (Davies)11:22–23

HISTORY for sale: why not? (Reed)5:17–18

HISTORY Subsidy of history (K. Carson) 6:33–38

HOMESCHOOLINGCourt holds California’s homeschoolers

in suspense (Greenhut) 5:8–12 HONG KONG

Freedom works: the case of Hong Kong(Morriss) 11:8–12

HORWITZ, Steven Economists and scarcity. 6:14–16 The free market is failing? It just ain’t so!

12:6–7Free-market money: a key to peace.

1/2:13–15Government intervention is needed to

solve the housing crisis? It just ain’t so!5:6–7

Profit: not just a motive. 3:21–23


I n d e x

45 D E C E M B E R 2 0 0 8

I n d e x

HOUSING crisis Can the Feds save the housing market?

(Murphy) 6:8–13Government intervention is needed to

solve the housing crisis? It just ain’t so!(Horwitz) 5:6–7

Government schools and the housingmess (Richman) 6:2–3

Nationalization of the mortgage market(Murphy) 12:8–11

HOW free markets break downdiscrimination (Henderson) 4:47–48

HOW land-use planning benefits bigbusiness over small (Benson) 5:19–25

HUEBERT, J.H.Downtown revitalization: city

governments versus consumers. 4:8–9See also Book reviews (Gutzman)

HUEBERT, J.H. (coauthor with Walter Block)Environmentalists in outer space. 3:30–34

II won’t vote! (Boudreaux) 4:15–16 IDEAS and consequences. See ReedIDEAS of liberty and FEE (Boudreaux)

11:13–14IDEAS, ideology

Character, liberty, and economics (Reed)7/8:4–5

Free market’s invisibility problem (Packer)4:35–37

Libertarianism through thick and thin(Johnson) 7/8:35–39

Paternalist nudges (Richman) 11:2–3Politics of freedom (Boaz) 5:28–32 Too much freedom (Cordato) 7/8:10–11

IMMIGRATION Migration, markets, and governments

(Davies) 4:28–29 INDIVIDUAL rights

Big brother is watching as he’s neverwatched before (Akers) 7/8:27–28

Torture and liberty (Bovard) 7/8:31–34INFLATION 101: cause versus transmission

(Baetjer) 9:11–15INFLATION. See MoneyINFLUENCE-peddling (Stossel) 5:40-41INGDAHL,Waldemar. See Book reviews

(Eichengreen)INTELLECTUAL property

Do patents encourage or hinderinnovation? the case of the steamengine (Boldrin, Levine, and Novulari)12:14–17

INTERNET technology Beyond municipal wireless (Titch)

10:34–36Net neutrality or government brutality?

(Summers) 7/8:12–17INTERPRETING the state of the world

(Boudreaux) 6:17–18

INTRADE Government stifles the wisdom of crowds

(Stossel) 9:38–39INVENTIONS

Do patents encourage or hinderinnovation? the case of the steamengine (Boldrin, Levine, and Novulari)12:14–17

IS fair trade a fair deal? (Callahan) 3:8–12IT just ain’t so!

Coercion is the only way to ensurehealth? (Skoble) 6:6–7

Consumption must be curtailed tosustain the human race? (Callahan)4:6–7

Fed didn’t bail out Wall Street? (Murphy)1/2:6–7

Fed should inflate to end the financialcrisis? (Pongracic) 7/8:6–7

Free market is failing? (Horwitz) 12:6–7Freedom is not the issue? (Bovard) 9:6–7Government education is “broken”?

(Schaeffer and Fritz) 11:6–7Government intervention is needed to

solve the housing crisis? (Horwitz)5:6–7

Health care is worse here than elsewhere?(Henderson) 3:6–7

Subprime crisis shows that governmentintervenes too little in financialmarkets? (White) 10:6–7

J–KJOHNSON, Charles

Libertarianism through thick and thin.7/8:35–39

JUSTICE, judicial system Bullies (Stossel) 6:39–40 “Risk” of liberty: criminal law in the

welfare state (Giuliano) 9:21–25Does governmental vicarious liability

make any sense? (Foley) 3:26–29Prosecutorial indiscretion (McElroy)

1/2:25–28Return of debtors’ prison? (McElroy)

4:30–34KEATING, Raymond J. See Book reviews

(O’Rourke)

LLABOR, employment

Faculty unions versus academiclegitimacy (Baird) 6:47–48

Freedom, drugs, and the workplace(Henderson) 7/8:47–48

Government workers are America’s newelite (Greenhut) 7/8:22–26

Stealing for union bosses (Baird) 3:47–48

LAND-use planning Downtown revitalization: city

governments versus consumers(Huebert) 4:8–9

How land-use planning benefits bigbusiness over small (Benson) 5:19–25

LANGUAGE, loyalty, and liberty (Akers)10:21–25

LEE, Dwight R. (coauthor with J. R. Clark) Making Social Security more harmful.

10:19–20See also Book reviews (Caplan)

LEEF, George C.Banning payday loans deprives low-

income people of options. 4:17–18The game of politics. 1/2:31–32Why on earth do we have a “student

loan crisis”? 11:28–31See also Book reviews (Bolick; Cramer;

Epstein; Harsanyi; Murphy;Rockefeller; Shapiro; Sprading;Taylor& Johnson;Vedder & Cox)

LEGALIZE all drugs (Stossel) 10:37–38LET’S not be energy independent

(Henderson) 10:8–11LEVATTER, Ross. See Book reviews

(Szasz)LEVINE, David K. See Book reviews

(Edgerton)LEVINE, David K. (coauthor with Michele

Boldrin and Alessandro Nuvolari)Do patents encourage or hinder

innovation? the case of the steamengine. 12:14–17

LIBERTARIAN paternalismPaternalist nudges (Richman) 11:2–3

LIBERTARIANISM through thick andthin (Johnson) 7/8:35–39

LITTMANN, David L. See Book reviews(Skousen)

MMACHAN,Tibor R. See Book reviews

(Schaefer)MADISON’S veto sets a precedent

(Folsom) 1/2:29–30MAKING Social Security more harmful

(Clark & Lee) 10:19–20MATTER of priorities (Richman) 1/2:2–3McELROY,Wendy

China’s one-child disaster. 6:19–23Prosecutorial indiscretion. 1/2:25–28The return of debtors’ prison? 4:30–34

MEDICINE, health care, drugsAnti-coercion is not anti-psychiatry

(Szasz) 5:26–27Burden of responsibility (Szasz) 12:12–13Coercion is the only way to ensure

health? It just ain’t so! (Skoble) 6:6–7Health care is worse here than elsewhere?

It just ain’t so! (Henderson) 3:6–7


I n d e x

MEDICINE, health care, drugs continuedHealth-care cons (Richman) 4:21–22Psychiatry versus liberty (Szasz)

7/8:20–21Rights versus wishes (Williams) 5:47–48State is morally hazardous to your health

(Richman) 5:2–3Treatments without diseases (Szasz)

3:24–25MIGRATION, markets, and governments

(Davies) 4:28–29 MILITARIZATION of American police

(Greenhut) 3:15–20MILLION terrorists? (Akers) 11:20–21MISUNDERSTANDING efficiency

(Galles) 3:37–39MIXON, J.Wilson. See Book reviews

(Lindsey)MONEY

Fed should inflate to end the financialcrisis? It just ain’t so! (Pongracic)7/8:6–7

Free-market money: a key to peace(Horwitz) 1/2:13–15

Inflation 101: cause versus transmission(Baetjer) 9:11–15

Subprime crisis shows that governmentintervenes too little in financialmarkets? It just ain’t so! (White)10:6–7

Times that tried men’s economic souls(Reed) 3:13–14

Why “inflation” is back (Reed) 11:4–5MORRISS,Andrew P.

Freedom works: the case of Hong Kong.11:8–12

MORTGAGE market Nationalization of the mortgage market

(Murphy) 12:8–11See also Housing crisis

MR. PRESIDENT, meet Mr. Smith (Reed)12:4–5

MURPHY, Robert P.Can the Feds save the housing market?

6:8–13The Fed didn’t bail out Wall Street? It

just ain’t so! 1/2:6–7The nationalization of the mortgage

market. 12:8–11Politicians eye the oil market. 10:12–16See also Book reviews (Lott)

NNATIONALIZATION of the mortgage

market (Murphy) 12:8–11NET neutrality or government brutality?

(Summers) 7/8:12–17NEW Deal and the state and local

governments (Higgs) 3:35–36NOCK,Albert Jay, and alternative history

(Stromberg) 11:32–38

NUVOLARI,Alessandro (coauthor withMichele Boldrin and David K. Levine)

Do patents encourage or hinderinnovation? the case of the steamengine. 12:14–17

OON baseball and capital markets

(Grunewald) 7/8:18–19ORIENT, Jane M. See Book reviews

(Gratzer)OUR economic past. See Davies, Folsom,

Higgs

PPACKER, Joseph

The free market’s invisibility problem.4:35–37

PALASEK, Karen Y. See Book reviews(Strassel et al.)

PASOUR, E.C., Jr.U.S. agricultural programs: who pays?

11:15–19See also Book reviews (Ebenstein)

PATERNALIST nudges (Richman) 11:2–3PAYNE, James L.

Savoring “Three Cups of Tea”: an essayon the future of politics. 4:19–20

Volunteer railways in Britain. 1/2:33–35PERIPATETICS. See RichmanPERSPECTIVE. See RichmanPETERSON,W.H. See Book reviews

(Koch)POLITICAL economy of John Taylor of

Caroline (Stromberg) 6:26–30 POLITICIANS eye the oil market

(Murphy) 10:12–16POLITICS

Compromise, principles, and politics(Galles) 5:13–16

Game of politics (Leef) 1/2:31–32Influence-peddling (Stossel) 5:40-41Savoring “Three Cups of Tea”: an essay

on the future of politics (Payne)4:19–20

POLITICS of freedom (Boaz) 5:28–32 PONGRACIC, Ivan, Jr.

The Fed should inflate to end thefinancial crisis? It just ain’t so! 7/8:6–7

POPULATION controlChina’s one-child disaster (McElroy)

6:19–23 PRESIDENCY

Historical reputations (Davies) 11:22–23PRESIDENTS can’t manage the economy

(Stossel) 4:40–41PRICES, pricing


PRIVACY. See Government surveillancePROFIT: not just a motive (Horwitz) 3:21–23PROFITS


PROPERTY-rights theory of mass murder(S. Carson) 9:32–37

PROPERTY rights Economics and property rights

(Williams) 1/2:47–48History for sale: why not? (Reed)

5:17–18PSYCHIATRY versus liberty (Szasz)

7/8:20–21PURSUIT of happiness. See Baird;

Henderson;Williams

RREAL estate

Construction boom and bust betweenthe world wars (Higgs) 6:31–32

See also Housing crisisRECURRING crisis (Davies) 7/8:29–30REED, Lawrence W.

Ideas and consequences columnCharacter, liberty, and economics. 7/8:4–5Freedom or free-for-all? 9:4–5History for sale: why not? 5:17–18 The holiday that isn’t. 10:4–5Mr. President, meet Mr. Smith. 12:4–5The times that tried men’s economic

souls. 3:13–14Why “inflation” is back (Reed) 11:4–5

RETURN of debtors’ prison? (McElroy)4:30–34

RICHMAN, SheldonPeripatetics columnThe constitution or liberty. 1/2:23–24Bailout hypocrisy. 6:24–25 Health-care cons. 4:21–22 Lost in transcription. 12:20–21PerspectiveAre the voters qualified to pick a

president? 4:2–3 Bailing out statism. 12:2–3Government schools and the housing

mess. 6:2–3Hands off “windfall” profits. 7/8:2–3 Hubris in the first degree.10:2–3A matter of priorities. 1/2:2–3Paternalist nudges. 11:2–3The “stable bulwark of our liberties.”

9:2–3The state is morally hazardous to your

health. 5:2–3An unstimulating idea. 3:2–3

RIGHT to earn a living under attack(Ewing) 12:18–19

RIGHTS theoryFreedom or free-for-all? (Reed) 9:4–5

RIGHTS versus wishes (Williams) 5:47–48

47 D E C E M B E R 2 0 0 8

I n d e x

“RISK” of liberty: criminal law in thewelfare state (Giuliano) 9:21–25

ROCKEFELLER, John D., and his enemies(Folsom) 5:33–34

SSAD democracy (Boudreaux) 9:16–17SAVORING “Three Cups of Tea”: an essay

on the future of politics (Payne)4:19–20

SCHAEFFER,Alan (coauthor withMarshall Fritz)

Government education is “broken”? Itjust ain’t so! 11:6–7

SKOBLE,Aeon J.Coercion is the only way to ensure

health? It just ain’t so! 6:6–7SLICK construction under the Articles of

Confederation (Stromberg) 4:23–27SMITH,Adam, ideas of

Mr. President, meet Mr. Smith (Reed)12:4–5

SOCIAL Security Making Social Security more harmful

(Clark & Lee) 10:19–20SOWELL,Thomas, ideas of

Equality, markets, and morality (Folsom)9:26–27

STABLE bulwark of our liberties(Richman) 9:2–3

STANDARDS of living Interpreting the state of the world

(Boudreaux) 6:17–18 STATE is morally hazardous to your health

(Richman) 5:2–3STATE, power of

“Free market” reforms and the reductionof statism (K. Carson) 9:28–31

Freedom is not the issue? It just ain’t so!(Bovard) 9:6–7

Militarization of American police(Greenhut) 3:15–20

Wildfires and state-worship (Greenhut)1/2:8–12

STEALING for union bosses (Baird)3:47–48

STEPHENSON, E. FrankDry-cleaning economics in one lesson

9:18–20STOSSEL, John

Give me a break! column:Bless the speculators. 11:39–40Bullies. 6:39–40 The conceit of the regulators. 7/8:40–41Don’t look to government to cool down

the planet. 1/2:36–37Government stifles the wisdom of

crowds. 9:38–39Influence-peddling. 5:40-41

STOSSEL, John, continuedLegalize all drugs. 10:37–38Presidents can’t manage the economy.

4:40–41Tear down the stop signs! 12:32–33Who’s afraid of prosperity? 3:40–41

STRINGHAM, Edward P.Commerce, markets, and peace: Richard

Cobden’s enduring lessons. 10:28–33STROMBERG, Joseph R.

The constitutional republicanism of JohnTaylor of Caroline. 5:35–39

Albert Jay Nock and alternative history.11:32–38

The political economy of John Taylor ofCaroline. 6:26–30

Slick construction under the Articles ofConfederation. 4:23–27

See also Book reviews (Klein)SUBPRIME crisis shows that government

intervenes too little in financialmarkets? It just ain’t so! (White) 10:6–7

SUBSIDY of history (Carson) 6:33–38 SUMMERS,Adam B.

Net neutrality or government brutality?7/8:12–17

SZASZ,Thomas The therapeutic state column:Anti-coercion is not anti-psychiatry.

5:26–27The burden of responsibility. 12:12–13Mendacity by metaphor 10:17–18Psychiatry versus liberty. 7/8:20–21Treatments without diseases. 3:24–25

TTAYLOR, John, of Caroline. See StrombergTAXES, taxation


Threat of tax centralization hovers overEurope (Bessard) 12:22–24

THERAPEUTIC state. See SzaszTHOUGHTS on freedom. See BoudreauxTHREAT of tax centralization hovers over

Europe (Bessard) 12:22–24TIBET

Freedom and the right of self-determination (Ebeling) 5:4–5

TIMES that tried men’s economic souls(Reed) 3:13–14

TITCH, Steven Beyond municipal wireless. 10:34–36

TOO much freedom (Cordato) 7/8:10–11TORTURE and liberty (Bovard) 7/8:31–34TRADE

Commerce, markets, and peace: RichardCobden’s enduring lessons (Stringham)10:28–33

TRADE continuedDry-cleaning economics in one lesson

(Stephenson) 9:18–20Exporting and importing at the

university (Van Cott) 4:38–39Is fair trade a fair deal? (Callahan)

3:8–12TRANSPORTATION

Conceit of the regulators (Stossel)7/8:40–41

Congestion pricing: the road to thesurveillance state (Akers) 1/2:18–22

Volunteer railways in Britain (Payne)1/2:33–35

TREATMENTS without diseases (Szasz)3:24–25

U–VU.S. agricultural programs: who pays?

(Pasour)11:15–19UNPLEASANT economists (Williams)

9:47–48UNSTIMULATING idea (Richman)

3:2–3 URBAN planning. See Land-use planning VAN Cott,T. Norman

Exporting and importing at theuniversity. 4:38–39

VOTING, voters Are the voters qualified to pick a

president? (Richman) 4:2–3I won’t vote! (Boudreaux) 4:15–16

WWALKER, Bruce Edward

Eimi mine. 12:27–31WHITE, Lawrence H.

The subprime crisis shows thatgovernment intervenes too little infinancial markets? It just ain’t so!10:6–7

WHO’S afraid of prosperity? (Stossel)3:40–41

WHY “inflation” is back (Reed) 11:4–5WHY on earth do we have a “student loan

crisis”? (Leef) 11:28–31WILDFIRES and state-worship (Greenhut)

1/2:8–12WILLIAMS,Walter E.

The pursuit of happiness column:Economics and property rights.

1/2:47–48Fuzzy thinking 12:40–41Rights versus wishes. 5:47–48Unpleasant economists. 9:47–48

WOOSTER, Martin Morse. See Bookreviews (Barone)


I n d e x

ANDERSON,Terry L., Bruce L. Benson,and Thomas F. Flanagan (eds.)

Self-determination: the other path forNative Americans (W. L.Anderson, Jr.)1/2:43–44

BARONE, Michael Our first revolution: the remarkable

British upheaval that inspired America’sfounding fathers (Wooster) 7/8:44–45

BOLICK, Clint David’s hammer: the case for an activist

judiciary (Leef) 6:42–43BOUDREAUX, Donald J.

Globalization (Ebeling) 4:42–43CAPLAN, Bryan

The myth of the rational voter: whydemocracies choose bad policies (Lee)3:42–43

CLARK, Gregory A farewell to alms: a brief economic

history of the world (Callahan)7/8:42–43

COYNE, Christopher J.After war: the political economy of

exporting democracy (Eland) 11:43–44

CRAMER, Clayton E.Armed America: the remarkable story of

how and why guns became asAmerican as apple pie (Leef) 4:44–45

DOHERTY, Brian Radicals for capitalism: a freewheeling

history of the modern Americanlibertarian movement (Greaves)4:43–44

EBENSTEIN, Lanny Milton Friedman:A biography (Pasour)

12:36–37EDGERTON, David

The shock of the old: technology andglobal history since 1900 (Levine)9:43–44

EICHENGREEN, Barry The European economy since 1945:

coordinated capitalism and beyond(Ingdahl) 4:45–46

EPSTEIN, Richard A.Overdose: how excessive government

regulation stifles pharmaceuticalinnovation (Leef) 3:44–45

GRATZER, David The cure: how capitalism can save

American health care (Orient)1/2:42–43

GREENSPAN,Alan The age of turbulence (Callahan)

11:45–46GUTZMAN, Kevin R.C.

The politically incorrect guide to theconstitution (Huebert) 5:42–43

HARSANYI, David Nanny state: how food fascists,

teetotaling do-gooders, priggishmoralists, and other boneheadedbureaucrats are turning America into a nation of children (Leef) 7/8:45–46

HIGGS, Robert and Carl P. Close Opposing the crusader state: alternatives

to global intervention (Bandow)11:42–43

HÜLSMANN, Jörg Guido Mises: the last knight of liberalism

(Greaves) 10:42–43JOST,Timothy Stoltzfus

Health care at risk: a critique of theconsumer-driven movement (Ernst)6:45–46

KLEIN, Naomi The shock doctrine: the rise of disaster

capitalism (Stromberg) 10:43–44KOCH, Charles G.

The science of success: how market-based management built the world’slargest private company (Peterson)3:43–44

LERNER, Michael A.Dry Manhattan: prohibition in New York

City (Batemarco) 5:45–46LINDSEY, Brink

The age of abundance: how prosperitytransformed America’s politics andculture (Mixon) 12:37–38

LOTT, John Freedomnomics: why the free market

works and other half-baked theoriesdon’t (Murphy) 7/8:43–44

MAIN, Carla T.Bulldozed:“Kelo,” eminent domain, and

the American lust for land (Greenhut)6:44–45

MURPHY, Robert P.The politically incorrect guide to

capitalism (Leef) 9:42–43O’ROURKE, P.J.

On the wealth of nations (Keating)1/2:45–46

O’TOOLE, Randal The best-laid plans: how government

planning harms your quality of life,your pocketbook, and your future(Galles) 6:43–44

ROCKEFELLER, Edwin S.The antitrust religion (Leef)

10:45–46SCHAEFER, David Lewis

Illiberal justice: John Rawls vs. theAmerican political tradition (Machan)9:44–45

SHAPIRO, Daniel Is the welfare state justified? (Leef)

12:35–36SKOUSEN, Mark

The big three in economics:AdamSmith, Karl Marx, and John MaynardKeynes (Littmann) 12:38–39

SPRADING, Charles T.Liberty and the great libertarians (Leef)

11:44–45STRASSEL, Kimberly A., Celeste Colgan,

and John C. Goodman Leaving women behind: modern families,

outdated laws (Palasek) 9:45–46SZASZ,Thomas

The medicalization of everyday life:selected essays (Levatter) 10:44–45

TAYLOR, Stuart, Jr. and KC JohnsonUntil proven innocent: political

correctness and the shameful injusticesof the Duke lacrosse rape case (Leef)5:44–45

VEDDER, Richard and Wendell Cox The Wal-Mart revolution (Leef)

1/2:44–45VICTOR, George

The Pearl Harbor myth: rethinking theunthinkable (Higgs) 5:43–44

WARSH, David Knowledge and the wealth of nations: a

story of economic discovery(Boudreaux) 3:45–46

BOOKS(Reviewer’s name in parentheses)

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VOLUME 58, NO 10 DECEMBER 2008 · borrowed money, they buy mortgages from original lenders, ......

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