The Second World War has left a permanent scar on mankind. The battle lines of war engulfed all of Europe, much of Asia, parts of Africa, and touched the shores of North America. As many as 50 million people may have died in this devastating firestorm. This war also marked a descent into the worst nightmare of barbarism in human history. The Nazis slaughtered millions whom they classified as “racial vermin.” Those innocent human beings were to be eradicated from the face of the earth in a deluded pursuit of engineering a “master race.” Never had humanity witnessed such a magnitude of madness.

By the beginning of 1945 it became increasingly clear that both Nazi Germany and Imperial Japan would be defeated and the agony of war would finally end. The weary world longed for peace, security, and freedom. The future, everyone understood, was in the hands of Franklin D. Roosevelt, Winston Churchill, and Joseph Stalin, the political leaders of the victorious United States, Great Britain, and Soviet Union. During February 4–11, 1945, the “Big Three” met at Yalta in the Crimea, along the coast of the Soviet Black Sea, to map out the postwar world.

Churchill was in the weakest position of the three. He had led the British people through more than four years of war, standing alone for a year against the Nazi war machine after the fall of France in June 1940. Britain was financially and militarily exhausted. Thus FDR and Stalin were to determine mankind’s destiny.

Roosevelt, though in poor health, had just been elected for an unprecedented fourth term. His New Deal brought about a colossal expansion in Federal power, spending, regulation, and control over virtually every facet of life. Despite a setback in 1935, when the U.S. Supreme Court declared most of his economic planning schemes unconstitutional, FDR continued on the path of Big Government through a vast array of interventionist and welfare-state policies. He had transformed the traditional American Republic almost beyond recognition.

When war came, first in Asia between Japan and China in 1937, and then in Europe following the German invasion of Poland in 1939, FDR took on a new mantle of authority: New Deal savior of the world. Violating numerous neutrality acts that the Congress had passed and which he had signed, Roosevelt bent the constitution to edge America toward war long before the attack on Pearl Harbor.

The Brutal World of Joseph Stalin

Stalin felt stronger then ever. In the eyes of Western leftists the Soviet Union offered the hope of a bright socialist tomorrow, where toiling workers ruled in place of capitalist profit mongers, and want and worry vanished through the miracle of government central planning. In the early 1930s FDR said that he admired the fact that the Soviet people “all seem really to want to do what is good for their society instead of wanting to do for themselves.” In 1945 when he came back from the Yalta Conference, the President told members of his cabinet that he found in Stalin’s nature “the way in which a Christian gentleman should behave.”

This “Christian gentleman” was in fact Hitler’s competitor in brutality and mass murder in the 20th century. A bank robber on behalf of the Russian socialist movement before the Bolshevik Revolution in 1917, Stalin proved a master of political intrigue. After Lenin’s death in 1924 he succeeded in destroying all of his rivals and rose to absolute power in the Soviet Communist Party and government.

He let nothing stand in his way. Ordering comprehensive central planning and total collectivization of the land in the late 1920s and early 1930s, Stalin quashed all peasant resistance through forced famines, torture, terror, and exile to the vast wastelands of Siberia and Central Asia. Between nine and 12 million people perished in the process.

In the mid-1930s he turned his ruthless power against imaginary “enemies of the people.” Mass purges and show trials sent millions of new victims to their deaths, after “confessions” had been beaten out of them. Millions more were sent to the concentration camps of the GULAG to work and die as expendable slaves for “building socialism.”

After Hitler came to power in 1933, the Nazi and Soviet regimes used their propaganda machines to condemn each other. But in fact, the two dictators learned from and secretly admired each other.

For Stalin, Hitler was a useful tool to start a Second World War, which Stalin was plotting to trigger “inevitable” revolutions that would bring communism to power throughout Europe. That’s why Stalin initiated the diplomacy with Germany that led to the Nazi-Soviet pact of August 1939, and freed Hitler from the fear of a two-front war. The infamous pact divided Poland between the villains, and handed the Baltic States and parts of Finland and Romania over to Stalin’s “tender care.”

In the autumn of 1940, after France was defeated and England stood alone, Hitler invited Stalin to join the Axis powers to divide up the world. Stalin finally agreed, but his territorial demands were more than Hitler was willing to share. So, instead, Hitler made his fatal mistake and decided to invade the Soviet Union to destroy his totalitarian rival.

Stalin and the Spoils of Victory

Now, in February 1945, Stalin sat down with FDR at Yalta to gain the spoils of victory that he had dreamt about since his deal with Hitler in 1939. The job was made much easier for Stalin since, as the Soviet archives have now revealed, FDR’s government was riddled with Soviet agents and fellow travelers who passed along all of Roosevelt’s plans. In addition, the villa where FDR and the American delegation were staying was completely bugged by the Soviet secret police.

The cornerstone of Stalin’s agenda was the destruction of Germany as a future political and military adversary, as a way for spreading communism to the rest of Europe. Germany was territorially dismembered with almost one-third of its eastern lands being annexed by Poland and the Soviet Union. (Stalin also kept almost all of the Polish territory he had gained in 1939.) What remained of Germany was divided into zones of occupation, with the Soviet zone reaching far into the center of Europe. Austria, too, was divided into occupation zones. In both cases, Berlin and Vienna were isolated islands in Soviet-controlled territory, leaving the American, British, and French zones in these cities at the mercy of surrounding Soviet forces. At the end of the war Stalin immediately stripped the Soviet zone of all undestroyed industrial equipment, and began the process of establishing a puppet communist regime in what later became East Germany.

Ever the master manipulator, Stalin promised Roosevelt and Churchill free and open elections in the Eastern European countries “liberated” by the Soviet Army. But Stalin had other plans. Two months after the Yalta Conference, he told a Yugoslavian communist delegation visiting Moscow that, “This war is not as in the past; whoever occupies a territory also imposes on it his own social system. Everyone imposes his own system as far as his army can reach.”

Indeed, over the next three years Stalin’s secret police assisted the Moscow-controlled communist parties in Poland, Hungary, Romania, Bulgaria, Albania, and Czechoslovakia to set up “people’s democracies” through the usual means: repression, imprisonment and murder.

While the war raged in Europe, the United States and Britain were also pushing back the Japanese in Southeast Asia and across the Pacific at great loss of life. Stalin, on the other hand, remained at peace with Japan, having signed a non-aggression pact with Tokyo in April 1941. The Soviet archives demonstrate that Stalin desired a war between the United States and Japan. He believed that the chaos of such a conflict would ripen the conditions for communist revolutions in Asia.

Soviet Booty in Asia

At Yalta, Stalin offered to enter the war against the Japanese once Germany was defeated—but only at a price. He demanded the Soviet annexation of the Japanese-controlled southern half of Sakhalin Island (with its oil fields) and the strategic Kurile Islands, north of the Japanese home islands. He also insisted that the Japanese military base at Port Arthur at the southern tip of Manchuria be transferred to Soviet control (Japan had acquired it in 1905 after the Russian defeat in the Russo-Japanese war). Finally, Stalin claimed Soviet jurisdiction over several of the major railway lines running through Manchuria. He insisted on all this booty in Manchuria without the Chinese government’s prior knowledge or approval.

The Big Three also agreed to divide Korea (which had been under Japanese control for half a century) along the 38th parallel into Soviet and American zones of occupation. When the war ended, Stalin started establishing a communist regime in North Korea. The Soviet archives confirm that Stalin also approved and helped plan North Korea’s attack on South Korea in 1950, which dragged the United States into a three-year war at the cost of 50,000 American lives.

Soviet forces attacked the Japanese in Manchuria immediately after America dropped the atomic bomb on Hiroshima in August 1945. At virtually no cost, Stalin gained control over a vast area of northeast Asia. Shortly after the Soviet Army overran Manchuria, Stalin had the industrial facilities of this part of China stripped and shipped to Siberia.

After the Japanese surrender, the Red Czar allowed Mao Zedong’s communist forces to enter Manchuria. The Soviet Army turned over vast quantities of captured Japanese military equipment to the Chinese communists, helping to assure Mao’s eventual triumph on the Chinese mainland in 1949.

When Roosevelt returned from the Yalta Conference, he addressed a joint session of Congress and assured the American people: “I come from the Crimean Conference, my fellow Americans, with a firm belief that we have made a good start on the road to a world of peace.” For far too long, he also stated, Americans had been afraid of the word “planning.” FDR insisted that “many benefits to the human race have been accomplished as a result of adequate, intelligent [government] planning.” He was confident that the Yalta Conference had laid the “groundwork of a plan” for a new world order.

FDR: The Global Planner

That “plan” was the creation of the United Nations. For the establishment of the UN, Franklin Delano Roosevelt gave Joseph Stalin virtually everything the tyrant wanted. The UN, controlled by the United States and the Soviet Union, along with Great Britain, France and China, was to become the policeman of the world.

FDR envisioned America’s participation in a project of global social engineering, which would set the world right through economic sanctions and military force. What this might cost in American lives and material fortune never seemed to enter Roosevelt’s mind. Nor did he appear to have second thoughts that giving the world a New Deal might result in further losses of liberty at home. No, FDR did not worry about these “minor” matters. After all he had Stalin, that “Christian gentleman,” as his imagined partner for managing the world.

Sixty years have now passed since the fateful meeting at Yalta. FDR danced with the devil, and the world suffered the consequences. Stalin, who helped Hitler start the Second World War, reaped his reward at the end of it: Soviet domination of Eastern Europe, at the cost of terror and tyranny for all the people who were forced to live in the “socialist paradise.” The people of North Korea, also swept up in the communist net, still live under it. The triumph of communism in China was also helped along, with hundreds of millions placed under the yoke of Mao’s murderous regime.

Stalin died in 1953. Thirty-eight years later the Soviet Empire disappeared from the map. Yet the legacy of the Yalta Conference still haunts us. Many of the conflicts around the world today are outgrowths of the political, economic, and moral destruction that Soviet communism left in its wake. It also fostered a belief that governments can plan the peace and happiness of mankind, if only they have the power to direct our lives. Our task in the 21st century is to finally free ourselves from this legacy.

Dr. Richard Ebeling is well known as a dedicated and passionate spokesman for liberty. The author of numerous books and articles, he lectures worldwide on a broad variety of free-market and historical themes. In 1991 while consulting on market reform and privatization in the former Soviet Union, he joined the defenders of freedom and faced the Soviet troops in Vilnius, Lithuania, and again in Moscow, Russia, during the attempted communist coup d’état. Dr. Ebeling is the president of the Foundation for Economic Education.

Someone once said: It isn’t that Christianity has been tried and found wanting; it has been tried and found difficult—and abandoned. Perhaps the same thing might be said about freedom. The American people are becoming more and more afraid of, and are running away from, their own revolution. I think that statement takes a bit of documentation.

I would like to go back, a little over three centuries in our history, to the year 1620, which was the occasion of the landing of our Pilgrim Fathers at Plymouth Rock. That little colony began its career in a condition of pure and unadulterated communism. For it made no difference how much or how little any member of that colony produced; all the produce went into a common warehouse under political authority, and the proceeds of the warehouse were doled out in accordance with the authority’s idea of need. In short, the Pilgrims began the practice of a principle held up by Karl Marx two centuries later: “From each according to his ability, to each according to his need”—and by force!

Now, there was a good reason why these communalistic practices were discontinued. It was because the members of the Pilgrim colony were starving and dying. As a rule, that type of experience causes people to stop and think about it!

And they did. During the third winter Governor Bradford got together with the remaining members of the colony and said to them, in effect, that this coming spring they would try a new idea: each individual has a right to the fruits of his own labor. And when Governor Bradford said that, he enunciated the foundation of private property as clearly and succinctly as any economist ever had. The next harvest was plentiful. Governor Bradford recorded that: “Any generall wante or famine hath not been amongst them since to this day.”

It was putting those very principles of private property into action in this country that started an era of unprecedented growth. Sooner or later it had to lead to revolutionary political ideas. And it did lead to the American Revolution.

Up until 1776 men had been contesting with each other, killing each other by the millions, over the age-old question of which of the numerous forms of authoritarianism—that is, man-made authority— should preside as sovereign over man. And then, in 1776, in the fraction of one sentence written into the Declaration of Independence was stated this new idea, “that all men are created equal; that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the Pursuit of Happiness.” That was it. This is the essence of Americanism, an idea which broke with the whole political history of the world. This is the rock upon which the whole “American miracle” was founded. This revolutionary concept was political in implicitly denying that the state is the endower of man’s rights, thus declaring that the state is not sovereign.

It was economic in the sense that if an individual has a right to his life, it follows that he has a right to sustain his life—the sustenance of life being nothing more nor less than the fruits of one’s own labor.

It is one thing to state such a revolutionary concept as this; it’s quite another thing to implement it—to put it into practice. To accomplish this, our Founding Fathers added two political instruments— the Constitution and the Bill of Rights. These two instruments were essentially a set of prohibitions; prohibitions not against the people but against what the people, from their Old World experience, had learned to fear: over-extended government.

Benefits of Limited Government

The U.S. Constitution and the Bill of Rights more severely limited government than government had ever before been limited in the history of the world. And there were benefits that flowed from this severe limitation of the state.

First, there wasn’t a single person who turned to the government for security, welfare, or prosperity because government was so limited that it had no power to take from some and give to others. Then where did people turn? They turned where they should—to themselves. As a result of this discipline Americans developed an admirable quality of character that Emerson called “self-reliance.”

Second, when government is limited to the inhibition of the destructive actions of men, when it is limited to invoking a common justice—then there is no organized force standing against individual productivity and creativity.

This manifested itself among the people as individual freedom of choice. People had freedom of choice as to how they employed themselves. They had freedom of choice as to what they did with the fruits of their own labor. As a consequence the creative human energy was freed on an unprecedented scale.

But something happened to this remarkable idea of ours, this revolutionary concept. It seems that the people we placed in government office as our agents made a discovery. Having acquisitive instincts for affluence and power over others they discovered that the force which inheres in government, and which the people had delegated to them could be used to invade the productive and creative areas in society—one of which is the business sector. They also found that if they incurred any deficits by their interventions, the same government force could be used to collect the wherewithal to pay the bills.

The Lengthening Shadow

I would like to suggest to you that the extent to which government in America has departed from the original design of inhibiting the destructive actions of man and invoking a common justice; the extent to which government has invaded the productive and creative areas; the extent to which the government in this country has assumed the responsibility for the security, welfare, and prosperity of our people is a measure of the extent to which socialism has developed here in this land of ours.

Now then, can we measure this development? Not precisely, but we can get a fair idea of it by looking at individual freedom of choice to use the fruits of one’s own labor. Over a century ago the tax take of the government—federal, state, and local—was between 2 and 5 percent of the earned income of the people. It is now way over 35 percent and keeps growing.

Many of my friends say to me, “Oh, Read, why get so excited about that? We still have, on the average, 65 percent freedom of choice with our income dollars.”

True, on the average, we do have 65 percent freedom of choice with our earned income. But, please take no solace from this fact. Whenever the take of the people’s earned income by government reaches a certain level—20 or 25 percent—it is no longer politically expedient to pay for the costs of government by direct tax levies. Governments then resort to inflation as a means of financing their ventures. By “inflation” I mean increasing the volume of money by the national government’s fiscal policy.

Governments resort to inflation with popular support because the people apparently are naive enough to believe that they can have their cake and eat it, too. Many people do not realize that they cannot continue to enjoy so-called “benefits” from government without having to pay for them. They do not appreciate the fact that inflation is probably the most unjust and cruelest tax of all.

What precisely is this disease that causes inflation and all these other troubles? It has many popular names, such as socialism, communism, state interventionism, and welfare statism. It has some local names: New Deal, Fair Deal, New Republicanism, New Frontier, and the like.

A Dwindling Faith in Freedom

If you will take a careful look at these so-called “progressive ideologies,” you will discover that each of them has a characteristic common to all the rest: a cell in the body politic that has a cancer-like capacity for inordinate growth. This characteristic takes the form of a rapidly growing belief that the function of government is not to carry out its original purpose of inhibiting the destructive actions of men and invoking a common justice, but to control the productive and creative activity of citizens in society.

Here is an example of what I mean: I can remember the time when, if we wanted a house or housing, we relied on private enterprise. In fact, Americans built more square feet of housing per person than any other country on the face of the earth. Despite that remarkable accomplishment, more and more people are coming to believe that the only way we can have adequate housing is to use government to take the earnings from some and give these earnings, in the form of housing, to others.

As this belief in the use of government as a means of creative accomplishment increases, the belief in free individuals—acting freely, competitively, cooperatively, voluntarily—correspondingly diminishes. Increase compulsion, and freedom declines.

Now then, why is this happening in America? I don’t know all the reasons. I am not sure that anyone does. If pressed, however, for the most profound one, it would be this: we have forgotten the real source of our rights and are suffering the consequences.

Therefore, the solution to this problem must take a positive form: the restoration of a faith in what free men can accomplish.

Leadership for Liberty

The important thing to realize is that ours is not a numbers problem. Were it necessary to bring a majority into a comprehension of the freedom philosophy, the cause of liberty would be utterly hopeless. Every significant movement in history has been led by one or just a few individuals with a small minority of energetic supporters.

The real problem, then, is developing a leadership, identifying and supporting individuals from different walks of life who care about, understand, and can explain liberty.

Let us personalize leadership.

The first level of leadership requires an individual to achieve that degree of understanding which makes it utterly impossible for him to have any hand in supporting or giving encouragement to any form of socialism whatever misleading labels and nicknames it takes.

This level of attainment requires no “original” thinking, writing or talking, but we should not underestimate the enormous influence set in motion by an individual who does absolutely no ideological wrong. His refusal to sanction or promote unsound actions and his faithfulness to free-market ideals— even if he is silent—has a radiating effect and sets high standards for others to follow.

The second level of leadership is reached when an individual achieves that degree of understanding and exposition which makes it possible for him to clearly explain the fallacies of socialism and the principles of freedom to those who come within his own orbit. Not only can such an individual interpret ideas conceived by others, but he also can conceive ideas himself. In short, he becomes a creative thinker, writer, and spokesman for liberty and the free market.

It is at this level that one’s attitude toward others becomes of great importance. If the individual is patient until others are ready to listen and share his views, closed minds will open and become receptive.

The third level of leadership requires the individual to achieve that degree of excellence in understanding and exposition of the freedom philosophy that will inspire others to seek him out as a tutor.

I am not at this level but I am aware of it and know some of its imperatives. One imperative is the awareness that the higher the objective is, the more dignified the method must be. If we aspire to such a high objective as advancing individual liberty and the free market, we can resort to no lesser method than the power of attraction, the absolute opposite of using propaganda, indoctrination, and half truths. A good way to test how well one is doing on the objective we have in mind is to observe how many are seeking his counsel. If none, then one can draw his own conclusions!

The sole force that will turn indifference into acceptance is the power of attraction. And this can be achieved only if the eye is cast away from the remaking of others and toward the improvement of self. This effort demanded of each individual is not at all a sacrifice, but rather the best investment one can make in life’s highest purpose.

Well, where can we find such individuals? I think we will find them among those who love this country. I think we will find them in this room. I think that one of them is you.

---

Raised on a Michigan farm, Leonard E. Read (1898–1983) became an entrepreneur and, eventually, General Manager of the Los Angeles Chamber of Commerce. His commitment to truth and to the principles of liberty led him to found the Foundation for Economic Education in 1946. For the next 37 years he served as FEE president and labored tirelessly to promote and advance liberty. He was a natural leader who, at a crucial moment in American history, roused the forces defending individual freedom and private property.

Read was the author of 29 books and hundreds of essays— including the classic “I, Pencil.” His life is a testament to the power of ideas. As John Stossel of ABC News has commented, “Leonard Read said so much, so well, long before any of us began to try to think clearly about it.”

When Leonard E. Read died, FEE received the following telegram from President Ronald Reagan: “We share your sorrow at the loss of a man whose dedication to our cherished principles of liberty burned brightly throughout his life. Our nation and her people have been vastly enriched by his devotion to the cause of freedom, and generations to come will look to Leonard Read for inspiration.”

]]> http://fee.org/nff/the-essence-of-americanism/feed/ 0 http://fee.org/nff/healing-america-the-free-market-instead-of-government-health-care/ http://fee.org/nff/healing-america-the-free-market-instead-of-government-health-care/#comments Fri, 19 Dec 2008 21:36:10 +0000 admin http://fee.org/?p=3087 The following is abridged from a speech delivered at “Evenings at FEE” in July 2006.

Our society has been bedazzled by a host of seductive and erroneous ideas about American medical care: we can change human nature, and this time we can do it right; we can find the fountain of youth; we can eat from the Tree of Life; and we can surely fly into the Sun with our paraffin wings.

Unfortunately medicine is very well adapted to fuel all of these dangerous illusions. It is a two-trillion-dollar pot of gold, one seventh of the American economy. It is certainly a great magnet and motivation for all types of people. It attracts people because of fear and greed, and it attracts people because of their better instincts. It is also the third-rail of politics. Once people are given some sort of entitlement to medicine, it can never be taken away. Let us not blame the free market for that; there has been no free market in medicine for at least 60 years, thanks to the public-private partnership, the federal tax code, and all types of government intrusions and incentives.

Medicine is a great place for practicing Sutton’s Law. When asked why he robbed banks, the famous bank robber Willie Sutton replied, “Well, because that’s where the money is.” But the money is not in taking care of sick people. The money is in what we now call health care. Money comes from things like data mining—from selling information to pharmaceutical companies so that they can monitor doctors to make sure they are prescribing enough drugs.

The real money, of course, is in so-called insurance. Insurance is supposed to be a voluntary means of sharing risks and paying a premium based upon an estimate of an individual’s risk. For example, when you buy life insurance, it does not actually protect your life. In fact, it may become a danger to your life, depending on who the beneficiary is. Who are the beneficiaries of your health insurance? To a large extent, hospitals.

So health insurance is not really insurance but a health plan, a way of prepaying for medical care. Customers pay the premiums; insurance companies collect all those premiums and make huge money through investing the float. They also make a great deal of money from doing the administrative paperwork, often just by processing the claims to give the patient back his $2.50 worth of reimbursement. The more money flows through their hands, the more of it sticks to their fingers. This is why insurance companies are so upset about the idea of individual health savings accounts: they want all that money in their accounts, not in yours.

Nevertheless, health-insurance companies can be credited with the greatest marketing success in history. They have managed to transform something that people generally begrudge—insurance—into the “Holy Grail” that everybody thinks he must have. Somehow they were able to convince all of us that having health insurance automatically guarantees access to care when we are sick or injured.

But the very people who are marketing the idea of “universal coverage” want us “covered” so they can control medical care. This way they do not have to spend all that money on sick people who are too big a liability and do not fit into their central plan. Sick people are kind of a “disaster”: they cannot go to work, treatment takes up all their money, and they cannot really pay for their care. Clearly insurers do not make money from paying sick people’s bills; they make money from collecting the premiums in advance from healthy ones.

In other words, medicine cannot be a big source of profit if people only use it when they have a problem. The solution? Find a steady source of income from people who are not sick, but healthy, promise to take care of their health, and turn what used to be called medicine into “health care.”

Coercion versus Choice

Proponents of universal health care keep a big “secret” that I want to share with you: your health care is up to you. It is your individual responsibility, and you probably learned everything you need to know about it from your grandmother. You should eat your vegetables and get your exercise, you should not smoke or drink to excess, you should not run around. In reality your health is determined by your genetic endowment, by your behavior, by the choices you make, and, to a large extent, just by pure luck.

Yet we are constantly being told that we ought to have a better health-care system. After all aren’t we the only industrialized country without universal health care? We Americans need to be made healthier. We need more and more guaranteed preventative services like mental-health screening and treatment for high cholesterol and hypertension.

At the same time the standards that make one eligible for all those treatments are getting lower and lower, as more and more new, expensive drugs become available. A lot of these protocols may possibly decrease one’s risk of certain types of mortality by half a percent. But the cost is very high in both money and potential side effects, which are not very well researched, cannot possibly be known, and may determine long-term outcomes.

Nevertheless, the insurance companies want to make sure that you will buy all of these products, allegedly to improve your health. It makes you very dependent: the more expensive drugs and services you have to buy, the more important it becomes for you to have health insurance. In other words, all of these products and services react in a synergistic way: they are very expensive, and you need more and more of them, so you need more and more health coverage. If you do not have health insurance, you are in bigger and bigger trouble because you cannot afford to buy all of these health solutions.

That is the reason why the universal health-care movement, which is really the universal get-you-covered-by-insurance movement, continues to gain momentum. Those on the left insist that health care is a shared social responsibility and demand legislation which will guarantee life-long, affordable health-care coverage for all Americans.

Many people have chosen not to buy coverage, either because it is expensive and they don’t think they need it—or because they think it is a rip-off and plan to pay their own bills when they get sick. Today the tide has turned against them. They are branded as free riders who don’t pay their bills, and thus must be forced to buy health insurance. Sadly, Massachusetts has just passed a bill mandating everybody to buy health coverage.

Socialism Through the Back Door

Besides being a scam as far as health is concerned, universal health care is a great way of implementing one of socialism’s main objectives through the back door: equalization of incomes through redistribution of wealth. Let us not forget that Lenin called medicine the “keystone in the arch of socialism.” In Canada, for example, socialized medicine is a reality of everyday life. Everybody has to have insurance. It is universal, it is mandatory, and it is affordable. People with low incomes may pay as little as $300 a year through their taxes whether they like it or not.

Those in the upper-income category may pay as much as $22,000 for the same low-quality insurance policy. Canada’s upside-down-and-backward universal health care makes sure that anybody can go to the doctor because of a sniffle ithout paying the bill. On the other hand those who are really sick are “guaranteed” to be circling around the emergency room or piled up on gurneys in the corridor, and they are forced to pay for such care on the basis of income. It is the ultimate sliding scale.

Can you think of any other product that you have to pay for according to your income? When you buy a car, does the dealer look at your tax return and say, “Well, this car is going to be ten times as much for you as it is for me”? It’s a great way to redistribute the wealth.

Vernon L. Smith, a Nobel laureate who has spoken here at FEE, explains the way we buy health care in a recent Wall Street Journal article: A is the customer, B is the service provider. B tells A what service he should buy. Then a third party pays for it from a common pool of funds. This problem has no economic solution. We have simply disconnected supply from demand by taking the price to be paid directly by the customer out of the equation. Thus we have absolutely no control over the cost of this system. No wonder the cost keeps going up and up and up. Medicare is a perfect example.

Every time the government passes a law to make health insurance more affordable, the expenditures rise and so do the premiums. As a result, the number of uninsured people goes up as well. The only way we can get people to buy such an overpriced product is to use force. Having disconnected the free-market mechanism, the government now must control the supply side by rationing health-related products and services. Of course the word rationing is never used; instead, medical services are rationalized.

Under this “non-rationing” rationalized system, we are going to make sure that we get the right care to the right person in the right setting at the right time. The government promises to eliminate disparities so no one gets better treatment than another.

Quality or Equality?

The medical central planners are determined to make us all equal, insisting that it is not right that a rich person can get better treatment than a homeless one. In practice this means cutting off the outliers from both ends of the bell-shaped curve. On one end, you should not be at liberty to spend your hard-earned wealth to improve the quality of your own medical care. On the other end, if you are poor and become a liability—if you live too long or are disabled and the system has to take care of you—well, don’t get your hopes up. In other words, cut off the rich so they don’t have more than anybody else, and cut off the poor.

This can in no way improve the quality of medical care unless quality is redefined to mean compliance with the rules. Compliance with what the government allows you to have, which, of course, will be influenced by a political process. We already practice this in Medicare. A doctor is not allowed to give charity to a Medicare patient. One could even go to jail for it. In spite of all this the word compassion is constantly used in an attempt to sell universal medical care, under which compassion is simply not going to be allowed. What total and utter hypocrisy!

But people are in denial. They are bedazzled by all kinds of illusions and false promises that keep their eyes off what the man behind the curtain is doing. Americans believe that we can all have good health and we can all be taken care of by the compassionate state.

There is a sense of urgency in all these political plans to bring about universal health care. We’ve already begun to see the effects in the older age groups. Through Social Security taxes a large younger generation, the baby-boomers, supported very generously the less-numerous older generation. The government has taken the excess, spent it, and stuffed the Medicare trust fund with IOUs.

Do you know what is in that famous “lock box”? It is full of IOUs, which the younger generation is going to pay off one of these days to support the aging babyboomers. In fact, people of my age (I am at the leading edge of the baby-boomers) are the real troublemakers here because they will cause the day of reckoning.

Ignoring Ethics

Medical ethics is being turned upside down and backwards. When you go to the hospital, even for some minor outpatient procedure, you will be asked to sign an advance directive or possibly grant permission not to resuscitate you in case of some disaster. For example, I once admitted to the hospital an older patient of mine with a minor problem. I expected her to do well and reassured her that she would go home in a couple of days. I had completed my examination when somebody asked her to sign a paper giving us permission not to restart her heart if it stops. Why was my patient being terrorized? I had just finished trying to reassure her.

When I was an intern at Parkland Memorial Hospital in Dallas, I expected people who were admitted with a little bit of heart failure or a mild stroke to get better fairly soon. These days, such patients may suddenly go downhill and die. I think they are administered large dosages of sedatives or painkillers they do not really need. They cannot take a deep breath, they cannot cough, they cannot get out of bed, they get blood clots, and finally they just die.

We got ourselves into our current dilemma by trying to repeal the laws of economics, and now we are trying to cope with it by repealing the laws of ethics. We must not ignore the fact that all of this rhetoric about the “universal right to health care” has very serious implications. Being covered by health insurance by no means guarantees you medical care. On the contrary, the more medicine is socialized, the less medical care you can count on receiving. If you have the right to all the health care that society determines you are entitled to but cannot afford to provide, that means that you have no right to live.

Medical care is no longer a free-market enterprise. It is used to cover up for making political promises that we should have known a long time ago cannot be kept. Until we are willing to face the truth of what we have done, the consequences are going to be disastrous.

---

Jane M. Orient, M.D., began her career as a medical doctor and a clinical researcher, but this changed after she read an article, “A Marxist View of Medical Care,” in a medical journal. Since then, she has written more than a hundred articles, books, reviews, and essays. Dr. Orient serves as executive director of the Association of American Physicians and Surgeons (AAPS) and editor of its newsletter. She is also a professor of clinical medicine at the Oregon Institute of Science and Medicine and a clinical lecturer at the University of Arizona College of Medicine. During the Clinton presidency she was instrumental in bringing about the high-profile lawsuit, AAPS v. Clinton, which successfully challenged the illegal secret operations of the Clinton Task Force on Health Care Reform. Dr. Orient, a former trustee, is a member of the FEE faculty. Her lectures are very popular with our summer seminar students. Dr. Orient resides in Tucson, Arizona.

]]> http://fee.org/nff/healing-america-the-free-market-instead-of-government-health-care/feed/ 0 http://fee.org/nff/the-health-of-a-republic/ http://fee.org/nff/the-health-of-a-republic/#comments Fri, 19 Dec 2008 21:33:33 +0000 admin http://fee.org/?p=3085 The following is abridged from a speech delivered at “Evenings at FEE” in Irvington-on-Hudson, New York, in February 2004. The term republic had a significant meaning for all early Americans. The form of government secured by the Declaration of Independence,…]]> The following is abridged from a speech delivered at “Evenings at FEE” in Irvington-on-Hudson, New York, in February 2004.

The term republic had a significant meaning for all early Americans. The form of government secured by the Declaration of Independence, the American Revolution, and the Constitution was unique, requiring strict limitation of government power. Powers that were permitted would be precisely defined and delegated by the people, with all public officials being bound by their oath of office to uphold the Constitution. The Constitution made it clear that the government was not to interfere with productive nonviolent human energy. This is the key element that has permitted America’s great achievements and made America the political and economic envy of the world. We have truly been blessed.

Today, however, the nature of a republic and the current status of our own form of government are of little concern to most Americans. But there is a small minority, ignored by politicians, academics, and the media, who do spend time thinking about the importance of the proper role of government. The comparison of today’s government with the one established by our Constitution is a matter worthy of deep discussion for those who concern themselves with the future and look beyond the coming election. Understanding the principles that were used to establish our nation is crucial to its preservation and something we cannot neglect.

In our early history, it was understood that a free society embraced both personal civil liberties and economic freedom. During the 20th century, this unified concept of freedom was undermined. Today we have one group talking about economic freedom while interfering with our personal liberty and the other group condemning economic liberty, while preaching the need to protect civil liberties. Both groups reject liberty fifty percent of the time. Sadly, there are very few in this country who today understand and defend liberty in both areas.

The Constitution Today

Many Americans wonder why Congress pays little attention to the Constitution and are bewildered as to how so much inappropriate legislation gets passed. But the Constitution is not entirely ignored. It is used correctly at times when it’s convenient and satisfies a particular goal, but never consistently across the board on all legislation. The Constitution is all too frequently made to say exactly what the authors of special legislation want it to say. That’s the modern way: language can be made relative to our times. But without a precise understanding and respect for the supreme law of the land, the Constitution no longer serves as the guide for the rule of law. In its place come the rule of man and special interests.

That’s how we have arrived in the 21st century without a clear understanding or belief in the cardinal principles of the Constitution—the separation of powers and the tenets of federalism. Instead, we are rushing toward centralized control. Executive Orders, agency regulations, federal court rulings, and unratified international agreements direct our government, economy, and foreign policy.

Congress has truly been reduced in status and importance over the past hundred years. And when the people’s voices are heard, it’s done indirectly through polling, allowing our leaders to decide how far they can go without stirring up their constituents. This is opposite to what the Constitution was supposed to do: protect the rights of the minority from the abuses of the majority. The majority vote of the powerful and the influential was never meant to rule the people. 

In a free society individuals should control their own lives, receiving the benefits and suffering the consequences of their actions. Once the individual becomes a pawn of the state, whether a monarch or a majority is in charge, a free society can no longer endure. We are dangerously close to that happening in America, even in the midst of plenty and with the appearance of contentment. If individual freedom is carelessly snuffed out, the creative energy needed for productive pursuits will dissipate. Government produces nothing, and in its effort to redistribute wealth, can only destroy it.

Freedom too often is rejected when there is a belief that government largesse will last forever. This is true because it is tough to accept personal responsibility, practice the work ethic, and follow the rules of peaceful coexistence with our fellow man. The temptation is great to accept the notion that everyone can be a beneficiary of the caring state and a winner of the lottery or a class-action lawsuit. But history has proven there is never a shortage of authoritarians—benevolent, of course—quite willing to tell others how to live for their own good.

Worth the Effort

Some of my good friends suggest that it is a waste of time and effort to try to change the direction in which we are going. No one will listen, they argue, and the development of a strong centralized authoritarian government is too far along to reverse the trends of the last century. Why waste time in Congress when so few people care about liberty? The masses, they point out, are interested only in being taken care of, and the elites want to keep receiving the benefits allotted to them through special-interest legislation.

I am not naive enough to believe the effort to preserve liberty is a cakewalk. But ideas, based on sound and moral principles, do have consequences. Our Founders clearly understood this, knowing they would be successful, even against overwhelming odds. They described this steady confidence, which they shared with each other when hopes were dim, as “divine providence.”

The good news today is that our numbers are growing. More Americans than ever before are very much aware of what’s going on in Washington and how, on a daily basis, their liberties are being undermined. There are more think tanks than ever before promoting the market economy, private property ownership, and personal liberty. Millions of Americans are sick and tired of being overtaxed and despise the income tax and the inheritance tax. The majority of Americans know government programs fail to achieve their goals and waste huge sums of money. Sentiment is moving in the direction of challenging the status quo of the welfare and international warfare state. The Internet has given hope to millions who have felt their voices were not being heard. And this influence is just beginning. The three major networks and conventional government propaganda no longer control the information now available to anyone with a computer.

We face tough odds, but to avoid battle or believe there is a place to escape to someplace else in the world would concede victory to those who endorse authoritarian government. The grand experiment in human liberty must not be abandoned. A renewed hope and understanding of liberty are what we need today.

An Agenda for Achieving Freedom

We know that the idea of perfect socialism is an oxymoron. Pursuing utopia throughout the last century has already caused untold human suffering. That’s why the clear goal of a free society must be understood and sought or the vision of the authoritarians will face little resistance and will easily fill the void. There are precise goals we should work for, even under today’s difficult circumstances. We must legalize freedom to the maximum extent possible:

1. Complete police protection is impossible; therefore we must preserve the right to own weapons in self defense.
2. In order to maintain economic protection against government debasement of the currency, gold ownership must be preserved—something taken away from the American people during the Great Depression.
3. Adequate retirement protection by the government is limited, if not ultimately impossible. We must allow every citizen the opportunity to control all his or her retirement funds.
4. Government education has clearly failed. We must guarantee the right of families to homeschool or send their kids to private schools and help them with tax credits.
5. Government snooping must be stopped. We must work to protect all our privacy, especially on the Internet, prevent the National ID Card, and stop the development of all government data banks.
6. Federal police functions are unconstitutional and increasingly abusive. We should disarm all federal bureaucrats and return the police function to local authorities.
7. The army was never meant to be used in local policing activities. We must firmly prohibit our presidents from using the military in local law-enforcement operations, which is now being implemented under the guise of fighting terrorism.
8. Foreign military intervention by our presidents in recent years is a costly failure. Foreign military intervention should not be permitted without explicit congressional approval.
9. Competitions in all elections should be guaranteed, and the monopoly powers gained by the two major parties through unfair signature requirements, high fees, and campaign donation controls should be removed. Competitive parties should be allowed in all government-sponsored debates.
10. We must do whatever is possible to help instill a spiritual love for freedom and recognize that our liberties depend on responsible individuals, not the group or the collective or society as a whole. The individual is the building block of a free and prosperous social order.

The Founders knew full well that the concept of liberty was fragile and could easily be undermined. They worried about the dangers that lay ahead. As we face today’s extraordinary challenges it is an appropriate time to rethink the principles upon which a free society rests. 

Thomas Jefferson, concerned about the future, wrote: “Yes, we did produce a near-perfect republic. But will they keep it? Or will they, in the enjoyment of plenty, lose the memory of freedom? Material abundance without character is the path of destruction.” “They” that he refers to are “ we.” And the future is now. Freedom, Jefferson knew, would produce “plenty,” and with “material abundance” it’s easy to forget the responsibility the citizens of a free society must assume if freedom and prosperity are to continue. The key element for the Republic’s survival for Jefferson was the “character” of the people, something no set of laws can instill. The question today is not that of abundance, but of character, respect for others, their liberty and their property. It is the character of the people that determines the proper role for government in a free society.

Samuel Adams, likewise, warned future generations. He referred to “good manners” as the vital ingredient a free society needs to survive. Adams said: “Neither the wisest Constitution nor the wisest laws will secure the liberty and happiness of a people whose manners are universally corrupt.”

The message is clear-if we lose our love of liberty and our manners become corrupt, character is lost and so is the Republic.

But character is determined by free will and personal choice by each of us individually. Character can be restored or cast aside at a whim. The choice is ours alone and our leaders should show the way.

Character and good manners are not a government problem. They reflect individual attitudes that can only be changed by individuals themselves. Freedom allows virtue and excellence to blossom. When government takes on the role of promoting virtue, illegitimate government force is used, and tyrants quickly appear on the scene to do the job. Virtue and excellence become illusive, and we find instead that the government officials become corrupt and freedom is lost—the very ingredient required for promoting virtue, harmony, and the brotherhood of man.

Let’s hope and pray that our focus will shift toward preserving liberty and individual responsibility and away from authoritarianism. The future of the American Republic depends on it. Let us not forget the American dream depends on keeping alive the spirit of liberty.

---

Congressman Ron Paul of Texas is the leading spokesman in Washington for limited constitutional government, low taxes, free markets, and a return to sound monetary policies. Dr. Paul never votes for legislation unless the proposed measure is expressly authorized by the Constitution. In the words of former Treasury Secretary William Simon, Dr. Paul is the “one exception to the Gang of 535” on Capitol Hill. Dr. Paul is the author of several books, including The Case for Gold and A Republic, If You Can Keep It.

]]> http://fee.org/nff/the-health-of-a-republic/feed/ 0 http://fee.org/nff/human-betterment-through-globalization/ http://fee.org/nff/human-betterment-through-globalization/#comments Fri, 19 Dec 2008 21:19:39 +0000 admin http://fee.org/?p=3083 The following is abridged from a speech delivered at “Evenings at FEE” in September 2005. It’s a great pleasure to join FEE for their “Saturday Night Live” and to be among both old friends and many new ones. Several years…]]> The following is abridged from a speech delivered at “Evenings at FEE” in September 2005.

It’s a great pleasure to join FEE for their “Saturday Night Live” and to be among both old friends and many new ones. Several years ago Candace and I taught one of the FEE student seminars here together. The experience was so wonderful that I married her!

My message today is an optimistic one. It is about exchange and markets, which allow us to engage in task and knowledge specialization. It is this specialization that is the secret of all wealth creation and the only source of sustainable human betterment. This is the essence of globalization.

The challenge is that we all function simultaneously in two overlapping worlds of exchange. First, we live in a world of personal, social exchange based on reciprocity and shared norms in small groups, families, and communities. The phrase “I owe you one” is a human universal across many languages in which people voluntarily acknowledge indebtedness for a favor. From primitive times, personal exchange allowed specialization of tasks (hunting, gathering, and tool making) and laid the basis for enhanced productivity and welfare. This division of labor made it possible for early men to migrate all over the world. Thus, specialization started globalization long before the emergence of formal markets.

Second, we live in a world of impersonal market exchange where communication and cooperation gradually developed through long-distance trade between strangers. In acts of personal exchange we usually intend to do good for others. In the marketplace this perception is often lost as each of us tends to focus on our own personal gain. However, our controlled laboratory experiments demonstrate that the same individuals who go out of their way to cooperate in personal exchange strive to maximize their own gain in a larger market. Without intending to do so, in their market transactions they also maximize the joint benefit received by the group. Why? Because of property rights. In personal exchange the governing rules emerge by voluntary consent of the parties. In impersonal market exchange, the governing rules—such as property rights, which prohibit taking without giving in return—are encoded in the institutional framework. Hence the two worlds of exchange function in a similar way: you have to give in order to receive.

The Foundation of Prosperity

Commodity and service markets, which are the foundation of wealth creation, determine the extent of specialization. In organized markets, producers experience relatively predictable costs of production, and consumers rely on a relatively predictable supply of valued goods. These constantly repeated market activities are incredibly efficient, even in very complex market relationships with multiple commodities being traded.

We have also discovered through our market experiments that people generally deny that any kind of model can predict their final trading prices and the volume of goods they will buy and sell. In fact, market efficiency does not require a large number of participants, complete information, economic understanding, or any particular sophistication. After all, people were trading in markets long before there existed any economists to study the market process. All you have to know is when you are making more money or less money and whether you have a chance to modify your actions.

The hallmark of commodity and service markets is diversity—a diversity of tastes, human skills, knowledge, natural resources, soil, and climate. But diversity without freedom to exchange implies poverty. No human being, even if abundantly endowed with a single skill or a single resource, can prosper without trade. Through free markets we depend on others whom we do not know, recognize, or even understand. Without markets we would indeed be poor, miserable, brutish, and ignorant.

Markets require consensual enforcement of the rules of social interaction and economic exchange. No one has said it better than David Hume over 250 years ago—there are just three laws of nature: the right of possession, transference by consent, and the performance of promises. These are the ultimate foundations of order that make possible markets and prosperity.

Hume’s laws of nature derive from the ancient commandments: thou shalt not steal, thou shalt not covet thy neighbor’s possessions, and thou shalt not bear false witness. The “stealing” game consumes wealth and discourages its reproduction. Coveting the property of others invites a coercive state to redistribute wealth, thus endangering incentives to produce tomorrow’s harvest. Bearing false witness undermines community, management credibility, investor trust, long-term profitability, and the personal exchanges that are most humanizing.

Only Markets Deliver the Goods

Economic development is linked with free economic and political systems nurtured by the rule of law and private property rights. Strong centrally planned regimes, wherever attempted, have failed to deliver the goods. There are, however, plenty of examples of both big and small countries (from China to New Zealand and Ireland) where governments have removed at least some barriers to economic freedom. These countries have witnessed remarkable economic growth by simply letting people pursue their own economic betterment.

China has moved considerably in the direction of economic freedom. Just over a year ago China revised its constitution to allow people to own, buy, and sell private property. Why? One of the problems the Chinese government encountered was that people were buying and selling property even though those transactions were not recognized by the government. This invited local officials to collect from those who were breaking the law by trading. By recognizing property rights, the central government is trying to undercut the source of power that supports local bureaucratic corruption, which is very hard to centrally monitor and control. This constitutional change, as I see it, is a practical means to limit rampant government corruption and political interference with economic development.

Though this change has not resulted from any political predisposition for liberty, it may very well pave the way toward a freer society. The immediate benefits are already there: 276 of the Fortune 500 companies are currently investing in a huge R&D park near Beijing, based on very favorable 50-year lease terms from the Chinese government.

The case of Ireland illustrates the principle that you don’t have to be a big country to grow wealthy through liberalizing government economic policy. In the past, Ireland was a major exporter of people. This worked to the advantage of the United States and Great Britain, who received many bright Irish immigrants fleeing the stultifying life of their homeland. Only two decades ago Ireland was mired in third-world poverty, but has now surpassed its former colonial master in income per capita, becoming a committed European player. According to World Bank statistics, Ireland’s growth rate of Gross Domestic Product (GDP) jumped from 3.2% in the 1980s to 7.8% in the 1990s. Ireland recently was the eighth highest in GDP per capita in the world, while the United Kingdom was 15th. By fostering direct foreign investment (including venture capital) and promoting financial services and information technology, Ireland has experienced a formidable brain-drain reversal—young people are coming back home.

These young people are returning because of new opportunities made possible by expansion of economic freedom in their homeland. They are examples of “can-do” knowledge-based entrepreneurs who are creating wealth and human betterment not only for their native country, but also for the United States and all other countries around the world. These people’s stories demonstrate how bad government policies can be changed to create new economic opportunities that can dramatically reverse a country’s brain drain.

We Have Nothing to Fear

An essential part of the process of change, growth, and economic betterment is to allow yesterday’s jobs to follow the path of yesterday’s technology. Preventing domestic companies from outsourcing will not stop their foreign competitors from doing so. Through outsourcing, foreign competitors will be able to lower their costs, use the savings to lower prices and upgrade technology, and thus gain a big advantage in the market.

One of the best-known examples of outsourcing was the New England textile industry’s move to the South after World War II in response to lower wages in the Southern states. (As was to be expected, this raised wages in the South, and the industry eventually had to move on to lower-cost sources in Asia.)

But the jobs did not vanish in New England. The textile business was replaced by high-tech industries: electronic information and biotechnology. This resulted in huge net gains to New England even though it lost what had once been an important industry. In 1965 Warren Buffett gained control of Berkshire-Hathaway, one of those fading textile makers in Massachusetts. He used the company’s large but declining cash flow as a launch pad for reinvesting the money in a host of undervalued business ventures. They became famously successful, and 40 years later Buffett’s company has a market capitalization of $113 billion. The same transition is occurring today with K-Mart and Sears Roebuck. Nothing is forever: as old businesses decline, their resources are diverted to new ones.

The National Bureau of Economic Research has just reported a new study of domestic and foreign investment by U.S. multinational corporations. The study demonstrated that for every dollar invested in a foreign country, they invest three and a half dollars in the United States. This proves that there is a complementary relationship between foreign and domestic investment: when one increases, the other increases as well. McKinsey and Company estimates that for every dollar U.S. companies outsource to India, $1.14 accrues to benefit of the United States. About half of this benefit is returned to investors and customers and most of the remainder is spent on new jobs that have been created. By contrast, in Germany every Euro invested abroad only generates an 80% benefit to the domestic economy, mainly because the reemployment rate of displaced German workers is so much lower due to the vast number of government regulations.

I believe that as long as the United States remains number one on the world innovation index, we have nothing to fear from outsourcing and much to fear if our politicians succeed in opposing it. According to the Institute for International Economics, more than 115,000 higher-paying computer software jobs were created in 1999–2003, while 70,000 jobs were eliminated due to outsourcing. Similarly in the service sector 12 million new jobs were being created while 10 million old jobs were being replaced. This phenomenon of rapid technological change and the replacement of old jobs with new ones is what economic development is all about.

By outsourcing to foreign countries, American businesses save money that enables them to invest in new technologies and new jobs in order to remain competitive in the world market. Unfortunately we cannot enjoy the benefits without incurring the pain of transition. Change is certainly painful. It is painful for those who lose their jobs and must seek new careers. It is painful for those who risk investment in new technologies and lose. But the benefits captured by winners generate great new wealth for the economy as a whole. These benefits, in turn, are consolidated across the market through the discovery process and competitive learning experience.

Globalization is not new. It is a modern word describing an ancient human movement, a word for mankind’s search for betterment through exchange and the worldwide expansion of specialization. It is a peaceful word. In the wise pronouncement of the great French economist Frederic Bastiat, if goods don’t cross borders, soldiers will.

---

Dr. Vernon Smith, Professor of Economics and Law at George Mason University, grew up on a farm in Kansas, during the Great Depression. His dream always was to go to college. His diligence was rewarded, and he became a Caltech student majoring in electrical engineering. As a senior, he became intrigued by economics and stumbled upon his first free-market book—Mises’ Human Action. Economics became his calling, and he earned an economics Ph.D. at Harvard in 1955—and the rest is history. In 2002 Dr. Vernon L. Smith was awarded the Nobel Prize in Economics for laying "the foundation for experimental economics."

]]> http://fee.org/nff/human-betterment-through-globalization/feed/ 0 http://fee.org/nff/is-the-%e2%80%9cspectre-of-communism%e2%80%9d-still-haunting-the-world/ http://fee.org/nff/is-the-%e2%80%9cspectre-of-communism%e2%80%9d-still-haunting-the-world/#comments Fri, 19 Dec 2008 21:16:59 +0000 admin http://fee.org/?p=3081 The following is abridged from a speech delivered at “Evenings at FEE” in March 2006.

“A specter is haunting Europe—the specter of communism.”

It may seem strange to quote from the famous opening line of Karl Marx and Frederick Engels’ Communist Manifesto in this day and age. After all, the Soviet empire is gone—relegated to “the dustbin of history” (to use a Marxian phrase). And nothing seems as fully repudiated by the reality of socialism in practice as the idea of central planning.

Yet it remains true that the specter of communism continues to haunt much of political thinking and public policy. French President Jacques Chirac stated recently that “Liberalism [he means classical liberalism] is as dangerous an ideology as communism and, like communism, it will not prevail.” Europe’s model, Chirac insisted, “is the social market economy, an alliance of liberty and solidarity, with the public authority safeguarding the public interest.”

It is worth taking a moment to reflect seriously on Chirac’s claim that classical liberalism is “as dangerous an ideology as communism.”

Communism rejected human beings as unique individuals and reduced them to being part of a “social class.” Everyone’s destiny was determined by uncontrollable historical forces, and the Marxist ideologists claimed to possess a special insight and knowledge about those forces. Communists instigated terrorism, violent revolutions, purged members of “enemy” classes through mass murder and slave labor, and imposed absolute dictatorships wherever they came to power. In the former Soviet Union alone it has been estimated that as many as 65 million innocent men, women, and children were murdered in the name of building the bright and beautiful socialist future.

The Liberating Force of Classical Liberalism

What has liberalism been “guilty” of that would justify Chirac’s statement that it is as dangerous as communism? Beginning in the 18th century and throughout the 19th century, classical liberalism insisted on the freedom and dignity of the individual. Liberalism campaigned against and brought about an end to human slavery, first in Europe and then around the rest of the world. Liberalism called for ending the rule of kings and princes or at least restraining their powers through constitutional government and peaceful elections. It called for impartial rule of law, and the end to torture and other cruel punishments.

The liberal economic agenda included the abolition of all privileges, favors, and subsidies that benefited the aristocracy, as well as the end to all monopolies created by government regulation and protection. It called for free enterprise, freedom of trade and occupation, and freedom of movement.

In other words, classical liberalism has been an ideology for the liberation of man from political oppression and economic poverty. It has been the foundation for human freedom and material prosperity in the modern world. It has served as the foundation of the American Republic.

Private Enterprise Under Attack

So what is liberalism’s “crime” that makes Chirac and many others compare its “danger” to that of communism? This returns us to the title of my talk: Is the specter of communism still haunting the world?

While the ideal of Soviet-style socialism has been rejected, the socialist critique of capitalist society continues to dominate the thinking of intellectuals and public policy makers around the globe. The rationale for the vast network of government welfare programs as well as regulation and control over private enterprise is based on the socialist analysis of the market economy.

When private enterprise is left free, the socialists claim, the selfish profit motive will guide businessmen to act in ways that harm the common or national good. Workers searching for employment will be exploited and abused by greedy employers unless government protects them with workplace rules and regulations, including the establishment of a “fair” wage. The state must take on the role of paternalistic provider of health care, old-age pensions, unemployment insurance, public housing, education, and a wide variety of other social services. Why? First, under unrestrained capitalism workers will not earn enough to provide these necessities for themselves. Second, private enterprises driven by mere self-interest will inevitably fail to supply these goods and services in sufficient quantity.

In the name of protecting people from such unrestrained liberalism, governments everywhere, including here in the United States, have created everexpanding bureaucracies that regulate nearly every aspect of our lives. Even the former “captive nations” of Eastern Europe have imposed such anti-liberal policies, because of internal political pressures or rules imposed by Brussels on member-nations of the European Union.

As a consequence, our world today is in the grip of anti-capitalism. State bureaucracies ruling over antimarket policies have grown into ideological and political elites who arrogantly presume to know and dictate how we should all live and work. Those holding political power may be compared to the nobility of old, before whom the commoners had to grovel so they might live and prosper.

Since regulatory and redistributive agencies hold the financial power of “life or death” over nearly every private enterprise, the degree of special-interest politicking and the frequency of discovered political bribery and corruption should come as no surprise. To survive in such a politicized environment many private businesses, large and small, try to win favors, privileges and subsidies for themselves at the expense of their domestic and foreign competitors who in turn try to do the same.

I doubt that incremental reforms alone will end this anti-market system of interventions and controls. The change can only come through a revival of true liberalism, and the implementation of a real free-market agenda.

The Glory of Capitalism

Such an agenda must begin with an educational campaign to tell the true story of classical liberalism. As long as our fellow citizens have a distorted image of life before the welfare state, they will continue to fear the loss of their social safety nets.

Liberalism and capitalism in the 19th century did not doom the worker to a life of perpetual poverty. Instead, they kept creating new and better-paying employments as the decades went by. They produced the wealth and rising income that resulted in the emergence of a phenomenon completely new to human history: a selfsupporting and educated middle class that grew more and more as the lower classes bettered their economic well-being.

Through private investment capitalism kept raising the productivity of labor to new heights. Parents were able to earn enough so their offspring did not have to join the work force at an early age. This produced something unique in history: childhood, a time when the young could experience the innocence of play and the opportunity of schooling before entering the world of work.

Classical liberalism fostered the private associations and charitable organizations that enabled the working poor to provide medical care, pensions, and education for their families. Famines disappeared; poverty was dramatically and continuously reduced; and hard and long hours of work were slowly but surely eased and shortened to a degree never before experienced. Capitalism has been the liberator of mankind. The great history and glorious achievements of that earlier classical liberal epoch must be captured once again.

The Moral Case for Liberty

Setting the historical record straight, though vitally important, is not enough. We must reawaken the moral case for liberty. The starting point for such a moral reawakening is the rejection of the collectivist conception of man and society. Collectivists of all types—socialists, communists, fascists, interventionists, and welfare statists—presume that the group, the tribe, the “nation,” or the social “class” takes precedence over the individual. He is to serve and if necessary be sacrificed for the “common good” or “general welfare,” since the individual has neither existence nor “rights” separate from the collective to which he belongs.

Compare this with the unique and starkly different philosophy of man and society captured in the American Declaration of Independence: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are Life, Liberty, and the Pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.”

Rights precede government, and are not something given to man by any political authority. Each of us possesses rights that may not be taken away or undermined by those in political power. We all possess an inalienable right to our life, liberty, and property. We own ourselves, and by extension we have a property right to what our creative minds and efforts have peacefully produced. We may not be enslaved, sacrificed, or plundered by others, whether they are private individuals or organized governments.

The individual, not some mythical collective, is the center and starting point of society. The free market is the arena in which people form relationships for mutual benefit on the basis of voluntary exchange. The free man finds his own meaning for life, guided by the philosophy and faith of his choice. He refuses to coercively impose his will on others, just as others may not use force against him. He persuades others to live and act differently through reason and example, and not with the bullet or the bayonet. And no political authority can make claims against his life, liberty, and honestly acquired property, because the function of the limited government is to secure his freedom from predators and plunder.

This is the classical-liberal philosophy of individualism that must be reawakened in our fellow men if we are to exorcise the specter of communism that continues to haunt the world. It requires a confident belief that we are right, that both reason and history have demonstrated the value and benevolent results of what Adam Smith once called “the natural system of liberty.”

The Principled Case for Freedom

How shall we do this? Well, we can only select methods consistent with the principles of freedom that we espouse. The late Leonard E. Read, who established the Foundation for Economic Education 60 years ago, argued that each of us must be willing to follow a path of self-improvement in our knowledge and understanding of the freedom philosophy. We must be willing to practice that ideal as best we can in all that we say and all that we do.

In 1948, two years after FEE was established, Leonard Read delivered a talk that was later published under the title The Penalty of Surrender. Compromise, Read suggested, can be a good and reasonable thing; for example, in setting the time for a meeting or striking a bargain in the marketplace. In such cases all parties feel that they are better off making the trade.

But principles should never be compromised. When they are, Read argued, it is an act of betrayal, the surrender of something that should not be given away. We all agree with the ancient and Biblical injunction, “Thou shalt not steal.” As a moral principle the injunction against theft may be either followed or broken, but it cannot be compromised. As Read reminded us, “If you steal just a teeny weensy bit you do not compromise the principle. You abandon it. . . . The moral principle, whatever the amount of the theft, is surrendered and utterly abandoned.”

This means no compromising of the principle of freedom.

It will not do to accept less government redistribution of other people’s wealth, or merely less regulation of other people’s choices in the marketplace. We either respect other people’s property and peaceful decisions, or we do not.

Such an approach may seem too “radical” or “extreme.” But unless we persuade our fellow citizens what freedom really means, unless we explain how the free market works and why it is morally right, we will fail to finally eliminate the lingering “specter of communism.”

Together we can do it. We can move the world to a society of freedom, if enough of us are willing to try.

---

Dr. Richard M. Ebeling discovered the freedom philosophy when he was a high school student. He has an M.A. degree in economics from Rutgers University, and a Ph.D. from Middlesex University in London, England.

Formerly professor of economics at the National University of Ireland at Cork and the University of Dallas in Texas, and the Ludwig von Mises Professor of Economics at Hillsdale College in Michigan, Dr. Ebeling has written and edited numerous books, articles and book reviews. He lectures widely in the United States, Europe and Latin America.

He has not only written and lectured extensively about the cause of liberty, he has also lived it. In 1991, while consulting on market reform and privatization in the former Soviet Union, he joined the defenders of freedom and faced the Soviet tanks in Vilnius, Lithuania, and again in Moscow, Russia, during the attempted hard-line communist insurrection.

Dr. Richard Ebeling is the President of the Foundation for Economic Education.

]]> http://fee.org/nff/is-the-%e2%80%9cspectre-of-communism%e2%80%9d-still-haunting-the-world/feed/ 0 http://fee.org/nff/the-miracle-and-morality-of-the-market/ http://fee.org/nff/the-miracle-and-morality-of-the-market/#comments Fri, 19 Dec 2008 21:13:31 +0000 admin http://fee.org/?p=3079 Have you ever stopped to think about how much of the world around us we take for granted? How often do any of us reflect on the law of gravity that keeps the moon revolving around the earth or on the chemical workings of our internal organs after we have eaten a meal? Yet whether we think about or even understand the law of gravity or the processes of chemical reactions, the moon continues to travel around the earth and the food we normally eat continues to be digested. These physical and biological processes operate whether or not we think about or understand them.

If the wonders of the physical world and the complexities of our own biology often seem miraculous to us, we should be no less awestruck at the miracle of the marketplace. Just as the forces of gravity and the internal chemistry of our bodies operate without conscious human intervention and control to direct or regulate them, so too the market brings together the actions of multitudes of producers with the desires and demands of an equivalent multitude of buyers with no central directing and commanding hand overseeing the processes at work. Just as most of nature and much of human biology are “self-regulating,” so too is the greater part of our economic activities in society.

The Market Knows More than We Can Ever Master

Day in and day out we give little thought to the vast and complex array of economic processes, which if they were to stop or severely malfunction would mean hardship or even disaster for many of us. The supermarkets are daily replenished with wide varieties of fruits, vegetables, meats, canned and packaged goods, dairy products, and many other items. We crowd the shopping malls and find them filled with practically every conceivable commodity we can imagine, with each of them offered in attractive and diverse varieties. Just think of the wide spectrum of shoes and clothes placed at our disposal in those malls as an example of this. And if we do not want the inconveniences and irritations of crowded shopping areas, a growing number of us now do an increasing amount of our shopping over the internet with the mere click of the “mouse.”

Even if we wanted to fully understand how all those goods are actually brought to the marketplace for our various wants and desires, virtually none of us would be able to trace through all the intricate ways by which our demands are satisfied. Back in 1958, Leonard Read, the founder of FEE, wrote a famous essay titled “I, Pencil.” He outlined a history of manufacturing a simple old-fashioned wooden pencil, from a tree being cut down in a forest and the mining of the graphite in a faraway country to its assembly and finished form so that it might be readily available for purchase by any of us in some neighborhood store. Read’s central insight was to remind us that no one individual or even wise and informed group of us possesses all the knowledge or information that has gone into that pencil’s manufacture.

Furthermore, it is not necessary for anyone to fully understand the processes involved in making that pencil for it to be available to us and our uses for such a writing instrument. Indeed, if it were required for some mastermind to know all that is needed to know to make all of the goods offered to us everyday on the market, the variety of goods available to us would be both fewer in number and poorer in quality.

Market Competition and the Price System

How are the activities of an increasingly larger group of individuals successfully coordinated, so that all the multitudes of demands and supplies are brought into balance and harmony? The Austrian economist and Nobel Laureate Friedrich Hayek showed how all of the knowledge and information in society can be encapsulated in the price system of the free-market economy. In our roles as both consumers and producers we communicate to one another what we think goods, resources, capital, and labor services are worth to us in their various and competing uses through the prices we are willing to pay for them. These “price signals” serve as the means for all of us to decide and coordinate what we want and are willing to do together with other members of society.

Thus, and indeed quite miraculously, it is not necessary for an “economic czar” to rule over and command us in our everyday market activities to assure that a vast quantity of food gets to the supermarkets or that thousands of different varieties of goods are constantly available in the shopping malls or other stores and businesses throughout the land. Each individual finds his own corner of specialization — guided by those opportunities, expressed in market prices, that seem to offer the greatest likelihood of earning an income that will enable him to buy from others all of the goods he himself desires.

Competition in these voluntary interactions of the market helps us to discover where each of us can best serve our fellow men within the system of division of labor while pursuing our own personal interests. The competitive process tests us through the reward of profits and the penalties of losses. Profits lure us into those production activities that our neighbors, as consumers, want us to do more of. Losses warn us that we have undertaken production actions that those same neighbors think are not worth the costs of our continuing to do them in the same way.

No overseer’s whip is needed to prod people to do more of some things and less of others. No paternalistic planner is needed to assure that everything that is wanted is produced and in the most economically cost-efficient way. No restraining regulations and controls are needed to hamper the free choices and actions of the multitudes of millions in society — other than the crucial and general legal rules against murder, theft, and fraud in our dealings with one another.

Mutual agreement and voluntary consent are the bases of these market relationships. It is not the police power of the government, with its use or the threat of violence and force, that compels the cooperation and collaboration of humanity.

The Morality of Market Relationships

There is also an important moral element in this functioning free-market economy. There are none who are only masters and others who are simply servants. In the market society we are all both servants and masters, but without either force or its threat. In our roles as producers — be it as men who hire out our labor for wages, resource owners who rent out or sell our property for a price, or entrepreneurs who direct production for anticipated profits — we serve our fellow men in attempting to make the products and provide the services we think they may be willing and interested in buying from us.

“Service with a smile” and “the customer is always right” are hallmarks of the seller’s deference to those to whom they offer their supplies. What motivates such attitudes is the fact that in an open, competitive market no one can compel us to buy from a seller who offers something less attractive or more costly than what some rival of his is presenting to us for our consideration. And why are we interested in not offending or driving away some potential customer into the arms of our rival suppliers? Because only by successfully making the better and less expensive product can we hope to earn the income that then enables us to re-enter the market, now in the role of consumer and demander of what our neighbors are offering to sell to us.

As consumers, we become the “masters” who those same neighbors attempt to satisfy with newer, better, and cheaper products. Now those whom we have served defer to us. We “command” them, not through the use of force but through the attraction of our demand and the money we offer for the goods they bring to the market. By how much we can “command” the service of others in the market in our role as consumer is directly related to the extent we have been successful in our service to our neighbors as reflected in the money income we have earned from satisfying their wants and desires.

In a free society, no man is required to do work or supply any good he considers morally wrong and ethically questionable. He may earn less from choosing to supply something that is valued less highly in the market, but he cannot be forced to produce anything that God and/or conscience dictates to be wrong. On the other hand, we cannot prevent others from supplying a good or service we find morally objectionable. The ethics of liberty and the free market require that we use only morally justifiable means to stop our neighbors from demanding and supplying something that offends us. We must use reason, persuasion, and example of a better and more right way to live.

Unfortunately, too many of our fellow men want to preserve or extend a return to a form of a slave society — regardless of the name under which it is presented. Too many want to dictate how others may make a living, or at what price and under what terms they may peacefully and voluntarily interact with their fellow human beings for purposes of mutual material, cultural, and spiritual betterment.

Moral Courage for Winning Freedom

Our task, for those of us who understand and care deeply about human liberty, is to reawaken in our fellow men an awareness of the miracle and morality of the market. The task, I know, seems daunting. But it must have seemed that way to our American Founding Fathers when they heralded the truth of the unalienable rights of man for which they fought and then won a revolution, or when advocates of economic freedom first made the case for the free market.

The world was transformed by these ideals of the morality of free men in free markets. What is most important is that each of us understands as best we can the miracle and the morality of the market economy. Too often the friends of freedom allow the advocates of various forms of government regulation, control, and redistribution to set the terms of the debate. Freedom will not win if we do not put those proponents of political paternalism on the defensive.

By what moral right do they claim to tell other men how to peacefully go about their private and market affairs — as long as those men do not use murder, theft, or fraud in their dealings with others? By what ethical norm do those political paternalists declare their right to take that which others have honestly acquired through production and trade, and redistribute it without the voluntary consent of those from whom it has been taken? By what assertion of superior wisdom and knowledge do they presume to know more than the individual minds of all the members of society about how the market should go about the business of manufacturing all the things we want, and matching the demands with the supplies?

Defenders of individual freedom and the market economy have nothing to be ashamed or fearful of in advocating the free society. The American system of limited government, personal liberty, and free enterprise liberated the individual creativity and energies of many millions of people. It provided the greatest opportunity for individual betterment and the highest standard of living ever experienced in human history. It also generated the most charitable and philanthropic society in the world. Therefore, it should be the critics and opponents of this system of individual freedom that should have to justify their continuing calls for reducing our liberty.

It was clear thinking and moral courage that won men liberty in the past. Liberty can triumph again, if each of us is willing but to try. We need to take to heart the words of the free-market Austrian economist and long-time FEE senior adviser, Ludwig von Mises: “Everyone carries a part of society on his shoulders; no one is relieved of his share of responsibility by others. And no one can find a safe way out for himself if society is sweeping towards destruction…. What is needed to stop the trend toward socialism and despotism is common sense and moral courage.”

---

Dr. Richard Ebeling, the president of the Foundation for Economic Education, has been a long-time friend of liberty. He has not only written and lectured about the cause of freedom, he has also lived it. In 1991, while consulting on market reform and privatization in the former Soviet Union, he joined the defenders of freedom and faced Soviet tanks in Vilnius, Lithuania, and again in Moscow, Russia, during the attempted hard-line communist coup d’état.

]]> http://fee.org/nff/the-miracle-and-morality-of-the-market/feed/ 0 http://fee.org/nff/mission-to-moscow-the-mystery-of-the-%e2%80%9clost-papers%e2%80%9d-of-ludwig-von-mises/ http://fee.org/nff/mission-to-moscow-the-mystery-of-the-%e2%80%9clost-papers%e2%80%9d-of-ludwig-von-mises/#comments Fri, 19 Dec 2008 21:11:29 +0000 admin http://fee.org/?p=3077 The following is abridged from a speech delivered at “Evenings at FEE” in June 2004.

Ludwig von Mises was one of the most important free-market economists and philosophers of freedom in our time. Born in Lemberg in 1881, in the old Austro-Hungarian Empire, his professional career spanned the first seven decades of the 20th century. In two dozen books and hundreds of articles and speeches, he shattered every one of the prevailing collectivist dreams and statist delusions.

Mises proved that socialist central planning was bound to fail at a time when the false ideal of social engineering was near its zenith. He showed how and why interventionist policies and the welfare state undermine men’s freedom, prosperity, and morality. He explained that government control and mismanagement of the monetary and banking system cause inflations and depressions. He irrefutably demonstrated that only a free-market economy can protect individual liberty, assure rising standards of living, bring about entrepreneurial innovation and successfully coordinate a world of never-ending change.

Intellectual Powerhouse of Freedom

In the Austria of the 1920s and early 1930s, Mises was the intellectual powerhouse of freedom. As a senior economic analyst for the Vienna Chamber of Commerce, he tried to hold back the tidal wave of interventionist and socialist legislation being implemented by the Austrian parliament. At the University of Vienna he taught a popular and well-attended seminar every semester. At his Chamber of Commerce office and at his home he organized a “private seminar,” bringing together many of the best young minds in Vienna for discussions of the social, economic, and philosophic issues of the day. In 1926, he founded the Austrian Institute for Business Cycle Research, with a young Friedrich A. Hayek as the first director.

Both fascists and communists hated him. After all, as a leading intellectual opponent of all forms of collectivism, he had systematically pointed out all the fallacies in their evil utopian fantasies. When the Nazis assumed power in Germany in 1933, Mises realized that the political and economic future of Austria was bleak. As an uncompromising classical liberal and a Jew, he knew that the inevitable Nazi takeover of Austria would threaten not only his work but his life as well. In 1934, Ludwig von Mises accepted an invitation to become a professor of international economic relations at the Graduate Institute of International Studies in Geneva, Switzerland, and left Austria.

The Nazi Looting and Soviet Capture of Mises’ Papers

After his mother’s death in early 1937, Mises returned his Vienna apartment at 24 Wollseile, District III, to the landlord, but sublet what had been his room from the new tenants. There he stored his family and personal items, his voluminous correspondence with many of the great thinkers of his time, his manuscripts and unpublished papers, his professional and military documents (he had served in the Austrian Army in World War I, and had been three times decorated for bravery under fire on the Eastern Front), materials relating to his university teaching, and private seminar, as well as a significant portion of his large library.

On March 12, 1938, the German Army marched into Austria, and Mises’ homeland was absorbed into Hitler’s Greater German Reich. Within a few days, the Gestapo came looking for Mises at his Vienna apartment. He was safe in Switzerland, but the Nazis boxed up and hauled away all of his possessions. He had friends intercede on his behalf in a futile attempt to get his papers and family items back, but the Gestapo insisted that everything was “misplaced.” Until his death in New York in 1973, Mises believed that all of his property had been destroyed, either by the Nazis or in the cauldron of violence in the Second World War.

But in fact his papers had not been destroyed. They had been preserved by the Nazis and were eventually stored in a small town in western Bohemia in Czechoslovakia, along with millions of other documents looted by the Nazis from private individuals and governments as the Wehrmacht occupied one country after another in the turmoil of the war.

In May of 1945, Bohemia was “liberated” by the Soviet Army. In a train station the soldiers discovered 24 railway boxcars prepared for evacuation. Stuffed inside were papers and nothing else. After the NKVD – later renamed the KGB – arrived on the scene, they rapidly surveyed what was there and realized that they had discovered a treasure. Stalin was immediately informed, and he ordered the boxcars to be brought to Moscow. A deceptively undistinguished building was quickly constructed to secretly archive more than 20 million pages of captured documents, from 20 formerly Nazi-occupied countries. And there the papers remained, in Moscow, organized and cared for by KGB archivists for almost half a century. Only the Soviet secret police and the Soviet Ministry of Foreign Affairs had access to this secret archive.

In one of the great ironies of history, the papers of Ludwig von Mises, the foremost intellectual opponent of socialism in the 20th century, ended up in the tender care of the Communist Party of the Soviet Union!

On the Trail of Mises’ “Lost Papers”

I first heard that Mises’ “lost papers” might have survived the war in the summer of 1993. My wife, Anna, and I were in Vienna doing archival research on Mises. A friend of mine in the Austrian Chamber of Labor mentioned that some German diplomats had recently been to Moscow looking for material about anti-fascist Germans from before the Second World War. In one of the archival indexes they came across a reference to Ludwig Mises, but because he was an Austrian, not a German, they did not pursue the matter further.

In spite of countless efforts we were unable to track down any additional information. In summer 1996 we made a trip to the Holocaust Museum in Washington, D. C., to see if, by chance, any Gestapo file on Mises might have survived the war. But researchers at the museum were not able to find any record of such a file in their database. “What about Moscow?” I asked, “Might there be anything related to Mises in Moscow?”

We were then introduced to Karl Modek, the museum staff member responsible for researching the Holocaust in the former Soviet Union. He told us that a formerly secret Soviet archive, containing foreign papers and document collections captured during the war, had recently been declassified and was now available to researchers. The name of the archive was the Center for Historical and Documental Collections. In fact he had just received an index to the archive’s collection. He began to turn the pages of the index. One page after another, and . . . there it was! Printed on the list of collections was “Fund #623” with the name “Ludwig Mises” next to it. And nothing else.

At the time, I was the Ludwig von Mises Professor of Economics at Hillsdale College. When we returned to the campus, I told Dr. George Roche, what we might have found. Dr. Roche, before being named the president of the College in 1971, served as the Director of Programs and Seminars at FEE and had known Mises rather well and admired him greatly. He immediately arranged the funding for my wife and me to travel to Moscow and to the formerly secret archive housing the “lost papers of Ludwig von Mises.”

Our Mission to Moscow and the Secret Archive

My Russian-born wife, Anna, arranged the paperwork and the visas for the trip to Russia. One of her friends in a prominent position in the Russian Academy of Sciences arranged for our access to the archive, and on October 17, 1996, we arrived in Moscow. For the next ten days we meticulously went through the whole multilingual collection of Mises’ papers. The KGB archivists had carefully catalogued and arranged his papers into 196 separate files—totaling over 10,000 pages of material.

Neither the director of the archive nor any member of his staff understood the importance of those documents. They kept asking us, why Mises? Nobody has ever shown any interest in him! Why not the diary of Hitler’s Minister of Propaganda, Joseph Goebbels, or letters of Albert Einstein and manuscripts of Immanuel Kant? What about original scores by Mozart? They even offered us the entire archive of the French secret police that the Nazis had captured when they occupied Paris in June 1940. But all we wanted was Ludwig von Mises.

In fact, we were the first Westerners to request and to actually look through Mises’ papers. The archive’s director at the time, Dr. Mansur Mukhamedjanov, said in his speech at Hillsdale College in March 1997: “The Ludwig von Mises Fund was accessible to researchers for several years. But from the time when the archive was declassified, not one researcher showed interest, looked into or worked with the materials of this fund.. . . Foreign researchers were interested in anything but Mises. Some of them probably saw the index and knew that such a fund existed. . . . But our careful records show that no researchers ever requested ‘Fund 623 – Ludwig Mises’ until Richard and Anna Ebeling.”

We came back to the United States with over 8,000 pages of photocopies from Mises’ collection. Shortly after our return, Liberty Fund of Indianapolis contacted me and expressed an interest in arranging for the translation and publication of a large selection of the “Lost Papers.” Two of three volumes in the series have already been published, with the last volume nearing completion, under the general title Selected Writings of Ludwig von Mises.

The Legacy of the “Lost Papers” of Ludwig von Mises

These thousands of pages of archival material, bring to light a new side of Ludwig von Mises. Here we see Mises as more than just the brilliant economic theorist demonstrating the unworkability of socialist central planning and the inherent contradictions of the interventionist state, or as the grand expositor of a universal theory of human action and the market process.

We see Mises as serious and methodical policy analyst in the twenty years between the two World Wars – one who explains how to save a society facing a hyperinflation by introducing an alternative currency in place of the debased government money; how to bring an economy out of a great depression; how to rein in an interventionist bureaucracy that is strangling a market economy; how to end foreign exchange controls that are distorting and hindering international trade; or how to construct a fiscal policy so it no longer stifles investment and capital formation.

In other words, the discovery of the “lost papers” of Ludwig von Mises lifts the veil from the life and work of this great free-market economist and advocate of liberty. Through these thousands of pages Mises emerges as even more influential and important than any of his strongest admirers have imagined.

]]> http://fee.org/nff/mission-to-moscow-the-mystery-of-the-%e2%80%9clost-papers%e2%80%9d-of-ludwig-von-mises/feed/ 0 http://fee.org/nff/the-moral-defense-of-tax-havens/ http://fee.org/nff/the-moral-defense-of-tax-havens/#comments Fri, 19 Dec 2008 21:06:28 +0000 admin http://fee.org/?p=3073 The following is abridged from a speech delivered at “Evenings at FEE” in June 2006. My job this evening is to present a moral defense of tax havens. To do so I need to explain why tax competition is important,…]]> The following is abridged from a speech delivered at “Evenings at FEE” in June 2006.

My job this evening is to present a moral defense of tax havens. To do so I need to explain why tax competition is important, to clarify why it depends on tax havens, and to demonstrate the valuable role tax havens play in the global economy.

Let me first define what a tax haven is and examine the international controversy behind this issue. A tax haven is any jurisdiction, anywhere in the world, that has preferential rules for foreign investors. A country that presents itself as a tax haven does not believe it has any obligation to help enforce the tax laws of other countries. Here is a simple stereotype of a tax haven: you take your money, you bring it to Switzerland, you deposit it in a Swiss bank account, and the Swiss authorities, by law and by their constitution, will not report the transaction to your home country’s tax authorities. That is a tax haven.

Tax havens play an important role in the global economy because of tax competition. Globalization has increased the mobility of the two main factors of production: capital and labor. Today the lower costs of technology and communication make it extremely easy for capital to cross national borders. Just a couple of clicks of your mouse, and capital can be in a different jurisdiction. Even labor is becoming increasingly mobile and crosses national borders in order to seek a better environment with a lower aggregate tax burden and more reasonable marginal tax rates. Three historical episodes over the last 25 years clearly demonstrate that tax competition imposes a significant constraint on the ability of politicians to tax and to spend.

In the 1980s both Margaret Thatcher and Ronald Reagan took office in miserable economic times. Both inherited very high tax rates. In the United States the top tax rate was 70 percent (our top tax rate today is 35 percent). In the United Kingdom the top tax rate was 83 percent. By the time you factored in capital gains taxes, corporate taxes, and death taxes, the effective marginal tax rate in many cases was over 95 percent. Both Reagan and Thatcher radically slashed tax rates. In the United States the top tax rate went down to 28 percent and in Britain, down to 40 percent.

It is most interesting that the Thatcher and Reagan tax cuts forced industrialized nations to cut their respective income-tax rates. Why? Because a lot of the world’s capital started shifting to the United States and Britain. This told the politicians in other countries that they better cut their tax rates as well. Here is a simple analogy: imagine there is only one gas station in a town. It can charge high prices. It can offer shoddy service. It can maintain inconvenient hours. If that’s the only gas station in town, you just have to accept it. But what happens when five gas stations open in that same town? All of a sudden you, the consumer, become king. The gas stations have to maintain market prices; they have to hustle to get your business; and they have to offer good service. The same principle applies to governments in the matter of taxation.

Twenty years ago Ireland was a true economic basket case, with 17 percent unemployment, a 50 percent corporate tax rate, a 65 percent top income-tax rate, a 50 percent capital gains tax, and a huge government that consumed over 50 percent of the country’s GDP. Their biggest export was their own people.

Ireland finally decided, “we’d better go on a new path,” and dramatically cut tax rates. Income tax went from 65 to 40 percent; the capital gains tax from 50 to 20 percent; the corporate tax all the way from 50 to 12.5 percent. It is no mystery and no surprise, or at least it shouldn’t be to people in this audience, that Ireland boomed. It has risen from the proverbial sick man of Europe to the Celtic Tiger. Ireland is now the secondwealthiest nation in the European Union.

Just as country after country lowered income-tax rates following the Reagan-Thatcher reforms in the 1980s, we witnessed almost the same level of corporate tax rate reduction following the Irish boom in the 1990s. If you read the actual reports in the international tax press, in almost every single case it’s all about “we’d better cut our tax rates because we’re losing business to countries that are lowering their tax rates.” As a matter of fact, there has been so much tax competition motivated by corporate tax reduction in Europe that every single European country, even socialist welfare states like France and Sweden, now has a lower corporate tax rate than the United States.

The third example of tax competition is the flat-tax revolution in Eastern Europe. In 1994 a 32-year-old Prime Minister, Mart Laar, under the influence of Milton Friedman’s ideas, adopted a flat tax in Estonia. It worked so well that Latvia implemented a flat tax the next year, and Lithuania the year after that. The rapid economic success of the three Baltic countries and the growing tax competition stimulated Russia to also put into place a flat income tax. Today the former Evil Empire has a 13 percent flat tax!

What happened next? Ukraine, Serbia, Slovakia, Romania, Georgia, and, just this year, Kyrgyzstan implemented the flat tax due to tax competition.

Capital: The Key to Growth

Tax havens are the sharp point at the end of the spear of tax competition because the most damaging taxes are those on capital. Every single economic theory agrees that capital formation is the key to long-run growth and higher living standards. In other words, you have to set aside some seed corn today in order to have higher production and output tomorrow.

But what happens if you save and invest? Historically in most developed countries, that’s what gets you the very highest tax burden! Politicians, when it suits their purposes, understand the role of taxes in the economy perfectly well: the more you tax something, the less you get of it. But politicians obviously fail to understand this when it comes to saving and investing. For example, in the United States between the capital gains tax, the corporate income tax, the personal income tax, and the death tax, a single dollar of income that is saved and invested can be taxed as many as four times. Even if the rates are low, by the time you cycle a dollar of income through the tax code four different times, your effective marginal tax rate can be very high.

If you look at all the tax-reform plans that are out there, what is the common theme? They all propose taxation of economic activity at a low rate and only one time. There is no double taxation of capital at all: no capital gains tax, no double tax on dividends, and no death tax. Economists understand that all the forms of double taxation in the current system are punitive and self-destructive because they are literally destroying people’s incentive to provide that seed corn for future economic growth. Public choice economics clearly explains that politicians have an incentive to divide people in order to maximize votes, to expand budgets in an attempt to buy votes, and to appease more interest groups. Even those who understand the lessons of economics and the role of taxation cannot resist the temptation to implement tax policies that common sense should tell them are destructive for the economic health of a country.

How can we counteract this powerful political influence? This is where tax havens play a very valuable role in providing a safe refuge and protecting capital from being double, triple, and quadruple taxed. As I explained before, many countries in Europe abolished or reduced double taxation solely for the purpose of trying to keep capital from escaping to Switzerland, Luxembourg, New York, and the Cayman Islands. By the way, the United States is also a tax haven, just not for Americans. Foreigners can invest money here with no taxation of interest or capital gains, and without being reported to their home governments. Unfortunately U.S. citizens do not get the same treatment.

In other words, tax havens not only stimulate economic reforms to lower taxes around the world, but also play an important role in reducing the level of double taxation of savings and investment.

This is the economic case for tax havens, but there is also a moral one. Here in the United States we complain about our government wasting a lot of money. And it does. We complain about tax rates being too high. And they are. But we are still pretty lucky. We live in a society where your chances of being actually oppressed are small. For most of the world that is not the case.

Most people do not have the freedoms we take for granted. Many are subject to religious, ethnic, or racial persecution; many to economic abuse. Imagine, for example, that you are an ethnic Chinese entrepreneur in Indonesia. The Indonesian government unofficially approves of, or at least doesn’t discourage, periodic rioting against you because you belong to the wealthy segment of a population and also happen to be an ethnic minority. Under such circumstances would you keep your money in an Indonesian bank or transfer it instead to the United States, Singapore, or Hong Kong? I think the answer is obvious: you would not keep it in an Indonesian bank. Let us also remember that in 1934 Switzerland deliberately strengthened their tax-haven secrecy rules and thus became the best refuge for the Jews persecuted by Hitler.

Now let’s imagine two Argentinean families in the 1990s. One kept their money in a local bank, the other in Miami. As you remember, in 1998 the incompetent Argentinean government caused a complete economic disaster: the currency collapsed, and more than half the wealth of the population vanished. If you were the lawabiding Argentinean, trusting your government and keeping your money in a local bank, your life savings had an involuntary “haircut.” On the other hand, the family who banked offshore in Miami weathered that storm because they chose not to trust their incompetent government.

What about those who live in Colombia, Venezuela, or Mexico, where tens of thousands of kidnappings happen every year? How do kidnappers target their victims? There are documented cases of the kidnapping gangs bribing the corrupt tax authorities for information about people with financial means. I side with all the Latin American families who refuse to keep their money in a local bank and try to maintain a very low profile so nobody can obtain information about their financial status. They do so not necessarily to dodge taxes, but to protect their children.

In other words, for most of the world tax havens mean much more than just “tax cheats.” It is about the ability of individuals to protect their fundamental human right: not to passively wait for slaughter, like a fatted calf, until the government decides either officially or unofficially that time has come to persecute, mistreat, or abuse them.

Whether for Jews in the 1930s or for ethnic Chinese in Indonesia today, tax havens have played and continue to play an extremely valuable role in protecting people from oppressive governments.

Today there is a real-world political battle going on. We are confronted with two alternatives: to fix the tax system or to create a global network of tax police. The high-tax governments of the world understand that tax competition is a threat to their redistributive policies. They are working through international bureaucracies like the Organization for Economic Cooperation and Development (OECD), the European Commission, and the United Nations to try to stamp out tax havens.

We, as advocates of the free market, argue that tax havens put pressure on governments to lower marginal tax rates, reduce or eliminate double taxation of savings and investment, and stimulate continuous economic growth.

But I would go one step further. In the grand scheme of things, the issue of tax havens involves much more than tax competition alone. It involves a moral imperative. Whether providing a refuge from government incompetence and corruption or from persecution and oppression, tax havens play a critical role in protecting life, liberty, and property.

---

Daniel J. Mitchell has been the leading international voice in the fight to preserve tax competition, financial privacy, and fiscal sovereignty. His audiences have included the Business Roundtable, the National Federation of Independent Business, the Swiss Bankers Association, and the Bermuda International Business Association. He has appeared on CBS, NBC, ABC, CNN, CNBC, and C-SPAN.

A prolific writer, Dan is the author of The Flat Tax: Freedom, Fairness, Jobs, and Growth and of numerous articles published in the Wall Street Journal, Washington Times, New York Times, Forbes, Offshore Investment, and Investor’s Business Daily, among others.

Dan Mitchell holds a Ph.D. in economics from George Mason University. He serves as the McKenna Senior Fellow at the Heritage Foundation and is the founder of the Center for Freedom and Prosperity.

]]> http://fee.org/nff/the-moral-defense-of-tax-havens/feed/ 0 http://fee.org/nff/the-myth-of-the-robber-barons/ http://fee.org/nff/the-myth-of-the-robber-barons/#comments Fri, 19 Dec 2008 20:59:44 +0000 admin http://fee.org/?p=3071 This article is adapted from a lecture Professor Folsom gave at the History and Liberty seminar at FEE in June. For readers who are interested in finding out more about these lost lessons of history we recommend Professor Folsom’s popular…]]> This article is adapted from a lecture Professor Folsom gave at the History and Liberty seminar at FEE in June. For readers who are interested in finding out more about these lost lessons of history we recommend Professor Folsom’s popular book, The Myth of the Robber Barons, now in its fifth edition.

In the ongoing war of ideas in American history, those who advocate government action as an engine of economic development have been encouraged by a general and all-too-human tendency to avoid thinking deeply. Because we have a long history of government intervention in the economy, the assumption—both among those who design government programs and among the constituencies that support them—has usually been that government action accomplishes its objectives. Even people who have reservations about bureaucratic inefficiency reason that we wouldn’t have turned to government so many times in the past if government hadn’t accomplished something.

Three Assumptions About Capitalism

This shallow conclusion dovetails with another set of assumptions: First, that the free market, with its economic uncertainty, competitive stress, and constant potential for failure, needs the steadying hand of government regulation; second, that businessmen tend to be unscrupulous, reflecting the classic cliché image of the “robber baron,” eager to seize any opportunity to steal from the public; and third, that because government can mobilize a wide array of forces across the political and business landscape, government programs therefore can move the economy more effectively than can the varied and often conflicting efforts of private enterprise.

But the closer we look at public-sector economic initiatives, the more difficult it becomes to defend government as a wellspring of progress. Indeed, an honest examination of our economic history—going back long before the twentieth century—reveals that, more often than not, when government programs and individual enterprise have gone head to head, the private sector has achieved more progress at less cost with greater benefit to consumers and the economy at large.

Competition Versus Subsidy in the Steamship Industry

America’s early experience with the steamship industry provides an illustrative case. By the 1840s,the technology of steam-powered water transport had reached the point where it became practical to build large ocean-going vessels, and steamships began plying the route between New York City and Liverpool, England. An enterprising fellow named Edward K. Collins approached the U.S. Congress with a plan to develop a steamship fleet that could compete with Britain’s Cunard Company. Since the Cunard operation was subsidized by the British government, Collins asked Congress to provide him with a grant of $3 million to underwrite the construction of five vessels and a yearly supplement of $385,000 so he could strive to best Cunard’s fare of $200 per passenger and its rates for carrying freight and mail.

Playing skillfully on congressional fears about British domination of the transatlantic trade, and promising that his ships could serve as the basis of a merchant marine fleet in the event of war, Collins got his money. He then proceeded to build four very large and luxurious ships, instead of the five smaller vessels provided for in the agreement, and he took far longer than anticipated to get his fleet into operation.

Collins ran his ships on the same schedule as Cunard, sailing every two weeks, and he often did beat Cunard’s crossing time by one day, though at considerably higher operating costs. But while he had promised Congress that his yearly subsidy could eventually be phased out, he was soon lobbying for annual increases to about $500,000, $600,000, $700,000, and then to more than $800,000 per year.

Cornelius Vanderbilt, who had made his mark as an operator of river steamboats, approached Congress with a proposal for an “Atlantic ferry,” promising to match Collins’s two-week sailing schedule at half the cost of Collins’s subsidy. Congress debated Vanderbilt’s proposal. But it doubted his ability. Having made a commitment to Collins—and by now a considerable investment as well—Congress turned Vanderbilt down.

Vanderbilt was undeterred. He went into operation without a subsidy, using privately financed ships, set up a self-insurance arrangement by which he was able to save on payments to outside insurers, and ran his ships at slower speeds to save fuel. He also reduced the fare, and he invented a new, cheaper passenger class, by which people could travel below decks, in what was called steerage, for as little as $30. Vanderbilt’s “sardine class” made it possible for many immigrants to come to America.

After a year, Vanderbilt’s operation was flourishing, and Collins, in serious trouble from competition with Vanderbilt, went to Congress to ask that his subsidy be raised, yet again, to more than $850,000. Collins managed to persuade the congressmen to conclude that since they started with Collins, it would be disloyal to take his money away now.

But Collins recognized that each time he went back to Congress for more money, the vote was closer. He decided that if he couldn’t beat Vanderbilt on price, he would concentrate on beating his crossing time, demonstrating that the Collins line clearly offered the most efficient way to get from Liverpool to New York City. This strategy had its dangers. Long beset with maintenance problems because their engines were too large for their hulls, Collins’s ships began to feel the strain of this high-speed policy. Two of the ships—half his fleet—sank, killing almost 500 passengers, and Collins faced the humiliation of going back to Congress to beg for an emergency $1 million appropriation to construct a replacement vessel.

Again Congress funded him. But the new ship, The Adriatic, was so hastily and poorly constructed that it had to be sold at auction after its first voyage—at a $900,000 loss. When Collins went back to Congress for still more money to build yet another ship, he was finally turned down.

It is interesting to look at the reaction in Congress after being embarrassed again and again by the subsidies to Collins. Senator Judah Benjamin of Louisiana said, “I believe [the Collins line] has been our most miserably managed.” Senator Robert Hunter of Virginia went even further. “The whole system was wrong,” he said. “It ought to have been left, like any other trade, to competition.” Senator John Thompson of Kentucky insisted, “Give neither this line nor any other line a subsidy. Let the Collins line die. I want a tabula rasa . . . a new beginning.”

Collins had his subsidy stripped and had to compete head to head—unsupported—with Vanderbilt. Within a year, Collins went bankrupt, and Vanderbilt was the dominant force on the seas from the American side.

Competition Versus Subsidy in the Railroad Industry

It would be comforting to report that the United States learned its lesson about the effects of federal subsidies from the Collins/Vanderbilt experience. Unfortunately, less than a decade later, would-be railroad builders were coming to Congress begging for money to span the nation with transcontinental lines. Congress subsidized three transcontinental rail-roads: the Union Pacific, the Central Pacific, and later the Northern Pacific.

These companies, which were provided with money and land by the government, had no incentive to build their lines efficiently, along straight routes with even grades and proper materials. Eventually they went bankrupt. The Union Pacific and the Central Pacific did so only after eating up 44 million acres of free land and $61 million in cash loans. Large sections of the lines they did complete soon had to be rebuilt and sometimes even relocated due to shoddy construction.

The privately funded Great Northern, which, by contrast, operated on a shoestring budget, was a success. Unlike his competitors, James J. Hill built the Great Northern for durability and efficiency. “What we want,” he said, “is the best possible line, shortest distance, lowest grades, and least curvature that we can build.” That meant he personally supervised the surveying and construction. “I find that it pays to be where the money is being spent,” he noted. He believed that building a functional and durable product actually saved money. For example, he usually imported high-quality Bessemer rails, even though they cost more than those made in America. He was thinking about the future, and quality building cut costs in the long run. When Hill constructed the solid granite Stone Arch Bridge—2,100 feet long, 28 feet wide, and 82 feet high across the Mississippi River—it became the Minneapolis landmark for decades. Yet today Hill is regarded as just another member among the ranks of the greedy, amoral “get-rich-quick” capitalists.

After the transcontinental railroad episode, Congress increasingly began to take the position that American business success would be based on entrepreneurship, not subsidy, relying on those whom I call market entrepreneurs rather than political entrepreneurs. If you look at industries after the Civil War—particularly steel, oil, and chemicals—you find that time and again American market entrepreneurs stepped in and defeated competition from Europe, without subsidies.

Andrew Carnegie and the Steel Industry

When Andrew Carnegie founded Carnegie Steel in 1872, the biggest steel producer in the world was England and the going price of steel rails was about $56 per ton. Carnegie was an eager innovator. He adopted the revolutionary Bessemer process and introduced new accounting methods to make his operations more efficient, applied a merit-pay system to reward his workers, and implemented many employee-suggested ideas. Carnegie Steel became so efficient that by 1900 the company could produce steel rails at $11.50 per ton, and its rail output surpassed that of all the steel mills in England combined. Other U.S. firms followed Carnegie’s lead, and America became the dominant steel producer of the world.

John D. Rockefeller and the Oil Industry

Our story would not be complete without recalling the success of John D. Rockefeller. By the 1890s, Standard Oil had a 60 percent market share of all the oil sold in the world. Rockefeller sold the oil at eight cents a gallon—that would be around $1.60 today. Eight cents a gallon! Nobody in the world could do it that cheaply. Kerosene was so inexpensive that people could light their homes for less than one cent an hour.

Rockefeller, the first billionaire in U.S. history, made a fraction of a cent on each gallon of oil his company sold. He had the foresight to say that his goal was to make it for six cents, sell it for eight cents, and use the two cents for research and development. Rockefeller realized that finding new uses for oil was the key to success. (Other companies would take a barrel of oil out of the ground, heat it to get the kerosene, and dump the excess as waste into rivers.) Eventually Standard Oil discovered and produced scores of byproducts, including candle wax, soap, petroleum jelly, tars, and lubricating oils.

Because of this resourcefulness, Rockefeller might well be called the first environmentalist. (He also could be credited with species preservation: the whaling industry declined precipitously as kerosene displaced whale oil in lighting.)

But all this did not make him popular. Competitors did not like him, and public opposition mounted. Standard Oil had already begun to lose market share to competitors because it failed to invest in the Texas oil fields in 1900. But despite this declining market share, successful antitrust litigation resulted in the company’s being split into 34 companies.

Time and again, experience has shown that while private enterprise, carried on in an environment of open competition, delivers the best products and services at the best price, government intervention stifles initiative, subsidizes inefficiency, and raises costs. But if we have difficulty learning from history, it is often because our true economic history is largely hidden from us. We would be hard pressed to find anything about Vanderbilt’s success or Collins’s government-backed failure in the steamship business by examining the conventional history textbooks or taking a history course at most colleges or universities. The information simply isn’t included.

The Greatest Generation?

I want to end on a positive note. The success of the market entrepreneurs of the post-Civil War era depended on their ability to serve consumers. When they started their enterprises, the United States was a second-rate power; during their lifetimes they spurred American industry to world dominance. Their accomplishments in transportation, steel, oil, and chemicals led to the unparalleled economic progress of the late 1800s, contributed to American prosperity, and prepared the way for future innovation.

Along with our Founding Fathers and the World War II generation, this remarkable group of entreprenurs, has a rightful claim to being America’s greatest generation.

]]> http://fee.org/nff/the-myth-of-the-robber-barons/feed/ 2 http://fee.org/nff/leviathan-the-growth-of-local-government-and-the-erosion-of-liberty/ http://fee.org/nff/leviathan-the-growth-of-local-government-and-the-erosion-of-liberty/#comments Fri, 19 Dec 2008 20:58:32 +0000 admin http://fee.org/?p=3069 The following is abridged from a speech delivered at "Evenings at FEE" in April 2006. The Framers of our Constitution had a remarkable vision: American government would be limited and decentralized. They cautioned us to keep a watchful eye on…]]> The following is abridged from a speech delivered at "Evenings at FEE" in April 2006.

The Framers of our Constitution had a remarkable vision: American government would be limited and decentralized. They cautioned us to keep a watchful eye on all levels of government. Indeed James Madison warned us in the Federalist Papers that local government was especially prone to tyranny. He noted that "the smaller the society, the smaller the number of individuals composing a majority, and the more easily will they concert and execute their plans of oppression."

His concerns proved true. Today local government has grown so big and so unwieldy that it is impossible for us to know who our local governments really are. The image of the town hall where people gather in spirited public debate to argue the issues of the day simply does not exist. Ironically, both conservatives and libertarians who lament the expansion of federal government largely ignore the explosive growth of local government in recent years.

State and local governments spend $1.06 trillion annually, which constitutes 11.5% of GDP. In constant dollars this spending quadrupled from $638 per capita in 1961 to $2,983 per capita today. While the Federal civilian workforce decreased between 1980 and 2000 from 2.9 million workers to 2.7 million, state and local employees increased from 13.3 million to 17.5 million. This means that almost one in five of all Americans is either directly employed by state or local government or completely dependent on someone who is. That makes for a very potent special interest.

A new local government entity is created every single day. This explosive growth is taking place primarily in what I call the "invisible government": the special districts or the regional authorities that have government-like powers. Among those powers are eminent domain, issuing bonds, regulating the use of property (zoning, etc.), all without any democratic constraints whatsoever. Such entities have now grown more numerous than cities, towns, or school districts.

The result is a dizzying array of pervasive local governments that regulate every instance of our lives. For example, metropolitan Chicago is governed by 1,200 separate and overlapping governmental entities. You can’t fight city hall if you can’t even identify all of the people you need to fight.

Grassroots Tyranny

The power of the local leviathan, which I call grassroots tyranny, is especially destructive in two areas: economic liberty and private property rights. To demonstrate the encroachment on our liberties I will use cases that I have litigated over the course of my legal career.

Economic liberty is the right to pursue an honest business or profession free from arbitrary government regulation. Most Americans think we have such a right. However entry into professions or businesses is increasingly and heavily regulated by government. The most vulnerable here are those who lack the resources and educational skills while trying to gain a toehold in the economy and earn their share of the American dream.

Let me tell you a story about an African American named Leroy Jones and his fight with bureaucrats in Denver, Colorado. Leroy and three of his fellow taxicab drivers (immigrants from Africa) at Yellow Cab decided to make the transition from being employees to becomingbusiness owners. The four aspiring entrepreneurs formed their own taxicab company, Quick Pick Cabs, and discovered a market that was not being served: a low-income section of Denver. They got the paperwork together, including a petition demonstrating that people wanted their services. It seemed they had everything they needed: the knowhow, the capital, the insurance, and the cars. They were missing only one little thing: a piece of paper called a certificate of public convenience and necessity from the Public Utilities Commission (PUC).

To obtain such a certificate, an applicant must surmount the almost impossible hurdle of demonstrating both that adequate service is not being provided and that the existing companies are unable to provide it-with no objective criteria of how to demonstrate such inadequacy. Quick Pick Cabs applied to the PUC for the certificate and got the same response as every applicant for a taxicab license in Denver since World War II: application denied. Needless to say, Yellow Cab and otherlocal transportation companies had all protested their application.

By this time Leroy Jones had been fired from his job at Yellow Cab for having the temerity to try to launch a competing company and was selling sodas at Mile High Stadium. He and the other three drivers experienced financial hardship.

Well, we took on this law in court, and we lost. Fortunately lawyers have two courtrooms in which they litigate: the court of law and the court of public opinion. CBS’s "Eye on America "followed Leroy Jones for a day as he toiled selling sodas at a ballgame at Mile High Stadium in the hot sun. As "The Star-Spangled Banner" began he paused, took off his hat, and put it over his heart while a tear welled in his eye. It made the point this man was not asking for a handout, he was merely asking for a share of the American dream that he wanted to earn. It is amazing that in modern America the right to receive a welfare check has much greater judicial protection than the right to earn an honest living.

We did win Leroy Jones’s case in the court of public opinion. The bureaucracy backed down and the state of Colorado deregulated entry into the taxicab market in Denver. Along the way Leroy Jones had an epiphany. "You know," he said, "this is much bigger than just me. This is a huge struggle that we’re engaged in." And he and his friends renamed their company Freedom Cabs. I am happy to say that today Denver has a fleet of 75 cabs bearing the Freedom insignia. The next time you are in Denver, take a freedom ride in Freedom Cabs!

After this case we filed a number of lawsuits taking on similar regulations and we began to win. We struck down a cosmetology law in California. We struck down a casket-selling cartel in Tennessee and a law against street-corner shoeshine stands in the District of Columbia. Slowly but surely we are building a jurisprudence of economic liberty.

Abuse of Eminent Domain

The law is ten times worse in the area of eminent domain. The U.S. Constitution stipulates that the government may take private property but only for public use. However, in a series of decisions tracing back to the 1930s and 1940s the Supreme Court has rewritten the Constitution and changed "public use" to "public benefit." As you understand, almost anything can be classified as public benefit depending on how the government articulates it.

Modern abuse of eminent domain is like Robin Hood in reverse: it takes property from the poor and gives it to wealthy developers. When we began the battle to restore protection for property rights against such abuse, we knew we had a titanic struggle on our hands. We had to find the perfect case to start this battle with. We needed a villain so heinous, so reprehensible, that a court might actually be induced to rule in favor of the private property owner. We found him: Donald Trump!

Donald Trump wanted to build a parking lot for his limousines next to the Trump Towers Casino in Atlantic City, New Jersey. In his way were a little gold and silver shop, an Italian restaurant called Sabatini’s, and the home of Vera Coking, a fiery elderly lady who had lived in the house for 50 years. None of them wanted to sell their property to Donald Trump. Trump said in effect, "That’s fine, you don’t have to sell to me. The city will take your property and give it to me."

And that is exactly what Atlantic City did, using the power of eminent domain. What was the "public use" justification? It benefited the casinos, and what is good for the casinos is obviously good for Atlantic City. As a back-up, Trump actually had people drop debris from the top of his casino on Mrs. Coking’s house to damage her roof and then report to city authorities an unsafe house next door.

Once again the case went to the court of public opinion. TV journalist John Stossel got Trump on his show and challenged him. Trump explained that his only purpose was to clear Atlantic City of blight. Stossel replied in effect, "You know in the old days if someone like you wanted this property he would just hire a hit man and knock off Mrs. Coking. What’s the difference between that and what you’re doing now?" Trump then got up and walked off the show.

After that the court of law also ruled against Donald Trump, and Atlantic City chose not to go any further. This case became the first building block in restoring legal protection for private property rights.

The Kelo Backlash

As you know, in the 2005 Kelo case, the United States Supreme Court in a shameful five-to-four decision upheld the taking of land in New London, Connecticut, for development purposes at the expense of a lovely working-class neighborhood. Although the decision was very frustrating, the public reaction to it was unprecedented.

There have been Supreme Court decisions that have outraged conservatives, there have been Supreme Court decisions that have outraged liberals, but Kelo was the first one to outrage both. Conservatives view it as a violation of private property rights, while liberals see it as corporate welfare, and libertarians understand that both of them are right. We are witnessing a real awakening of passion for private property rights because people have suddenly realized: if it can happen to Susette Kelo, if it can happen to Vera Coking, it can happen to me. Under public pressure legislators in many states are beginning to restore private property rights.

These are a few examples of the battles that take place over grassroots tyranny. Allow me to suggest some solutions.

Become an activist. Join organizations like the Foundation for Economic Education whose job is to examine such issues and to draw public attention to the tyranny that exists in what is supposed to be the freest nation on earth. And FEE does an awesome job in that regard.

Look into state constitutions. People on our side of the fence talk a lot about states’ rights but every time they file a lawsuit it is a federal one. State constitutions are amazing sources of individual and economic liberty and their protection. For example the Arizona constitution has an explicit protection against taking private property, as well as provisions to prevent local subsidies and other such things.

And finally, pay attention to what is going on in your own backyard. Local governments are like vampires: they suck taxpayer blood, but they are especially susceptible to daylight. It is amazing what a letter to the editor, a call to a TV station or to a city councilman’s office, or an e-mail to FEE or IJ can do to bring these bureaucrats into the daylight where their tyranny is not going to be allowed to continue. 

I want to conclude with one last example. In this instance we were able to expose grassroots tyranny without going to court. I was involved in research on barriers to entrepreneurship in different cities around the country. I came across a story from in Charlotte, North Carolina.

Two elderly ladies, Mrs. Kohler and Mrs. Connell, were informed by a local zoning official that it was illegal for them to knit and crochet blankets or to can fruit in their home and then sell it at the local market. Why? Because their homes were not zoned for "business purposes."

I visited with Mrs. Kohler and Mrs. Connell and decided to try to help them. I wrote to the local zoning official and asked for reassurance that this law would not be enforced against these ladies. I got no response. Then I wrote him a sterner letter explaining that he was violating their constitutional rights which can result in legal action. Still no response. I finally sent a third letter, this time stating, on such and such a day we are filing the enclosed lawsuit against him seeking attorney fees and an injunction against this ridiculous law. I copied the letter to the city attorney. The city attorney called me immediately. "Don’t worry," he said, "the zoning official will be calling and telling you there is no problem. Mrs. Connell and Mrs. Kohler can go on with their handiwork." And indeed the ladies were able to ply their trade without the local leviathan breathing down their necks.

---

Clint Bolick is a leading pioneer in restoring judicial protection of economic liberty, private property, and freedom of speech. A co-founder of the Institute for Justice, he helped lead the effort to increase judicial scrutiny of affirmative action in employment, education, interracial adoptions, and other critical areas. The legal strategy that he developed has produced several landmark rulings invalidating regulatory barriers to enterprise.

A passionate speaker, Bolick is the author of numerous articles and several books, including Leviathan: The Growth of Local Government and the Erosion of Liberty. In 2003 he was honored by American Lawyer as one of three American lawyers of the year.

Mr. Bolick received his law degree from the University of California at Davis. He is a research fellow at the Hoover Institution and the president of the Phoenix-based Alliance for School Choice.

]]> http://fee.org/nff/leviathan-the-growth-of-local-government-and-the-erosion-of-liberty/feed/ 0 http://fee.org/nff/not-yours-to-give/ http://fee.org/nff/not-yours-to-give/#comments Fri, 19 Dec 2008 20:44:51 +0000 admin http://fee.org/?p=3067 In this tale an unidentified narrator relates Davy Crockett’s experience when he was a member of Congress (1827–31, 1832–1835). The story is slightly condensed from The Life of Colonel David Crockett compiled by Edward S. Ellis (Philadelphia: Porter…]]> In this tale an unidentified narrator relates Davy Crockett’s experience when he was a member of Congress (1827–31, 1832–1835). The story is slightly condensed from The Life of Colonel David Crockett compiled by Edward S. Ellis (Philadelphia: Porter & Coates, 1884).

First published as “A Sockdolager” in The Freeman, August 1961, “Not Yours to Give” has been a FEE favorite for more than 40 years, second in popularity only to “I, Pencil.”

Holders of political office are but reflections of the dominant leadership—good or bad—among the electorate. Horatio Bunce is a striking example of responsible citizenship. Were his kind to multiply, we would see many new faces in public office; or as in the case of Davy Crockett, a new Crockett.

One day in the House of Representatives, a bill was taken up appropriating money for the benefit of a widow of a distinguished naval officer. Several beautiful speeches had been made in its support. The Speaker was just about to put the question when Crockett arose:

“Mr. Speaker—I have as much respect for the memory of the deceased, and as much sympathy for the sufferings of the living, if suffering there be, as any man in this House, but we must not permit our respect for the dead or our sympathy for a part of the living to lead us into an act of injustice to the balance of the living. I will not go into an argument to prove that Congress has no power to appropriate this money as an act of charity. Every member upon this floor knows it. We have the right, as individuals, to give away as much of our own money as we please in charity; but as members of Congress we have no right so to appropriate a dollar of the public money. Some eloquent appeals have been made to us upon the ground that it is a debt due the deceased. Mr. Speaker, the deceased lived long after the close of the war; he was in office to the day of his death, and I have never heard that the government was in arrears to him.

“Every man in this House knows it is not a debt. We cannot, without the grossest corruption, appropriate this money as the payment of a debt. We have not the semblance of authority to appropriate it as a charity. Mr. Speaker, I have said we have the right to give as much money of our own as we please. I am the poorest man on this floor. I cannot vote for this bill, but I will give one week’s pay to the object, and if every member of Congress will do the same, it will amount to more than the bill asks.”

He took his seat. Nobody replied. The bill was put upon its passage, and, instead of passing unanimously, as was generally supposed, and as, no doubt, it would, but for that speech, it received but few votes, and, of course, was lost.

Later, when asked by a friend why he had opposed the appropriation, Crockett gave this explanation:

“Several years ago I was one evening standing on the steps of the Capitol with some other members of Congress, when our attention was attracted by a great light over in Georgetown. It was evidently a large fire. We jumped into a hack and drove over as fast as we could. In spite of all that could be done, many houses were burned and many families made houseless, and, besides, some of them had lost all but the clothes they had on. The weather was very cold, and when I saw so many women and children suffering, I felt that something ought to be done for them. The next morning a bill was introduced appropriating $20,000 for their relief. We put aside all other business and rushed it through as soon as it could be done.

“The next summer, when it began to be time to think about the election, I concluded I would take a scout around among the boys of my district. I had no opposition there, but, as the election was some time off, I did not know what might turn up. When riding one day in a part of my district in which I was more of a stranger than any other, I saw a man in a field plowing and coming toward the road. I gauged my gait so that we should meet as he came up to the fence. As he came up, I spoke to the man. He replied politely, but, as I thought, rather coldly.

“I began: ‘Well, friend, I am one of those unfortunate beings called candidates, and—’

“ ‘Yes I know you; you are Colonel Crockett. I have seen you once before, and voted for you the last time you were elected. I suppose you are out electioneering now, but you had better not waste your time or mine. I shall not vote for you again.’

“This was a sockdolager . . . I begged him to tell me what was the matter.

“ ‘Well, Colonel, it is hardly worth-while to waste time or words upon it. I do not see how it can be mended, but you gave a vote last winter which shows that either you have not capacity to understand the Constitution, or that you are wanting in the honesty and firmness to be guided by it. In either case you are not the man to represent me. But I beg your pardon for expressing it in that way. I did not intend to avail myself of the privilege of the constituent to speak plainly to a candidate for the purpose of insulting or wounding you. I intend by it only to say that your understanding of the Constitution is very different from mine; and I will say to you what, but for my rudeness, I should not have said, that I believe you to be honest. . . . But an understanding of the Constitution different from mine I cannot overlook, because the Constitution, to be worth anything, must be held sacred, and rigidly observed in all its provisions. The man who wields power and misinterprets it is the more dangerous the more honest he is.’

“ ‘I admit the truth of all you say, but there must be some mistake about it, for I do not remember that I gave any vote last winter upon any constitutional question.’

“ ‘No, Colonel, there’s no mistake. Though I live here in the backwoods and seldom go from home, I take the papers from Washington and read very carefully all the proceedings of Congress. My papers say that last winter you voted for a bill to appropriate $20,000 to some sufferers by a fire in Georgetown. Is that true?’

“ ‘Well, my friend; I may as well own up. You have got me there. But certainly nobody will complain that a great and rich country like ours should give the insignificant sum of $20,000 to relieve its suffering women and children, particularly with a full and overflowing Treasury, and I am sure, if you had been there, you would have done just as I did.’

“ ‘It is not the amount, Colonel, that I complain of; it is the principle. In the first place, the government ought to have in the Treasury no more than enough for its legitimate purposes. But that has nothing to do with the question. The power of collecting and disbursing money at pleasure is the most dangerous power that can be entrusted to man, particularly under our system of collecting revenue by a tariff, which reaches every man in the country, no matter how poor he may be, and the poorer he is the more he pays in proportion to his means. What is worse, it presses upon him without his knowledge where the weight centers, for there is not a man in the United States who can ever guess how much he pays to the government. So you see, that while you are contributing to relieve one, you are drawing it from thousands who are even worse off than he. If you had the right to give anything, the amount was simply a matter of discretion with you, and you had as much right to give $20,000,000 as $20,000. If you have the right to give to one, you have the right to give to all; and, as the Constitution neither defines charity nor stipulates the amount, you are at liberty to give to any and everything which you may believe, or profess to believe, is a charity, and to any amount you may think proper. You will very easily perceive what a wide door this would open for fraud and corruption and favoritism, on the one hand, and for robbing the people on the other. No, Colonel, Congress has no right to give charity. Individual members may give as much of their own money as they please, but they have no right to touch a dollar of the public money for that purpose. If twice as many houses had been burned in this county as in Georgetown, neither you nor any other member of Congress would have thought of appropriating a dollar for our relief. There are about two hundred and forty members of Congress. If they had shown their sympathy for the sufferers by contributing each one week’s pay, it would have made over $13,000. There are plenty of wealthy men in and around Washington who could have given $20,000 without depriving themselves of even a luxury of life. The congressmen chose to keep their own money, which, if reports be true, some of them spend not very creditably; and the people about Washington, no doubt, applauded you for relieving them from the necessity of giving what was not yours to give. The people have delegated to Congress, by the Constitution, the power to do certain things. To do these, it is authorized to collect and pay moneys, and for nothing else. Everything beyond this is usurpation, and a violation of the Constitution.

“ ‘So you see, Colonel, you have violated the Constitution in what I consider a vital point. It is a precedent fraught with danger to the country, for when Congress once begins to stretch its power beyond the limits of the Constitution, there is no limit to it, and no security for the people. I have no doubt you acted honestly, but that does not make it any better, except as far as you are personally concerned, and you see that I cannot vote for you.’

“I tell you I felt streaked. I saw if I should have opposition, and this man should go to talking, he would set others to talking, and in that district I was a gone fawn-skin. I could not answer him, and the fact is, I was so fully convinced that he was right, I did not want to. But I must satisfy him, and I said to him:

“ ‘Well, my friend, you hit the nail upon the head when you said I had not sense enough to understand the Constitution. I intended to be guided by it, and thought I had studied it fully. I have heard many speeches in Congress about the powers of Congress, but what you have said here at your plow has got more hard, sound sense in it than all the fine speeches I ever heard. If I had ever taken the view of it that you have, I would have put my head into the fire before I would have given that vote; and if you will forgive me and vote for me again, if I ever vote for another unconstitutional law I wish I may be shot.’

“He laughingly replied; ‘Yes, Colonel, you have sworn to that once before, but I will trust you again upon one condition. You say that you are convinced that your vote was wrong. Your acknowledgment of it will do more good than beating you for it. If, as you go around the district, you will tell people about this vote, and that you are satisfied it was wrong, I will not only vote for you, but will do what I can to keep down opposition, and, perhaps, I may exert some little influence in that way.’

“ ‘If I don’t,’ said I, ‘I wish I may be shot; and to convince you that I am in earnest in what I say I will come back this way in a week or ten days, and if you will get up a gathering of the people, I will make a speech to them. Get up a barbecue, and I will pay for it.’

“ ‘No, Colonel, we are not rich people in this section, but we have plenty of provisions to contribute for a barbecue, and some to spare for those who have none. The push of crops will be over in a few days, and we can then afford a day for a barbecue. This is Thursday; I will see to getting it up on Saturday week. Come to my house on Friday, and we will go together, and I promise you a very respectable crowd to see and hear you.’

“ ‘Well, I will be here. But one thing more before I say good-by. I must know your name.’

“ ‘My name is Bunce.’

“ ‘Not Horatio Bunce?’

“ ‘Yes.’

“ ‘Well, Mr. Bunce, I never saw you before, though you say you have seen me, but I know you very well. I am glad I have met you, and very proud that I may hope to have you for my friend.’

“It was one of the luckiest hits of my life that I met him. He mingled but little with the public, but was widely known for his remarkable intelligence and incorruptible integrity, and for a heart brimfull and running over with kindness and benevolence, which showed themselves not only in words but in acts. He was the oracle of the whole country around him, and his fame had extended far beyond the circle of his immediate acquaintance. Though I had never met him before, I had heard much of him, and but for this meeting it is very likely I should have had opposition, and had been beaten. One thing is very certain, no man could now stand up in that district under such a vote.

“At the appointed time I was at his house, having told our conversation to every crowd I had met, and to every man I stayed all night with, and I found that it gave the people an interest and a confidence in me stronger than I had ever seen manifested before.

“Though I was considerably fatigued when I reached his house, and, under ordinary circumstances, should have gone early to bed, I kept him up until midnight, talking about the principles and affairs of government, and got more real, true knowledge of them than I had got all my life before.

“I have known and seen much of him since, for I respect him—no, that is not the word—I reverence and love him more than any living man, and I go to see him two or three times every year; and I will tell you, sir, if every one who professes to be a Christian lived and acted and enjoyed it as he does, the religion of Christ would take the world by storm.

“But to return to my story. The next morning we went to the barbecue, and, to my surprise, found about a thousand men there. I met a good many whom I had not known before, and they and my friend introduced me around until I had got pretty well acquainted—at least, they all knew me.

“In due time notice was given that I would speak to them. They gathered up around a stand that had been erected. I opened my speech by saying:

“ ‘Fellow-citizens—I present myself before you today feeling like a new man. My eyes have lately been opened to truths which ignorance or prejudice, or both, had heretofore hidden from my view. I feel that I can today offer you the ability to render you more valuable service than I have ever been able to render before. I am here today more for the purpose of acknowledging my error than to seek your votes. That I should make this acknowledgment is due to myself as well as to you. Whether you will vote for me is a matter for your consideration only.’

“I went on to tell them about the fire and my vote for the appropriation and then told them why I was satisfied it was wrong. I closed by saying:

“ ‘And now, fellow-citizens, it remains only for me to tell you that the most of the speech you have listened to with so much interest was simply a repetition of the arguments by which your neighbor, Mr. Bunce, convinced me of my error.

“ ‘It is the best speech I ever made in my life, but he is entitled to the credit for it. And now I hope he is satisfied with his convert and that he will get up here and tell you so.’

“He came upon the stand and said:

“ ‘Fellow-citizens—It affords me great pleasure to comply with the request of Colonel Crockett. I have always considered him a thoroughly honest man, and I am satisfied that he will faithfully perform all that he has promised you today.’

“He went down, and there went up from that crowd such a shout for Davy Crockett as his name never called forth before.

“I am not much given to tears, but I was taken with a choking then and felt some big drops rolling down my cheeks. And I tell you now that the remembrance of those few words spoken by such a man, and the honest, hearty shout they produced, is worth more to me than all the honors I have received and all the reputation I have ever made, or ever shall make, as a member of Congress.”

“Now, sir,” concluded Crockett, “you know why I made that speech yesterday.

“There is one thing now to which I will call your attention. You remember that I proposed to give a week’s pay. There are in that House many very wealthy men—men who think nothing of spending a week’s pay, or a dozen of them, for a dinner or a wine party when they have something to accomplish by it. Some of those same men made beautiful speeches upon the great debt of gratitude which the country owed the deceased—a debt which could not be paid by money—and the insignificance and worthlessness of money, particularly so insignificant a sum as $10,000, when weighed against the honor of the nation. Yet not one of them responded to my proposition. Money with them is nothing but trash when it is to come out of the people. But it is the one great thing for which most of them are striving, and many of them sacrifice honor, integrity, and justice to obtain it.”

]]> http://fee.org/nff/not-yours-to-give/feed/ 1 http://fee.org/nff/liberalism-or-neo-socialism-in-latin-america/ http://fee.org/nff/liberalism-or-neo-socialism-in-latin-america/#comments Fri, 19 Dec 2008 20:42:58 +0000 admin http://fee.org/?p=3065 The following is abridged from a speech delivered at “Evenings at FEE” in April 2007. Many years ago I attended a seminar here at the Foundation for Economic Education, and in the 13 years that I have been writing for…]]> The following is abridged from a speech delivered at “Evenings at FEE” in April 2007.

Many years ago I attended a seminar here at the Foundation for Economic Education, and in the 13 years that I have been writing for The Wall Street Journal, I have always considered FEE a guiding light for economic freedom. It is very exciting to see the renewed energy and spirit here. It&’s great to be back at FEE!

I chose the title for my presentation tonight for a reason. Ever since the limited economic experiments of the 1990s we have seen a tendency in Latin America to give the name liberalism (in its classical sense) to antiliberal policies, such as taking public monopolies and changing them into private ones through government intervention. That is what made Mexican media tycoon Carlos Slim the richest man in Latin America and the second-richest man in the world.

When this application of the word “liberalism” was criticized it was changed to “neo-liberalism.” That is when my friends and I decided that there is no such thing as neo-liberalism but instead there should exist a word “neo-socialism,” sort of a new rerun of the old values of socialism.

Look at Venezuela. You see a democracy with an elected president, Hugo Chávez, but with the absence of any individual or economic freedoms. What you see is in fact a very sharp slide toward socialism. It is highly improbable that the Venezuelans can become free people any time soon. The situation there looks very grim—much closer, I think, to what we are seeing in Russia right now.

There is a group of Latin American countries that are following Chávez, and that tend to have more closed economies and underdeveloped institutions. Among them are definitely Bolivia and Ecuador, and to a lesser extent Nicaragua, which we have to remain vigilant about.

However, it is also very important to recognize that not everyone is following Venezuela. There is a whole other part of Latin America that we should be cautiously hopeful about, which includes Colombia, Chile, Peru, Brazil, Mexico, and several Central American countries (although there is a very serious problem with the rule of law in Guatemala right now).

In those countries political institutions are more or less holding up: the elected presidents in fact leave office at the end of their term and a new president gets elected; congress and courts (i.e. the competing branches of power) actually exist. Of course none of the courts functions adequately, but at least we see a semblance of institutional order which makes me somewhat hopeful.

Chile, for example, has done a good job of setting up a rule of law, opening the economy, and becoming very competitive. But to the surprise of many, the ideas in Chile have failed to “infect” other Latin-American countries. Chile is simply too small to affect the development of the whole region.

The Case of Brazil

There is a definite need for one of the larger economies on the continent to start a more positive trend. One such possible country is Brazil. But on this count, Brazil has been a very big disappointment. Today most people think of Brazil as one of the biggest developing economies in the world, along with Russia, India, and China. Those four countries are often referred to as BRIC.

But Brazil has actually underperformed its BRIC peers. My economist friends in Brazil have been telling me for years, “Don&’t worry, there is not going to be a big collapse, but do not expect anything on the upside either. Brazil simply is going to be mediocre forever.”

How can this be? I spent two weeks there last summer and saw the incredible potential:

• The natural resources are boundless.
• Immigrants, with their work ethic, give the country a huge advantage in human capital.
• Brazilian entrepreneurs are competitive, outward looking, and educated. You meet them all around the world! And if you go to the informal markets in São Paulo, Rio, or Bella Horizonte, you see the same entrepreneurial hunger in the general population.

Why is it that Brazil, as an old joke has it, remains and always will remain the country of the future? Why then do we have Brazilian mediocrity instead of the Brazilian miracle?

The Brazilian government under the leadership of President Luiz Inácio Lula da Silva, known as Lula, takes pride when announcing a 3.5 percent annual GDP growth with interest rates at a “low”—below 15 percent. That is how low the expectations are for a large country with great economic potential.

What is the politically correct explanation for this inadequacy? It is, of course, “inequality”: there are too many rich people who refuse to “share” their assets with the less fortunate. Foreign-aid experts, who will do very well as long as Brazil stays poor, offer their own reasons and solutions. First, Brazilians are uneducated. The government&’s failure to spend enough money on education is one of the justifications for constantly raising taxes and redistributing wealth. The second reason is inequality in health care. The answer is to undermine pharmaceutical patents and to aggressively promote the production and sales of cheap generic medicines so that every Brazilian can have free health care.

These are some of the solutions that according to foreign-aid experts will change the Brazilian picture. To them foreign aid should simply provide enough money for the poverty to go away. They fail to see that the experiment in Brazil, which has really been a 25-year experiment with socialism, shows that this is a losing battle. But the Brazilian people are beginning to see the real problem: low growth. As prominent free-market economist Peter Bauer once said, “Lack of money is not the cause of poverty, it is poverty.”

Another obstacle on the way to prosperity is the lack of understanding of the proper role of government. Have you have ever seen the Brazilian constitution? A pocket-book version of it is 400 pages long! Obviously the government has a host of obligations to meet. The government is charged with doing everything, including guaranteeing that the people will have enough leisure time. Of course this particular obligation is easy to meet: the unemployment rate is so high that Brazilians are guaranteed lots of leisure time.

A Vicious Cycle of Poverty

With Brazil and its neighbors, I think we are facing three major problems:

1. The failure of the constitution to limit the power of government.
2. The failure to ensure equal rights under the law. The idea of equality is in everybody&’s mind, but they understand it as equality of incomes, rather than rights.
3. The protectionist policies and high tariffs that were established in the middle of the 19th century and have been pushing the whole region back considerably.

In the 20th century this policy continued. There was a very short period of time before World War II when the tariffs were lifted only to be reintroduced during the war. Around 1950, an Argentinean economist, Raúl Prebisch from the UN&’s economic commission on Latin America and the Caribbean (CEPAL), suggested that Latin America should introduce extremely high tariffs, which would allow infant industries to grow and mature. Then lift the tariffs. More good advice from the UN! Now, 70 years later, we are still waiting. The infants have never grown up.

Central America experienced the highest import tariffs and import protection in the world. These policies caused the extreme poverty in Central America, which continues to proliferate to this day. The region not only lost investment, but also the information and the connection with the rest of the world. As a result, Central American countries were not part of the process of innovation and discovery that fueled the growth of the countries with more open economies.

Latin America continues to be a closed economy with very strong domestic interests in each respective country. Government-protected domestic monopolies have the money to lobby the policy makers for further protection from all competition. This creates a vicious cycle propagating a closed economy and thus poverty. Unfortunately Brazil is no exception.

In his book, The Power of Productivity, William Lewis (the founder of the McKinsey Global Institute) observes that Brazil has an impressively high level of productivity in its formal sector and yet is condemned to suffer the consequences of a huge informal sector mired in misery.

He completely dismisses the idea that the lack of education of the Brazilian workforce is the reason for the country&’s inability to close this productivity gap. It is rather an excuse for poor economic performance. There are many examples—from banking to food processing—where companies have been able to match productivity levels at the economic frontier with the existing Brazilian workforce. In other words, the job training provided by the private sector, not government schooling, is the primary avenue through which workers attain the skills necessary to perform at the economic frontier.

So the true problem is not education, but the high cost of conducting legitimate business in the formal sector. Big government demands big taxation. Companies in the formal sector have high productivity, but they are also the ones paying all the taxes.

The common incentive thus is to work in the informal sector, where you don&’t have to meet regulations or pay taxes, and that&’s how you survive. And he says the two characteristics of Brazil&’s economy are the large size of the informal sector and the large size of government. They are connected.

Half of all Brazil&’s workers are in fact outside the formal economy and their low productivity fuels poverty. In a developing country the problem should take care of itself as more productive formal businesses with lower prices and better services overtake the informal enterprises. But it is not happening in Brazil. In fact, the informal sector is growing bigger and bigger.

Now what&’s the problem with the informal sector? The problem is that in the informal sector you cannot take advantage of the efficiency or technology of large-scale production. Otherwise you run the risk of getting on the government&’s radar screen and being nailed for tax evasion.

The culprit here is the voracious appetite of big Brazilian government, which constantly needs resources. Despite higher productivity, legitimate enterprises do not have any pricing advantage against informal, less-productive businesses because they&’re saddled with the payroll tax, value-added tax, sales tax, income tax, and corporate tax, which is scandalously high in Brazil. As a result Brazilian companies pay 85 percent of all taxes collected, compared with 41 percent for U.S. corporations. This not only hampers legal businesses, it also deters small informal businesses from growing and moving into the legal sector.

Today the Brazilian government spends 39 percent of the country&’s GDP compared to 37 percent in the United States. For a developing country, that is outrageous. No country could ever hope to pull itself from the grips of poverty with such a high and destructive level of taxation.

Cut the Size of Government

There is only one prescription for this disease: cut the size of government! One would hope that Brazilians would all go to the polls and vote to oppose all of those regulations, interventions, and taxes. But instead the masses keep voting for more and more government. They do not have much confidence in politicians&’ ability to establish equality under the law and thus the opportunity to move up the social ladder. Under those circumstances people simply vote for whoever promises them the biggest piece of the redistributive welfare pie. They have no incentive whatsoever to support the idea of limited government.

One avenue for change is free trade. Besides obvious economic benefits, trade encourages information exchange as well as discovery and innovation. That triggers change in the climate of ideas, the way people think and relate to each other. Suddenly a monopolistking of everything becomes just another competitor in a global market.

Part of the problem is bad incentives created by foreign aid and faulty advice, both coming from Washington, D.C. We put pressure on those countries to implement more labor regulations, to pour more money into government health care and public education. Such an additional financial burden is counter-productive to the growth of the economy and makes their potential to overcome poverty even more doubtful.

We Americans should do better. We should stand for open trade. We should repeal the protectionist regulations, which hold Latin Americans in poverty and hurt consumers at home. We should stop pushing social safety networks and labor regulations, and encourage the emergence and growth of the freemarket institutions that generate economic prosperity and safeguard the rule of law in the United States.

It is very difficult to break the vicious cycle of poverty, but it is not impossible. Every year we see more and more believers in the free market across Latin America. Those talented and dedicated people from many walks of life really want to change their countries. And with our help, I am hopeful they will.

---

Mary Anastasia O&’Grady is a leading editorial writer for The Wall Street Journal and a member of the Journal&’s Editorial Board. As the editor of the “Americas” column, she regularly exposes the never-ending corruption and failed policies of the socialist regimes in Latin America.

In addition to her post at The Wall Street Journal, Mary O&’Grady is a co-editor of the Index of Economic Freedom, published by the Heritage Foundation. In 1997 she won the Inter American Press Association&’s Daily Gleaner Award for editorial commentary; in 2005 she was awarded the Bastiat Prize for Journalism.

Ms. O&’Grady is equally disliked by the left-leaning American media and by Latin America&’s socialist governments. The Cuban government named her a “counterrevolutionary” for her uncompromising criticism of Fidel Castro, Hugo Chávez, and the like.

]]> http://fee.org/nff/liberalism-or-neo-socialism-in-latin-america/feed/ 0 http://fee.org/nff/overcoming-economic-ignorance/ http://fee.org/nff/overcoming-economic-ignorance/#comments Fri, 19 Dec 2008 20:38:19 +0000 admin http://fee.org/?p=3063 On May 6, 2006, the Foundation for Economic Education had the honor of presenting the 2006 Adam Smith Award for Excellence in Free-Market Education to two great champions of the free society: Dr. Walter E. Williams and President Václav Klaus…]]> On May 6, 2006, the Foundation for Economic Education had the honor of presenting the 2006 Adam Smith Award for Excellence in Free-Market Education to two great champions of the free society: Dr. Walter E. Williams and President Václav Klaus of the Czech Republic. The following are the unabridged addresses by Dr. Williams and President Klaus delivered at the Adam Smith Award Ceremony at FEE’s headquarters in Irvington-on-Hudson, New York.

It is with great pleasure that I accept the Foundation for Economic Education’s Adam Smith Award. Adding to that pleasure is to accept the award in the company of such a distinguished guest as President Václav Klaus of the Czech Republic. I want to thank the Foundation for Economic Education’s Board of Trustees and President Richard Ebeling. I also want to thank all of you, some of whom traveled long distances to participate in tonight’s affair.

In making the case for freedom we face three broad classes of people in this world: first, those who are just plain evil; second, those who do evil things because of economic illiteracy; and, third, good people who are economically illiterate. There is little that organizations like FEE can do to fight the truly evil. It is dealing with the latter two that constitutes FEE’s mission, and which has motivated the Foundation’s efforts for sixty years. I am sure that FEE’s founder, Leonard E. Read, would be proud of the yeoman’s job it has done.

Unfortunately, economic illiteracy is intuitive. Take advocacy for increases in the minimum-wage law as an example. What decent person wouldn’t want higher wages for low-skilled workers? If one has the view that an employer needs a certain number of workers in order to perform a given task, then the effect of a mandated higher wage is higher pay for low-skilled workers.

That’s the type of thing we hear reported in the news: “Starting January 1st all minimum-wage workers will see their wages rise from $5.15 an hour to $6.75.” Those who hold this view think that the only effect from the mandated higher wages is an increase in the worker’s take-home pay at the expense of the businessman’s profits.

On the other hand, if you understand that an employer doesn’t simply need a fixed number of workers to perform a given task, you might still be sincerely concerned for the welfare of low-skilled workers but be against increases in the minimum-wage law. Such a person would realize that when the price of a resource rises, employers will seek substitutes. He might substitute capital for labor, he might automate. He might reorganize his productive technique so as to economize on labor costs. He might move his operation to a nation where wages are lower. The workers who lose their jobs will be worse off. Of course, those workers who keep their jobs will be better off, but at the expense of their now unemployed co-worker.

Some of the responses to the recent sharp rise in gasoline prices show just how intuitive economic illiteracy can be. I’ve heard people offer what they see as “proof” of price gouging by gasoline companies. They explain that they can understand how a supply shock such as Hurricane Katrina or Middle East political instability can cause oil prices to rise. But then they ask: What about all that oil sitting in tanks or in transit, which was purchased before the hurricane or the political disruption? Why does its price rise? That’s what they see as proof of price gouging by the oil companies.

What these people don’t realize is that historical prices—what you paid for something yesterday—do not necessarily determine its selling price today. For example, back in 1973, I paid $58,000 for my lovely home in the Valley Forge area of Philadelphia. You can call me a price gouger all you want but I’ll be damned if I’ll sell it for $58,000 in 2006. I’m going to sell it for today’s replacement cost just as the oil companies price their product at today’s replacement cost.

I am optimistic about the future because I believe that it is ignorance that explains much of what we see. I am optimistic because ignorance is curable. If there is one dereliction of duty by economists, it’s their failure to make relatively simple economic principles available and understandable to the ordinary person. In that regard, the work done by the Foundation for Economic Education is just what the doctor ordered.

I thank all of you for your support of America’s first free-market foundation, the Foundation for Economic Education, and for joining us in the celebration of FEE’s 60th Anniversary.

---

Dr. Walter E. Williams is one of America’s foremost advocates of liberty. His uncompromising stand for the free society and his unique combination of intellectual depth and razor-sharp wit have brought him unmatched success in popularizing the ideas of liberty and influencing hundreds of thousands of people in the United States and around the world.

Dr. Williams’ syndicated column and his frequent appearances on radio and television are always breaths of fresh air in defense of the free society. He is the author of six books, including The State Against Blacks and More Liberty Means Less Government. We are proud that Dr. Williams is a columnist for our flagship publication, The Freeman: Ideas on Liberty. A native of Philadelphia, Dr. Williams earned his Ph.D. in economics at UCLA. He is the John M. Olin Distinguished Professor of Economics at George Mason University. He has always been one of the most sought-after teachers and raised a whole generation of freemarket economists.

Nobody in the United States deserves to receive the Adam Smith Award for Excellence in Free-Market Education on FEE’s 60th Anniversary more than Dr. Walter E. Williams.

]]> http://fee.org/nff/overcoming-economic-ignorance/feed/ 0 http://fee.org/nff/property-and-freedom-the-inseparable-connection/ http://fee.org/nff/property-and-freedom-the-inseparable-connection/#comments Fri, 19 Dec 2008 20:27:31 +0000 admin http://fee.org/?p=3061 The following is abridged from a speech delivered at “Evenings at FEE” in October 2004. I feel very happy and privileged to be here tonight and to speak to such a large and eager audience. I became interested in the…]]> The following is abridged from a speech delivered at “Evenings at FEE” in October 2004.

I feel very happy and privileged to be here tonight and to speak to such a large and eager audience.

I became interested in the subject of property and freedom while writing my book Russia under the Old Regime. It raised a very interesting question: Why is it that Russia—a European country by geography, race, language, and religion—virtually never managed to impose any limits on its government? It always had autocratic rule: the will of rulers rather than the rule of law. Even today you see in Russia a backsliding from democracy into authoritarianism.

I concluded that it was due to the absence—or rather a very late development—of private property in Russia.

In Western Europe since Roman times, private property was considered sacrosanct. The principle enunciated by the Roman Stoic philosopher Seneca that kings rule by the will of the people became fundamental to Western civilization, together with private property, which was the main source of productive wealth.

On the other hand, the notion that property is to be viewed as an evil also goes back to the eighth century B.C. in ancient Greece. The Greek writer Hesiod spoke about three ages of man: the Golden Age, the Civil Age, and the Iron Age. According to Hesiod, the Golden Age had no property lines dividing the land among neighbors—it was all held in common.

Plato, the first communist in intellectual history, went even further, suggesting that private property causes quarrels and civil wars. He believed in sharing not only property but wives and children as well. His idea was that we would all become one and the same. We would have the same eyes and the same ears and the same sense of smell. We would lose our individuality entirely.

Plato was challenged by his disciple, Aristotle. Aristotle argued that it is not private property that causes conflicts and wars, but the desire for property. Thus if you want to eliminate conflict, you have to eliminate that desire, which is quite impossible. Private property, Aristotle said, may have its vices and is far from perfect, but it leads to fewer quarrels and wars than would its abolition.

Christianity brought about a much more tolerant view of private property. Christ never demanded the abolition of private property and never made the accusation that it was a sin. (Incidentally, Judaism also never attacked private property. Jewish rabbis and theologians argued that it is better to be rich than poor. When you are poor you become a burden on society, but when you have wealth you should share it with society at large.)

The Christian notion prevailed and strengthened. During the Protestant Reformation, Luther and particularly Calvin developed the notion that the possession of wealth is a sign of divine grace. Max Weber, the German sociologist, in his book The Protestant Ethic and the Spirit of Capitalism, demonstrated how Calvinist theology promoted the development of private property and the accumulation of wealth.

The Basis of Modern Socialism

A change began in 18th-century France, the country which has often been the source of the most terrible ideas. A group of French philosophers launched an argument against private property using John Locke’s theory of knowledge. Locke, the father of classical liberalism, who argued that we have no innate ideas and learn entirely from experience, never anticipated the political implications that some would draw from his theory. These French thinkers argued that if everything we are is just a result of our experiences, then through proper legislation and education human beings can be changed. Since property is the root of all evil, through its abolition people can be totally socialized: then they will not desire to own anything, but will want to share everything.

That became the basis of modern socialism and communism. Marx argued that our acquisitive feelings are entirely a result of the environment in which we live. He insisted that as long as we remained dependent on private property we would never be truly free. Only when “society” owned everything would everyone receive according to his desires and needs. According to Marx, under a communist system a person would be able to do anything he desired: he could be a literary critic today, a hunter tomorrow, a fisherman another day, and so on. “True freedom” would follow. In the Communist Manifesto, Marx summed up the definition of communism in one phrase: the abolition of private property.

Accordingly, the communist system in the Soviet Union became a gigantic educational structure to create new, totally socialized human beings. Of course, parents had to be completely changed first. If the parents did not crave private property, then the children would not either. The Soviet regime tried to practice this for 70 years, but sure enough it failed miserably.

The reality is that all living creatures, not only people, but also animals, are extremely acquisitive; they have to be in order to survive. All animals have the necessity of controlling their separate territories. When deer have their battles in the spring, they are in fact fighting for territory. A female will not mate with a male who doesn’t have territory: he must be “rich”; otherwise she cannot raise her offspring.

Our species is no different. Research has shown that one of the first words children learn is “mine” and that approximately 75 percent of conflicts among children are over possessions. The most extreme example of an attempt to eradicate possessiveness was the kibbutz in Israel. In those communes children had nothing of their own, not even socks or underwear; everything was shared. The results were terrible. When they grew up, those children could not establish normal human relations with other human beings because to them it was “selfish.” They could not fall in love because love involves possessiveness. They could not write poetry because it was not something that the group enjoyed. They made wonderful army officers because they were very brave and would sacrifice themselves for the community. But they didn’t make normal human beings.

Marx hailed a period of “primitive communism,” or as he called it “The Golden Age of Hesiod,” which, he insisted, existed in the very early stage of human history when nobody owned anything. Only with the emergence of social classes, Marx said, did the powerful begin to appropriate property and enslave others. But there is absolutely no evidence that there ever was an age of “primitive communism.” In fact, every society of the past, whether as a tribe, community, or family, imposed claims on property, which was at that time land or cattle.

Private Property and European Liberty

Private property first began to emerge in ancient Israel. When the Israelis settled in Canaan they apportioned the land among themselves by lot. (It’s interesting that the word “lot” in English has a double meaning: as a piece of land and also a raffle.) In the Hebrew Bible you find many allusions to private property. For example, God curses anyone who moves boundary stones separating properties.

Europe from the earliest times of the barbarian occupation practiced private property and adopted Seneca’s idea: kings rule and subjects own. This notion became especially deeply rooted in England, which as an island was easier to protect from foreign invasions. Countries like France, Germany, and Italy were constantly attacked and thus were willing to give their governments certain powers over their property and taxation in order to defend themselves. The English were not willing to grant such authority because they felt safe.

In most of medieval Europe the kings ran the government from their own income. They leased out their large estates, collected rent, and were supposed to use this revenue to run their courts, navies, armies, and so on. But by 1300 the English kings didn’t have enough money to do that. Since they respected their subjects’ property rights, they had to convene the House of Commons and ask, “Please give me subsidies through taxes.” The House of Commons agreed, but only with the recognition of some rights in return. And increasingly power passed from the kings to the kings and parliament, and eventually to the parliament by itself. By the early 1800s, when England was fighting battles against Napoleonic France, King George III was declared legally insane, but it actually didn’t affect the country. In reality the prime minister, not the king, was running England.

This formed the basis of European liberty: possession of property that required government to come to its subjects, ask them for appropriations and grant them power in return. Eventually property rights led to the development of parliamentary institutions and of many other liberties.

No Freedom Without Property

In Russia the situation was completely different. As Trotsky once so bluntly pointed out, “It used to be said that he who doesn’t work doesn’t eat. In communist societies, he who does not obey does not eat.” In order to survive, everyone had to become an embryo of the state. That has been the case throughout Russian history.

For a variety of historical reasons Russian czars appropriated the totality of the land. They granted the land to servitors, mostly military men, under one condition: absolute obedience and loyalty. They were allowed to live on the land and use it, and they were given serfs to work for them, but only as long as they served the crown properly. Otherwise the land would be given to somebody else. As a result every subject, from the lowest to the highest, had to loyally serve the czar for life, as a serf, military man, official in the bureaucracy, or clergyman. The spirit of individualism was completely absent and had no soil from which to emerge.

It is not surprising that for most of its history Russia had no parliaments and no need for them: the czars did not have to seek permission to raise taxes. They could do it on a whim as they wanted. Finally in 1905, as the result of a revolution, the government granted its people a parliament and accepted political parties as part of a new parliamentary system. But the notion that the parliament could have any actual power was really not acceptable. The czar was persuaded that the function of the parties was to collaborate with the government, not to oppose it. Just the other day President Putin’s assistant made a statement that political parties in Russia have to collaborate with the government, not to resist it. The idea of a loyal opposition is totally alien to Russia and the very concept of freedom and human rights has never taken root. Russia simply cannot get over its authoritarian impulses and is moving back towards authoritarianism.

My extensive study of opinion polls in Russia shows a very disconcerting picture. Most Russians attach almost no value to freedom. To them it is either security or freedom, but never both. When asked “What do you value more highly, security or freedom?,” approximately 85 percent answer “definitely security.” When asked “What value do you attach to private property?,” only about 20 percent say that property is an inalienable human right. The overwhelming majority views democracy as a joke, a façade behind which the rich and powerful rule with no attention to the people.

The result is that only 10 percent of the population is interested in or pays attention to politics. The other 90 percent are totally depoliticized and don’t care one way or the other. This makes it entirely possible for someone like Putin to appoint governors, forbid certain electoral procedures in the provinces, and take over the media—the Russian people don’t mind it. In fact 76 percent of Russians want the reintroduction of censorship on the media. Why? Because they are confused by the flow of contradictory news and would prefer to be told what to believe.

Private property is always closely connected with law, which explains Russia’s failure to develop a functional judiciary system. In case of any disagreement or contract violation, business resorts to arbitration or the mafia, since the courts will not enforce private contracts.

The judiciary system largely remains what Russians call “telephone justice,” where the prosecutor telephones the judge and tells him what sentence to impose. For example, Mr. Khodorovsky, the richest man in Russia, was arrested and jailed, allegedly for not paying his taxes. But his major crime is really the fact that he had the temerity to finance political parties which were neither friendly to Putin, nor under his control.

The absence of any tradition of and respect for private property negatively affects the Russian investment climate. Every year, billions of dollars move from Russia to foreign banks, or get invested in foreign businesses, foreign soccer teams, or what have you. Why would you invest money in Russia knowing that if the government is displeased, it will take your property, arrest you, and the prosecutor will tell the judge what kind of sentence to enforce?

This is a tragedy for Russia, but it also emphasizes to what extent private property is vital for liberty and economic progress. We must bear that in mind in our own society. Although nobody in this country challenges private property directly, it is done in a very oblique fashion through the welfare state. The welfare state is an enemy of private property. The excessive taxation used to support the welfare state is extremely dangerous.

Today in the United States, the federal, state, and local governments together control 35 percent of the GDP. This means that the government is controlling a great deal of cash, which allows it to influence public policy, tell universities whom to hire and whom not to hire, and do all sorts of things. We need to keep a very keen eye on our own government. It’s getting too rich and redistributing wealth is a sure way of robbing us of our private property rights and other rights along with them.

---

Dr. Richard Pipes escaped from his native Poland as a teenager in October 1939, a month after the Nazi troops marched into Warsaw. He and his immediate family finally arrived in the United States in July 1940, but most of his other relatives perished in concentration camps.

Dr. Pipes graduated from Cornell University in 1945 while on active service with the U.S. Air Force and earned a Ph.D. in history from Harvard University in 1950. For several generations of Harvard students he brought alive the reality and tragedy of Russian and Soviet history. Through his many excellent books, he conveyed those powerful insights to millions of readers around the world. Among his most important books are Property and Freedom, Formation of the Soviet Union, Russia under the Old Regime, The Russian Revolution, Russia under the Bolshevik Regime, and Communism: A History.

Dr. Pipes is professor emeritus of history at Harvard.

]]> http://fee.org/nff/property-and-freedom-the-inseparable-connection/feed/ 0 http://fee.org/nff/restoring-the-spirit-of-classical-liberalism/ http://fee.org/nff/restoring-the-spirit-of-classical-liberalism/#comments Fri, 19 Dec 2008 20:23:19 +0000 admin http://fee.org/?p=3059 Abridged from the keynote address delivered at the May 2005 Adam Smith Award Dinner. I am very glad to be here. Though I have never been here before, I have had a half-century relationship with FEE. I first met Leonard…]]> Abridged from the keynote address delivered at the May 2005 Adam Smith Award Dinner.

I am very glad to be here. Though I have never been here before, I have had a half-century relationship with FEE. I first met Leonard E. Read in 1957 at a Mont Pelerin Society meeting in Switzerland. He and the Foundation for Economic Education he created were indeed in advance of all those think tanks that later blossomed all over the world.

Ignoring the Evidence of History

Several years ago I wrote a piece in which I stated that classical liberalism had lost its spirit. We have lost this spirit because of our failure to understand and appreciate the superiority of the Western value system. When Italian premier Silvio Berlusconi suggested during a visit to Washington that the Western value system was superior to all the alternatives, he was condemned by American media, academia, and politicians. Ignoring the evidence of all human history, they have come to believe their own stylized constructions of reality and refuse to admit that any system can be better than any other. That’s how political correctness has corrupted our very souls. Only if we acknowledge that the Western value system is indeed superior to all known alternatives can we restore the spirit of classical liberalism.

The first step towards such restoration requires us to recognize that our basic institutions are the heritage of a public philosophy clearly articulated by our eighteenth-century forebears, notably by Adam Smith and the Scottish Enlightenment as well as by the American Founders. It was they who refined a set of norms, rules, procedures, and practices that we now simply take for granted: the rule of law with its universal and nondiscriminatory application; separation of powers; and universal and open franchise. This means guaranteed protection of person, property, and contract, with periodic elections, open entry into competition for political office, and constitutional limits on the extent of governmental action. That is the institutional heritage of classical liberalism, which we must zealously protect. However, the motivation for such protection becomes more and more tenuous as public understanding of the foundations of the free society is eroded.

Once we abandon the idea of universal and nondiscriminatory application of the law, the "general welfare" state becomes the transfer state, with programs targeting particular segments of the population. As differing majority coalitions grow more and more effective, the transfer state becomes a game where claimants use political authority to take from each other and where the precepts of classical liberalism fade or even disappear.

Between a Rock and a Hard Place

Such a shift demonstrates a flaw in the structure of our political institutions. Procedures for collective decision-making have to operate within constitutional rules that evolved long before the modern welfare state placed demands on our fiscal capacities. These procedures allow decisions on the spending side of the budgets to be made independently of the decisions on the taxing side. The very simple logic of Public Choice theory explains that under those conditions rates of government spending will always be higher than the revenue from the taxes legislatures are willing to impose on their constituents.

During the second half of the 20th century this gap between government spending and tax revenue was widely ignored by the general public. The looming fiscal crisis has only emerged into public consciousness in the new century. Some estimates suggest that the net deficit we are facing in the United States amounts to nearly 45 trillion dollars. At the same time we are not willing to tax ourselves enough to pay these liabilities that the government promised the American people. 

We are definitely between a rock and a hard place. How will our political institutions respond given current public attitudes? One can expect widespread and politically effective resistance to any reduction in promised benefits and at the same time to any increase in taxes.

It seems very clear to me that we will move towards the introduction of discriminatory changes. President Bush’s scheme to reform Social Security already suggests cutting benefits for upper-income groups and raising or maintaining benefits for lower-income groups. On the tax side the government will have to gradually raise the percentage of income subject to the Social Security tax. Thus Social Security will completely lose its "insurance" aspects and will evolve into a very simple welfare transfer program. The structural flaws we allowed to emerge in our constitutional democracy will lead to further erosion of our classical liberal heritage rather than its restoration.

This raises an important question: why, in spite of the acknowledged failure of socialism both in idea and in practice, do people continue to demand the very programs that define the modern welfare state? We surely hoped that the demise of command-and-control socialism would cause societies everywhere to turn to the market and democratic governmental structures, but this was not to be. Socialism is dead, but Leviathan lives on.

We should be alarmed by a continuing increase in the politicized share of economic activity motivated by the demands for welfare payments. I call it parental socialism. Under parental socialism people generally recognize "the fatal conceit" that Hayek emphasized and the dismal failure of managerial socialism. Americans generally do not believe that collective organization is efficient; nor do they seek to control the lives of others. They demand welfare programs for a very different reason: they simply want to be dependent on the state. People are afraid to be free.

Fear of Freedom

The popular demand for collective provision of welfare programs can be traced to the historical coincidence of two fundamental changes in the current of ideas. Late in the 19th century, the German philosopher Friedrich Nietzsche pronounced that God is dead. Nietzsche meant that religious faith in a Supreme Being, along with the institutional embodiment of this faith, no longer remained a motivational force in the lives of people.

At the same time the socialist idea, inspired by Karl Marx, emerged in public discourse. Socialism demanded collective and political control over production and exchange as a solution to all social ills and spiritual needs. As the dominance of the Church waned, individual liberty was deliberately forsworn by the shift of authority from God, to the state itself. The sentiment expressed in the old hymn "God Will Take Care of You" was transformed into "the state will take care of you." The state simply replaced God as a parental surrogate.

Welfare programs were in fact not imposed from above by an elite who claimed superior wisdom or by those who simply sought to benefit at the expense of others. Popular support for welfare found its source in this very shift in allegiance from God to the state. People became fearful of the personal responsibility they would have to assume if released from the shackles of collective control.

When the fiscal illusions of the modern state fostered by our flawed constitutional processes are revealed, this social democratic god will fail. In one sense this failure is already here: modern welfare democracies cannot finance the liabilities they have accrued over several decades without bringing fiscal deprivation to some elements of the constituency. The conflict over whose ox is to be gored will be central to the politics of the first half of this century. More hierarchical classifications will emerge to identify individuals by membership in politically defined groups, and more discrimination will follow.

Ideas Have Consequences

A bedrock assumption of classical liberalism is the opposite: people are natural equals and should be treated as such along all dimensions of political organization and action. In this sense, classical liberalism is profoundly egalitarian, rather than hierarchical. Adam Smith’s reference to the natural equality between a philosopher and a street porter reflects this attitude, which must remain a crucial part of classical liberal faith if we want to preserve the institutions of civic order that this faith made possible.

Classical liberalism as an idea and an institutional structure makes no claim to serve as God. In fact religious faith, with its emphases on self-reliance and independence, is a complement to classical liberalism. To the extent that God returns, the dependency of individual citizens on the state is necessarily reduced as long as religious zealotry does not motivate political intrusion on the personal liberties of those who lack similar faith. The separation of church and state, if respected by politicians along with the open competition among different religious factions, serves to keep such zealotry in check.

It is only too easy to take a pessimistic stance and judge the situation to be hopeless, but I always say, "I’m a pessimist looking forward, but an optimist looking backward." We Westerners are fortunate to have the institutions of the free society as part of our heritage. We must ensure that these institutions are not eroded beyond recognition through our failure to appreciate their basic ethical logic.

Ronald Reagan’s "shining city on a hill" stirred the souls of men and women throughout the land. It is vital that we continue to hold on to the Classical Liberal Dream and to teach, indeed to preach, its principles. 

---

James M. Buchanan is one of the most important economists and teachers of our time. In 1986 he was awarded the Nobel Prize in Economics for his revolutionary Public Choice theory. Public Choice forever changed our understanding of the rationale behind economic and political decision-making, explaining how politicians’ self-interest affects government policies. Dr. Buchanan has profoundly influenced generations of students, scholars, and businessmen through his teaching, writing, and lecturing.

Among the many influential books he has written are The Calculus of Consent: Logical Foundations of Constitutional Democracy (1962) with Gordon Tullock; Cost and Choice (1969); The Limits of Liberty (1975); and Liberty, Market, and State (1985).

Professor James Buchanan earned his B.A. from Middle Tennessee State College, his M.S. from the University of Tennessee, and his Ph.D. from the University of Chicago. He currently serves as the Advisory General Director of the James M. Buchanan Center, named in his honor, at George Mason University. 

]]> http://fee.org/nff/restoring-the-spirit-of-classical-liberalism/feed/ 0 http://fee.org/nff/socialized-health-care-the-communist-dream-and-the-soviet-reality/ http://fee.org/nff/socialized-health-care-the-communist-dream-and-the-soviet-reality/#comments Fri, 19 Dec 2008 20:13:27 +0000 admin http://fee.org/?p=3057 The utopian ideal of equality of circumstances has captured people’s imagination since ancient times. If only everybody could have the same of everything the world would be different. There would be no envy, no crime, no poverty, no greed, and no unhappiness. From Plato to Karl Marx, many thinkers looked to the state for the creation of that heaven on earth. In our own times, this dream has remained alive in the form of the welfare state, and today it shows itself most distinctly in the appeal of government-managed health care.

Isn’t it obvious, many ask, that government can supply medical care more fairly and less expensively than the selfish profit-oriented free market? Let us remind ourselves that in the Soviet Union the road to medical-care hell was paved with the same good intentions. In October 1917, the Marxist dreams of coming to political power came true in Russia. Now that everyone was to be equal in all aspects of their lives, people would no longer die in the streets from illness. Free medical care would be available for all, rather than reserved only for the “greedy rich.”

But what did the Bolsheviks destroy and what did they create?

In Old Russia, medical care was a consumer-oriented business. Doctors’ incomes and their standard of living were totally dependent upon professionalism and reputation in the wider community. Patients decided which doctor to use, which hospital to go to, and which pharmaceutical products to trust. Doctors worked hard to establish their reputation, an important part of which came from providing charity care for the poor. As in the West, all Russian doctors upon graduation from medical school took the Hippocratic Oath, in which they swore never to reject anyone who needed medical assistance—and as a rule they were loyal to their oath.

In Russian urban areas, there were charity hospitals and out-patient care for the poor and their families. In rural areas, peasants would often pay doctors with a chicken, potatoes, bread, or in the form of domestic services—or received their medical treatment for free. Under the private medical system in Old Russia, doctors were able to earn a comfortable living and therefore could afford to be generous in supplying charity services to those who were in need.

Expectations of high income, along with the status of being a member of a respected profession, generated strong competition for acceptance into medical schools. The best were accepted as students, and the most qualified were hired as professors. At the beginning of the 20th century, the quality of Russian medical care and medical research was internationally recognized. Was it a perfect system? Of course not. But contrary to the socialist myth-makers, medical care in Imperial Russia was widely available and provided in a fairly cost-efficient manner. Both the profit motive of the competitive marketplace and the spirit of charity assured the provision of quality medical services throughout Russian society.

This, then, was the system the Bolsheviks wanted to destroy. Unfortunately, many Russian intellectuals, including medical doctors themselves, were infected with the socialist disease. Seeing so much poverty in a still underdeveloped Russia, many doctors turned their back on the free market and came to believe that government management could create a better society through planned equality of living conditions, education, and certainly medical care. Thus, guided by wrong ideas, the members of the medical profession helped to destroy with their own hands a health-care system that, while certainly not perfect, provided people with skilled treatment, regardless of their income or social background.

Equality for All

In 1917, like everything else, medical services were nationalized by the new socialist government. Gradually, small medical practices disappeared and a network of big, factory-like hospitals and out-patient clinics were established all around the country. Everyone was registered in both out-patient clinics and hospitals according to their government-assigned residence. Patient choice was completely taken away by the Soviet State, which took full responsibility for centrally planning each individual’s medical expenses and health care.

With the elimination of private expenditures for health services, the form and amount of medical care were now dependent upon the budgetary priorities of the State. All members of the medical industry were put on low fixed monthly salaries and were mandated to examine and treat an overwhelming daily quota of patients. Medical research became dependent upon inadequate annual budgetary allocations from the government. Doctors’ and nurses’ incomes no longer depended on their professional skills or the number of patients they treated. Total unionization of the medical profession made it practically impossible for anyone to be fired. Without markets and prices determining the value and availability of health care, the government imposed a rationing system for medical services and pharmaceutical products.

Specialized services (mammograms, ultrasounds, and so forth) were available only in a few select hospitals where the doctors were supposed to treat patients as well as participate in research. For example, in the case of brain or cardiovascular surgery and treatment, there were only a few specialized hospitals available in the entire country. People sometimes died waiting in line to be admitted for these treatments.

Medical care became a producer-oriented industry, instead of the consumer-oriented market that it had been in Old Russia. But even the State cannot kill the market, just as the State cannot repeal the laws of God and nature. The market was simply driven “underground,” and thus became the black market. The black-market response to State-rationing occurred immediately. Doctors’ services and pharmaceutical products (both domestic and foreign-made), as well as access to medical-testing equipment, became available for bribes. Unfortunately, only the wealthy elite could afford expensive black-market medical services, while the poor majority could no longer count upon charity.

In the world of “free” medical care in the Soviet Union, people often had to have connections to obtain many of the medicines prescribed by physicians to save their family members and friends. Indifferent and often hostile nurses and orderlies had to be bribed to change a patient’s bedpan or to provide ordinary attention that any American would take for granted during a stay in a hospital.

Hospital wards were crowded and far from antiseptically clean. Anesthetics and basic painkillers were frequently unavailable. The crying of patients in pain could sometimes be heard from outside a hospital by passersby.

Some Are More Equal than Others

Not surprisingly, those in the political elite did not want to be treated in the medical system provided for “the people.” One of the greatest myths about the Soviet Union was its supposed equality for all. No society was so divided into privileged groups and classes as was Soviet society. Where an individual stood in the political hierarchy of the Communist Party and the bureaucratic structure of the socialist economy determined his access to all the essentials as well as the luxuries of life.

Special hospitals were created all around the Soviet Union. These were reserved for the members of the Central Committee of the Communist Party, the Council of Ministers, the local and regional Party elites, and so forth. The “servants of the people,” as a result, received a qualitatively different level of medical care than “the masses.” The privileged few had access not only to Soviet-made drugs and medications but also to Western European and American medicines and equipment, which could never be within the reach of the ordinary “proletarian” patient.

Affirmative Action, Soviet Style

The nature and quality of medical education were affected, as well. Bribes and connections determined both the hiring and admission processes in medical schools. Skills and professionalism mattered very little, and service to the community did not matter at all.

This poor medical care was reinforced by the fact that entrance into higher education in the Soviet Union was dictated by a system of affirmative action that had been introduced shortly after the triumph of the Socialist Revolution in 1917. At first belonging to a social class —worker, peasant, or intellectual—determined the entry quotas into colleges, universities, and technical schools. But the Soviet affirmative action system was soon expanded to include gender and ethnic classifications as well. A young person’s professional and career opportunities were greatly influenced not by his individual merit but by whether he was, for example, a Russian, an Uzbek, a Georgian, a Lithuanian, a Jew, or somebody else. Every class, gender, and ethnic group had its own quota for admission and hiring into institutions of higher learning.

Connections, bribes, class, gender, and ethnicity heavily determined who were admitted into and graduated from medical schools throughout the Soviet Union. Thus the supplies of hospitals, physicians, medical equipment, and pharmaceuticals all became victims of socialist central planning and political priorities just like everything else in the “workers’ paradise.” At the end of the 20th century, Russia was infamous for having one of the worst health-care systems in the world.

In bitter situations, Russians often respond with jokes and anecdotes. In one of them, an American and a Soviet doctor are talking. The American says, “Dear colleague, our profession is imperfect. You treat the patient from one disease and he dies from another.” The Soviet doctor replies, “No, dear colleague, this is not the case with me. Mine die from whatever I treat them.”

It is easy to say that the present system is imperfect and a radical change will make it perfect in a relatively short period of time. But there are always lessons from history from which to learn. Sometimes, your neighbor’s history warns you which path never to follow.

---

Anna Ebeling was born, raised, and educated in the former Soviet Union. Living much of her life in the heart of what Ronald Reagan called “the evil empire,” she experienced first hand the reality of “the workers’ paradise.” Her stories of the absurdities of life in the collectivist utopia are many. Anna met Richard Ebeling in Moscow in May 1991 and married him later that year. Together they joined the defenders of liberty and faced Soviet tanks at the Russian Parliament in Moscow during the attempted hard-line communist coup d’état.

]]> http://fee.org/nff/socialized-health-care-the-communist-dream-and-the-soviet-reality/feed/ 4 http://fee.org/nff/the-greatest-mistake-in-american-history-letting-government-educate-our-children/ http://fee.org/nff/the-greatest-mistake-in-american-history-letting-government-educate-our-children/#comments Fri, 19 Dec 2008 20:08:52 +0000 admin http://fee.org/?p=3053 The following is abridged from a speech delivered at “Evenings at FEE” in December 2004. This is a special evening for me. FEE’s founder, Leonard E. Read, had a major influence on my life. He was the one person who…]]> The following is abridged from a speech delivered at “Evenings at FEE” in December 2004.

This is a special evening for me. FEE’s founder, Leonard E. Read, had a major influence on my life. He was the one person who actually made me understand how to think and approach others about liberty. To me FEE is hallowed ground, and I am so very happy to be here and to see such a large audience. To appreciate the miracle of the market it is important sometimes to stand back and glimpse all the wonders of it. Just go into an ordinary supermarket and look at all those meats and vegetables, fruits and milk, candies and snacks, and everything else. Low-calorie foods, kosher foods, ethnic foods, microwaveable foods—there is so much to choose from. But the choices don’t stop there. If you want ice cream, there’s Edy’s, Breyers, Häagen Dazs, Ben & Jerry’s, and a dozen others.

And it really doesn’t matter what the person next to you wants: he is free to get the Breyers ice cream, while you might prefer the Edy’s. You don’t have to vote on it, you don’t have to pressure anybody. You simply come in and choose from the cornucopia of all these things that are available at prices that are affordable to you. We often take this for granted because it has been with us all of our lives.

Unfortunately, compulsion, not choice, rules schooling, the most important area of our lives. The supermarket is organized around voluntary relationships. People who shop at a particular store have voluntarily decided to do so. If dissatisfied, they are free to choose from many other supermarkets. But when it comes to our children’s education, there is no choice.

Facing the Truth about Public Education

From beginning to end, public education is organized on the concept of compulsion. By means of the property tax, sales tax and state income tax people are forced to pay for schooling whether they have children or not, whether they agree with what the schools are doing or not. The illusion of having influence through elections, PTA meetings, parent nights, or other legal avenues doesn’t change the truth: we are forced to send our children to particular schools where they are educated and indoctrinated in a particular way. What’s more, the price that American taxpayers have to pay for government schooling has skyrocketed. Twenty-five years ago, the cost of public education per student per year was roughly $2,000. Today it is over $8,000.

Let’s imagine a computer industry funded, organized and managed like public education. Every year computers would get more and more expensive and less and less functional. By now a PC would probably cost a million dollars! It would be as big as this lecture room and basically capable of adding and subtracting. Of course some government expert could “prove” to you that with current limited funding it is scientifically impossible for such a complex system to divide, multiply or do word processing: “What, are you crazy? I’m a scientist and you’re trying to tell me this computer ought to be able to do these things?” But be assured it would always come with irremovable software teaching your ten-year-old how to practice “safe sex.”

Trusting the Market

Is it realistic to think that we could have a better schooling system if we got government completely out of it and trusted the market? What if schools were organized like the computer industry? In 1980 I had to scrape together thousands of dollars for my first computer system. It was about one percent as efficient as the PC I bought last year for $1,500. The same would happen in education if the creative power of the market were set free. Costs would decrease and prices would go down year after year as schools become more efficient under the pressure of competition. To meet demands for innovation schools would have to find ways to teach more in fewer hours and make learning enjoyable, stimulating and user-friendly.

Every summer the parents would be thinking: “What school are we going to choose for our children this year? You know, I like the school we sent them to last year, but there are so many bargains on the market and so many choices. There are those expensive schools that brag about how many students of theirs get into college. There are schools that emphasize sports, or music, or something else. And for those who can’t afford very much, there are these super-discount chains, where you can get a basic education for just $1,200 a year. And they let you pay in installments of a hundred dollars a month!” Indeed the private sector would provide all these different choices of price, taste and curriculum.

I doubt that we will achieve school choice through the proposed taxpayer-funded voucher system. If vouchers are funded by taxpayer money, how different will this turn out to be from any other government program? Remember what happened at the Virginia Military Institute and the Citadel when the government forced them to admit women. They are both private institutions, but by accepting so many students who receive government grants and loans, they are required to follow government rules. All of that money will be withdrawn if they refuse to dance to the government’s tune.

Why can’t we just improve government programs? The answer is simple: force never works. Not only is coercion morally wrong, unjust and unfair; it is also inefficient. Any businessman knows that success can only be achieved by giving people what they want, not by trying to intimidate them. In other words it is impossible to reform the government schools. And the problem is not the teachers, or the administrators, or even the bureaucrats. The problem is the system. It simply doesn’t work. Some of us are old enough to remember how efficient and affordable the private health-care system was before Medicare and Medicaid, when doctors made house calls and health insurance cost around $15 a month.

Not only is coercion morally wrong, unjust and unfair; it is also inefficient. Once private schools become dependent on government money in their budgets, they too will have to follow government rules and regulations. Eventually they may become exactly like public schools. Then there will be no reason for parents to pay extra for a private school just to get the same education that their children would find in a government school. As a consequence many parents might pull their children out of private schools, and the competitive private schools could gradually disappear. This has already happened in health care, in research funding, and in all areas where the government has gotten people on the “dole” and now “helps” them by regulating their lives and businesses.

Charity, Not Coercion

Of course, there are legitimate questions that have to be addressed. What about the poor? What about inner-city children? How will they be educated? First, consider the history of education in America. Public schooling as a system emerged only in the middle of the 19th century. And yet, according to writer and education researcher John Taylor Gatto, the literacy rate in America was far greater in the early 1800s than it is now. Many parents taught themselves and then “homeschooled” their children. They had no television, no radio, no computers, or any other modern way to learn about the world. People did whatever was necessary for their children, and I am confident they would do so in the future. Fortunately, today, it would be far easier for them.

Second, the market cost of schooling all the children in United States could not, by any measure, exceed $150 billion. Yet over $400 billion are poured into government schools every year. Give this money back to the taxpayers, and you will see a surplus of around $250 billion that other taxpayers will get as a rebate when the taxes are repealed. This is over and above the money that they will be spending on their own children. Marshall Fritz, director of the Separation of School and State Alliance, has estimated that it would require around $20 billion to provide full or partial scholarships to educate every poor child in America.

Third, even under the tax burden of today, Americans continue to contribute a greater share of their income to charitable causes than anybody else. Look what happened after 9/11—all the money that was donated to help the families of the people who died in that tragedy. Look at hundreds of thousands of churches in America that do not get a single dollar from any government whatsoever.

We already have in this country a great number of organizations that provide private scholarships to poor children with no strings attached. But even if there were strings attached, parents would have a choice of what strings they would be willing to accept. Lower taxes will encourage individuals, churches and private foundations to support more children in many different ways.

Looking to the Future

How likely is education to be privatized? I am optimistic. Most people already intuitively recognize that government programs don’t work, and they don’t seem surprised when this or that government plan fails or when some politician is caught lying. And yet many still think that somehow the next project will work or that the program that they depend on is a really good one, even though taxpayers pay two dollars for every dollar the program “provides.” We need to learn to convey to families how much better educated and more capable of facing the world their children would be, if we could get the government out of the schooling business.

It is true that people cannot jump from zero to sixty overnight. That isn’t the way our minds work. But we never know whose mind we open, whom we move, encourage, and inspire. The person who takes to heart your message about the blessings of liberty may be somebody far more influential than you or I. Somebody far wealthier, somebody more articulate, somebody more powerful, or somebody who is able to do things that you or I cannot do.

What is the future of liberty in America? E.B. White, the author of Charlotte’s Web, Stuart Little, and other children’s books, once wrote, “As long as there is one upright man, as long as there is one compassionate woman, the contagion may spread, and the scene is not desolate.” You are such people. As long as you and I are dedicated to liberty, the contagion will spread and the future is never hopeless.

---

Harry Browne, author and successful investment advisor, is an inspirational and passionate speaker for the cause of individual liberty and constitutionally limited government. He has written thousands of articles and 11 books. His How I Found Freedom in an Unfree World became a modern classic. He has also appeared on the Today show, Wall $treet Week, The Larry King Show, and hundreds of other radio and television shows.

]]> http://fee.org/nff/the-greatest-mistake-in-american-history-letting-government-educate-our-children/feed/ 0 http://fee.org/nff/the-threats-to-liberty-in-the-21st-century/ http://fee.org/nff/the-threats-to-liberty-in-the-21st-century/#comments Fri, 19 Dec 2008 19:36:23 +0000 admin http://fee.org/?p=3051 On May 6, 2006, the Foundation for Economic Education had the honor of presenting the 2006 Adam Smith Award for Excellence in Free-Market Education to two great champions of the free society: Dr. Walter E. Williams and President Václav Klaus of the Czech Republic. The following are the unabridged addresses by Dr. Williams and President Klaus delivered at the Adam Smith Award Ceremony at FEE’s headquarters in Irvington-on-Hudson, New York.

It is a great honor for me to receive the Adam Smith Award and especially to receive it from the Foundation for Economic Education. It is such a privilege to have one’s name connected with the almost sacred name of Adam Smith. Thank you very much!

Adam Smith will always be acknowledged and admired as the founding father of economics, of this extremely important and powerful social science that I respect and humbly follow. Since the time I discovered it more than four decades ago, the discipline of economics has given me a clear compass, a guiding principle, a very useful and productive way of looking at the world around me. Applicable to everyday life, economics shaped the way I think. It literally opened my eyes.

Adam Smith gave us something more than just a pure science. He viewed economics as an integral part of moral philosophy, and by doing so he provided us with muchneeded arguments against those who don’t want to understand us and who see us only as merciless, almost inhuman, robot-like utility maximizers. For Adam Smith and for us, economics is a very human science. We believe it is more human, more man-oriented than the moralistic preaching of politically correct, progressive public intellectuals who claim to be better than we are.

More than that, Adam Smith explained not only the morality, but also the efficiency of markets and, consequently, the immorality and inefficiency of government intervention. His famous concept of the Invisible Hand, as well as his explanation of the widely dispersed benefits that come from pursuing narrow private interests are of absolutely crucial importance.

May I also suggest that Adam Smith was the spiritual founding father of the Foundation for Economic Education, which I consider one of the most important classical liberal institutions not only in the United States of America but in the whole world. I was extremely influenced and enriched by FEE and by reading—now for more than 10 years—The Freeman: Ideas on Liberty. This publication is irreplaceable in my own library at home. I can assure you I read it very carefully, I use it, and I often quote it in my own writings and speeches.

The recent commemorative issue of The Freeman gave me the opportunity to read classic articles from the early years. I was fascinated by their quality and timeliness. What an honor to receive this award from FEE!

Six years ago, I myself founded a think tank in Prague, the Center for Economics and Politics (CEP), which has been trying to promote the same ideas as FEE promotes here in the United States. A few months ago we were privileged to have FEE’s President and my good friend, Richard Ebeling, as our speaker and listen to his very interesting and in many respects canonical lecture.

I am afraid I will not be that canonical this evening. There is nothing I can say that you don’t already know or—with only a slight exaggeration—that I did not learn from your publications.

It is important to emphasize that today, at the beginning of the 21st century, the threats to liberty are the same as confronted by Adam Smith 250 years ago or to the founders of FEE more than half a century ago. The current threats to liberty may wear different “hats,” or better hide their real nature; they may be more sophisticated than before. Due to the high degree of interconnectedness of the whole world those threats may more easily move from one place to another, but in principle they remain the same.

As a life-long student of economics I always try to follow its laws and principles. One of the most important of them is the law of comparative advantage formulated by one of Adam Smith’s pupils, the famous 19th-century political economist David Ricardo. I have three comparative advantages here tonight:

• My living under communism for most of my life
• My personal active involvement in dismantling the communist system and in building a free society in my country
• My recent frustration with the situation in Europe, especially with the developments in the European Union

Some of you may be surprised that I consider my life under communism a comparative advantage and not a disadvantage. It was definitely not an advantage in regard to my personal happiness or my material well-being. But I do believe it helped me to understand what liberty really means and is all about. To use an analogy, you do not understand what health means when you are healthy. To take liberty for granted is similarly dangerous. Not to have it for such a long time, and it was a long time, has made our eyes sharper, and our sensitivity to its endangerment greater.

My understanding of liberty and its preconditions was reinforced by my involvement in the radical transformation of the political, economic, and social systems in my country in the years after the fall of communism. It was not possible to get rid of the old communist institutions and at the same time to wait for the gradual evolution of new institutions and the behavioral patterns they require. This would have been too slow and too costly. We learned that the institutions of a free society had to be built and cultivated.

We succeeded in liberalizing our country. But in recent years we went through a rather complicated process of approaching and finally joining the European Union. The European Union is an institution—and FEE clearly understands this—where liberty does not serve as the guiding principle. To my great regret we have been moving once again towards a less free and more controlled and regulated economy and society as a whole.

It is due to this personal experience that I do not see a real threat to liberty in global warming. I don’t see it in the depletion of oil resources; noise pollution; bird flu; and definitely not in insufficient government funding for public schools.

I see the real threat to liberty, as always, in ideas. I see the threat in policies based on these ideas. I see the threat in human behavior influenced, motivated, and justified by those ideas and policies. The ideas and government policies I fear are the same ones that were feared and criticized long ago by Adam Smith.

The substance of such ideas and policies are claims and presuppositions that following private self-interest is always wrong, that people are not rational and not moral and should be controlled, guided, and made better by the anointed who know what is good for the rest of us. Thus the rulers acting in the public interest must restrain freedom in favor of higher values and goals they choose to set.

We lived in such a system in the past, but I see its many symptoms again in Europe today, and probably, dare I say, in this country as well.

And finally, there is another danger: the emergence of nonideological but very aggressive “isms,” which are really quite new. Let me at least name them:

• We all care about human rights, but I am afraid of “human rightism.”
• We all want to have a healthy environment, but I see the danger in environmentalism.
• To put it politically correctly, I admire the second gender, but I fear feminism.
• We all are enriched by other cultures, but not by multiculturalism.
• I am aware of the importance of voluntary associations, but I fear NGOism.

In The Theory of Moral Sentiments, published in 1759, Adam Smith tried to understand those who seek to restrain our liberty. He wrote that they want to “arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chessboard.” They do not consider that the “pieces upon the chessboard have no other principle of motion besides that which the hand impresses upon them; but that, in the great ‘chessboard’ of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it.”

I see the current all-embracing legislation influenced by the powerful special-interest groups representing the new “isms” to be a real danger to the liberty of all of us.

There is no other way for us to preserve liberty than going back to classical liberalism, than going back to the ideas of Adam Smith and to the Foundation for Economic Education.

---

President Václav Klaus is Europe’s premier political advocate of classical liberalism and economic freedom. Born in Prague in 1941, he earned his Ph.D. from the University of Economics in Prague, and also studied in Italy and the United States. His discovery of the writings of Ludwig von Mises, Friedrich Hayek, and Milton Friedman changed forever the way he looked at the world.

Following the Velvet Revolution of 1989, which ended communist rule in Czechoslovakia, Dr. Klaus served as the minister of finance and then prime minister from 1992 to 1997. During that time he guided one of the most successful transformations from Soviet-style socialism to a vibrant market economy.

In February 2003 Václav Klaus was elected the President of the Czech Republic. In this role he continues to be an eloquent and uncompromising voice for liberty and a staunch critic of growing centralized power and control in the European Union. We are very privileged to present President Klaus the 2006 Adam Smith Award for Excellence in Free-Market Education.

]]> http://fee.org/nff/the-threats-to-liberty-in-the-21st-century/feed/ 0 http://fee.org/nff/the-tide-in-the-affairs-of-men/ http://fee.org/nff/the-tide-in-the-affairs-of-men/#comments Fri, 19 Dec 2008 19:09:51 +0000 admin http://fee.org/?p=3049 Adapted from an article that appeared in the April 1989 issue of The Freeman. The aim of this brief essay is to present a hypothesis that a major change in social and economic policy is preceded by a shift in…]]> Adapted from an article that appeared in the April 1989 issue of The Freeman.

The aim of this brief essay is to present a hypothesis that a major change in social and economic policy is preceded by a shift in the climate of intellectual opinion. The intellectual tide is spread to the public by all manner of intellectual retailers: teachers and preachers, journalists in print and on television, pundits and politicians.

There are powerful tides in the affairs of men, interpreted as the collective entity we call society, just as in the affairs of individuals. The tides in the affairs of society are slow to become apparent, as one tide begins to overrun its predecessor. Each tide lasts a long time—decades, not hours—once it begins to flood and leaves its mark on its successor even after it recedes.

In almost every tide a crisis can be identified as the catalyst for a major change in the direction of policy.

The Rise of Laissez Faire: The Adam Smith Tide

The first tide we will examine begins in 18th-century Scotland with a reaction against mercantilism expressed in the writings of David Hume, Adam Smith’s Theory of Moral Sentiments (1759), and above all The Wealth of Nations (1776). On the other side of the Atlantic 1776 also saw the proclamation of the Declaration of Independence, in many ways the political twin of Smith’s economics. Smith’s work quickly became common currency to the Founding Fathers. By the early 19th century the ideas of laissez faire, of the operation of the invisible hand, of the undesirability of government intervention into economic matters, had swept first the intellectual world and then public policy. Reinforced by pressures arising out of the Industrial Revolution, these ideas were beginning to affect public policy.

The repeal of the mercantilist Corn Laws in Britain in 1846 is generally regarded as the final triumph of Adam Smith after a 70-year delay. In fact some reductions in trade barriers had started much earlier, and many nonagricultural items continued to be protected by tariffs until 1874. So it took nearly a century for the completing of one response to Adam Smith.

American Experience

The other countries of Europe and the United States did not follow the British lead by establishing complete free trade in goods. However during most of the 19th century, U.S. duties on imports were primarily for revenue (not protection). Except for a few years after the War of 1812, customs provided between 90 and 100% of total Federal revenues up to the Civil War. And except for a few years during and after the Civil War, customs provided half or more of Federal revenues until the Spanish- American War at the end of the century. Nontariff barriers such as quotas were nonexistent. Movement of people and capital was hardly impeded at all.

In the triumphant ideas of Adam Smith offered both an explanation and an obvious alternative option; tariffs aside, near complete laissez faire and nonintervention reigned into the next century.

Measuring the role of government in the economy is not easy. One readily available, though admittedly imperfect, measure is the ratio of government spending to national income. At the height of laissez faire, peacetime government spending was less than 10% of national income in both the United States and Great Britain. Federal spending was generally less than 3% of national income, with half of that for the military.

On the broader scale the tide that swept the 19th century brought greater political as well as economic freedom. Despite occasional financial panics and crises, Britain and the United States experienced remarkable economic growth. The United States in particular became a Mecca for the poor of all lands. This was a result of the increasing adoption of laissez faire as the guiding principle of government policy.

The Rise of the Welfare State

This remarkable progress did not prevent the intellectual tide from turning away from individualism and toward collectivism. How can we explain this shift in the intellectual tide when the growing pains of laissez-faire policies had long been overcome and impressive positive gains had been achieved?

Two effects of the success of laissez faire fostered a reaction.

• First, success made residual evils stand out all the more sharply, both encouraging reformers to press for governmental solutions and making the public more sympathetic to their appeals.
• Second, it became more reasonable to anticipate that government would be effective in attacking the residual evils. A severely limited government has few favors to give. Hence there is little incentive to corrupt government officials, and government service has few attractions for people intent on personal enrichment.

Government was engaged primarily in enforcing laws against murder, theft, and the like and in providing municipal services such as local police and fire protection—activities that engendered almost unanimous citizen support. Britain, which went furthest toward complete laissez faire, became legendary in the late 19th and early 20th centuries for its incorruptible civil service and law-abiding citizenry—precisely the reverse of its reputation a century earlier.

But by 1900, the doctrine of laissez faire had more or less lost its hold upon the English people. In the United States the development was similar, though somewhat delayed. As late as 1929 Federal spending amounted to only 3.2% of the national income; one-half of this was spent on the military plus interest on the public debt. Spending by federal, state, and local governments on what today is described as income support, Social Security, and welfare totaled less than 1% of national income.

The world of ideas, however, was different. By 1929 socialism became the dominant ideology on the nation’s campuses. The New Republicand The Nation were the intellectuals’ favorite journals and [the socialist] Norman Thomas their political hero. The critical catalyst for a major change was, of course, the Great Depression, which shattered the public’s confidence in private enterprise, leading it to regard government involvement as the only effective recourse in time of trouble and to treat government as a potential benefactor rather than simply a policeman and umpire. The effect was dramatic. By the 1980s federal government spending grew to 30%, and total government spending was over 40% of national income. But spending alone cannot illustrate the role government came to play. Many intrusions into people’s lives involve little or no spending: tariffs and quotas, price and wage controls, ceilings on interest rates, local ceilings on rents, zoning regulations, building codes, and so on.

The Resurgence of Free Markets: The Hayek Tide

Throughout the ascendancy of socialist ideas there had, of course, been counter-currents—kept alive by Friedrich Hayek and some of his colleagues in Britain; by Ludwig von Mises and his disciples in Austria; and by Albert Jay Nock, H. L. Mencken, and others in the United States.

Hayek’s Road to Serfdom in 1944 was probably the first real inroad in the dominant intellectual view. Yet, at first, the impact of the free market on the dominant tide of intellectual opinion was minute. Even for those of us who were actively promoting free markets in the 1950s and 1960s it is difficult to recall how strong and pervasive was the intellectual climate of the times.

The tale of two books by the present authors, both directed at the general public and both promoting the same policies, provides striking evidence of the change in the climate of opinion. The first, Capitalism and Freedom, published in 1962 and destined to sell more than 400,000 copies in the next eighteen years, was not reviewed at the time in a single popular American periodical. The second, Free to Choose, published in 1980, was reviewed by every major publication and became the year’s best-selling nonfiction book in the United States with worldwide attention.

Further evidence of the change in the intellectual climate is the proliferation of think tanks promoting the ideas of limited government and reliance on free markets.

Translating Ideas into Action

The same contrast is true of publications. FEE’s Freeman was the only one we can think of that was promoting the ideas of freedom 30 to 40 years ago. Today numerous publications promote these ideas, though with great differences in specific areas: The Freeman, National Review, Human Events, The American Spectator, Policy Review, and Reason. Even the New Republic and The Nation are no longer the undeviating proponents of socialist orthodoxy that they were three decades ago.

Why this great shift in public attitudes? The persuasive power of such books as Friedrich Hayek’s Road to Serfdom, Ayn Rand’s Fountainhead and Atlas Shrugged, our own Capitalism and Freedom, and numerous others led people to think about the problem in a different way and to become aware that government failure was real.

Experience turned the great hopes that the collectivists and socialists had placed in Russia and China to ashes. Indeed, the only hope in those countries comes from recent moves toward the free market. Similarly, experience dampened, to put it mildly, the extravagant hopes placed in Fabian socialism and the welfare state in Britain and in the New Deal in the United States. One major government program after another, each started with the best of intentions, resulted in more problems than solutions.

Few today still regard nationalization of enterprises as a way to promote more efficient production. Few still believe that every social problem can be solved by throwing government (that is, taxpayer) money at it. In these areas liberal ideas—in the original nineteenth century meaning of liberal—have won the battle. The rising burden of taxation caused the general public to react against the growth of government and its spreading influence.

Ideas played a significant part, as in earlier episodes, by keeping options open, providing alternative policies to adopt when changes had to be made.

As in the two earlier waves, practice has lagged far behind ideas, so that both Britain and the United States are further from the ideal of a free society than they were 30 to 40 years ago in almost every dimension. In 1950 spending by U.S. federal, state, and local governments was 25% of national income; in 1985 it was 44%. In the past 30 years a host of new government agencies has been created: a Department of Education, a National Endowment for the Arts and another for the humanities, EPA, OSHA, and so on. Civil servants in these and many additional agencies decide for us what is in our best interest.

In both the United States and Britain respect for the law declined in the 20th century under the impact of the widening scope of government, strongly reinforced in the United States by Prohibition. The growing range of favors governments could give led to a steady increase in what economists call rent-seeking and what the public refers to as special-interest lobbying. Britain went further in the direction of collectivism than the United States and still remains more collectivist—with both a higher ratio of government spending to national income and far more extensive nationalization of industry.

Nonetheless, practice has started to change. The catalytic crisis sparking the change was, we believe, the worldwide wave of inflation during the 1970s, originating in excessively expansive monetary growth in the United States in the 1960s.

The episode was catalytic in two respects:

• First, stagflation destroyed the credibility of Keynesian monetary and fiscal policy and hence of the government’s capacity to fine-tune the economy;
• Second, it brought into play so-called “weight of taxation” through bracket creep and the implicit repudiation of government debt.

Already in the 1970s military conscription was terminated, airlines deregulated, and regulation Q, which limited the interest rates that banks could pay on deposits, eliminated. In 1982 the Civil Aeronautics Board that regulated the airlines was eliminated.

As in earlier waves, the tides of both opinion and practice have swept worldwide. The contrast between the stagnation of those poorer countries that engaged in central planning (India, the former African colonies, Central American countries) and the rapid progress of the few that followed a largely free-market policy (notably the Four Tigers of the Far East: Hong Kong, Singapore, Taiwan, and South Korea) strongly reinforced the experience of the advanced countries of the West.

All in all the force of ideas, propelled by the pressure of events, is clearly no respecter of geography or ideology or party label.

In Conclusion

Two new pairs of tides are now in their rising phases: in public opinion, toward renewed reliance on markets and more limited government. If the completed tides are any guide, the current wave in opinion is approaching middle age and in public policy is still in its infancy. Both are therefore still rising and the flood stage, certainly in affairs, is yet to come.

For those who believe in a free society and a narrowly limited role for government, that is reason for optimism, but it is not a reason for complacency. Nothing is inevitable about the course of history—however it may appear in retrospect. Because we live in a largely free society, we tend to forget how limited is the span of time and the part of the globe for which there has ever been anything like political freedom: the typical state of mankind is tyranny, servitude, and misery.

Once a tide in opinion or in affairs is strongly set, it tends to overwhelm counter-currents and to keep going for a long time in the same direction. The tides are capable of ignoring geography, political labels, and other hindrances to their continuance.

Yet it is also worth recalling that their very success tends to create conditions that may ultimately reverse them. The encouraging tide in affairs that is in its infancy can be still overwhelmed by a renewed tide of collectivism. The expanded role of government even in Western societies that pride themselves in being part of the free world has created many vested interests that will strongly resist the loss of privileges that they have come to regard as their right.

---

Milton Friedman, one of the 20th century’s most eloquent spokesmen for liberty, died on November 16, 2006. His long and successful life was a celebration of the American Dream. Born in 1912 to poor Jewish immigrants in New York City, Friedman received the best education America could offer: a B.A. from Rutgers University, an M.A. from the University of Chicago, and a Ph.D. from Columbia University. In 1976 Milton Friedman won the Nobel Prize in Economics.

As a young economist, fresh from his Ph.D. studies at Columbia, Milton Friedman and George Stigler (a future fellow Nobel laureate) co-wrote one of FEE’s first monographs, Roofs or Ceilings? Widely regarded as the leader of the Chicago school of monetary economics, Friedman was senior research fellow at the Hoover Institution and Paul Snowden Russell Distinguished Service Professor of Economics, Emeritus, at the University of Chicago. He was awarded the Presidential Medal of Freedom in 1988 and received the National Medal of Science the same year. Milton Friedman and Rose D. Friedman were co-authors of Capitalism and Freedom, Free to Choose, and their memoirs, Two Lucky People.

]]> http://fee.org/nff/the-tide-in-the-affairs-of-men/feed/ 0 http://fee.org/nff/three-myths-of-the-great-depression/ http://fee.org/nff/three-myths-of-the-great-depression/#comments Fri, 19 Dec 2008 18:55:13 +0000 admin http://fee.org/?p=3044 The following is abridged from a speech delivered at “Evenings at FEE” in July 2004. The Great Depression of the 1930s was in many ways the defining economic event of the 20th century. President Franklin Delano Roosevelt used the atmosphere…]]> The following is abridged from a speech delivered at “Evenings at FEE” in July 2004.

The Great Depression of the 1930s was in many ways the defining economic event of the 20th century. President Franklin Delano Roosevelt used the atmosphere of crisis created by the Depression to implement a series of government programs known as the New Deal, which caused radical centralization of federal power. For decades historians romanticized the New Deal, and only recently have scholars begun to peel away the layers of mythology surrounding that era. Three of those myths seem the most pervasive and damaging.

Myth Number One: The New Deal helped get us out of the Great Depression.

In fact, the New Deal was an inevitable economic failure. Roosevelt’s formula of substituting government programs for a normal business recovery had no chance of relieving the high unemployment. FDR relied on extracting tax dollars from individuals and corporations to fund government programs, such as the Works Progress Administration (WPA), which hired workers to pick up trash, cut down trees, and build roads, bridges, and schools. The jobs Roosevelt thought he was creating were a mirage. They merely transferred jobs from the productive private sector to the inefficient public one.

Henry Hazlitt, a free-market writer and journalist, pointed out in his 1946 classic, Economics in One Lesson: “For every public job created by [a] bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work. . . . But there are other things that we do not see, because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $10 million taken from the taxpayers.”

With the dramatic rise in government spending on public works, farm subsidies, and various relief programs, the top income tax rate skyrocketed from 24 percent in 1929 to 79 percent in 1935. In 1941 FDR even proposed raising the top rate to 99.5 percent on all income over $100,000 (but ended up settling for 90 percent). Not surprisingly, entrepreneurs were stifled and refused to invest and have their capital confiscated. Unemployment under the New Deal never dropped below 14 percent and averaged over 17 percent.

As the Great Depression persisted, even Treasury Secretary Henry Morgenthau admitted that the New Deal had been a failure. On May 6, 1939, he confessed, “We are spending more than we have ever spent before and it does not work. . . . We have never made good on our promises. . . . I say after eight years of this Administration we have just as much unemployment as when we started. . . . And an enormous debt to boot!”

Myth Number Two: The New Deal was a political success as well as an economic success.

To the contrary, the New Deal was a grand economic failure and only a qualified political success. This may surprise some because it seems counterintuitive in two ways. First, since FDR was elected to four terms and always with Democratic congresses, his economic programs seem to have had wide support. Second, if the New Deal was as damaging to the economy as I suggest, why did he achieve such clear political success over a long period of time?

In 1936, Roosevelt was up for re-election and he carried all but two states against his Republican challenger, Alf Landon. This amazing result is often emphasized by historians. What is less well known is the fact that in early 1936 Roosevelt was behind in the Gallup polls and even trailed in his own private polls. In February 1936, Emil Hurja, Roosevelt’s personal pollster, concluded that if nominated Landon could beat Roosevelt were the election held that month. High unemployment was plaguing the president and the Supreme Court had recently struck down the Agricultural Adjustment Act (AAA) and the National Recovery Administration (NRA), two linchpins of the New Deal. Also, the Republicans had recently captured two congressional seats in open elections in Rhode Island and Michigan. In addition, the New York state legislature—where Roosevelt began his political career—had just swung over to the Republicans. This should not be surprising—the New Deal had not ended the Great Depression and voters were responding accordingly.

However in 1936 the president developed a strategy that swamped the Republicans. It can be described in three words: subsidies for votes. He would spend record amounts of tax dollars on programs that would give people a vested interest in voting for his re-election. Gary Dean Best, in his excellent book Pride, Prejudice, and Politics, outlines Roosevelt’s tactic of blitzing key election districts with federal funds. For example, he met with Henry Wallace, the agriculture secretary, and gave the following order, “Henry, through July, August, September, October and up to the 5th of November I want cotton to sell at 12 cents [a pound]. I do not care how you do it. That is your problem. It can’t go below 12 cents.”

When the WPA had spent all its money, and was faced with throwing people out of work on October 1, Roosevelt ordered Henry Morgenthau not to let anyone be laid off. As Morgenthau recalled Roosevelt’s words, “he doesn’t give a God damn where they get the money.” With a Gallup poll showing relief workers going 5-1 for Roosevelt over Landon, the president had strong incentives to transfer as much wealth as possible from the private to the public sector.

Landon and fellow Republicans all over the country were perplexed over how to combat the “subsidies for votes” strategy. If they attacked Roosevelt’s programs, he would ask what they would do differently. If they said, “End the programs,” then the many Americans who were becoming addicted to the programs would protest and call the Republicans heartless, uncaring, and selfish. If Landon said he would continue the programs in different ways, then why should they switch over to his side? With Roosevelt they had government jobs. Why take chances with the Republicans? The subsidy-for-votes strategy helps explain the paradox of how the New Deal could be such an economic calamity for the nation and such a political triumph for Roosevelt.

Myth Number Three: Roosevelt was widely respected.

This is partly true. Roosevelt received thousands of fan letters each week and his picture was on the wall in perhaps millions of American homes. He had widespread adulation, especially from those who received his federal subsidies. But among reporters, policymakers, fellow politicians, and even his own friends Roosevelt was widely disrespected. His popularity was often superficial, and seemed to decline as people close to him came to know him better.

One thing that bothered his friends was FDR’s ego. Hugh Johnson, the head of the NRA, said of his boss, “He seeks complete subservience. He thrives on adulation and submission.” Hiram Johnson, the Republican Senator who bolted his party in 1932 and 1936 and publicly supported Roosevelt, said of the president, “He is drunk with power.” Frances Perkins, the secretary of labor, listened to her boss almost every week and concluded, “Roosevelt never understood the point of view of the business community.”

Many of Roosevelt’s friends seemed to fear reprisals if they told anyone what they really thought of him, and confided their true feelings in private diaries. Harold Ickes, the secretary of the interior, confided in his diary, “It is distressing to hear from so many quarters expressions that the President’s word cannot be relied upon. The number of people in the country who believe this seems to be growing. Unfortunately, based on my own experience, I regret to say that there are occasions when he does seem to regard his word lightly. I regret to say this about my Chief, the President of the United States, but unfortunately it is true.”

Roosevelt picked Raymond Moley, a Columbia professor, to be a Brain Truster and to write speeches, which Moley did during the president’s first term. After one lengthy discussion with FDR, Moley wrote in his diary how Roosevelt had “launched into a denunciation of bankers and businessmen and said that every time they made an attack on him, . . . he gained votes and that the result of carrying on this sort of warfare was to bring the people to his support. . . . I was impressed as never before by the utter lack of logic of the man, the scantiness of his precise knowledge of things that he was talking about, by the gross inaccuracies in his statement, by the almost pathological lack of sequence in his discussion. . . . In other words, the political habits of his mind were working full steam with the added influence of a swollen ego. My deliberate impression is that he is dangerous in the extreme. . . .”

Finally, Henry Morgenthau, perhaps FDR’s best friend, kept a diary in which he recorded his regular visits and conversations with the president. In many entries, Morgenthau expresses concern with the president’s ego and his desire to centralize power in his own hands. After one such visit, Morgenthau wrote, “He pictures himself as being called in as a consultant of the various nations of the world. He said, ‘Maybe I can prescribe for their ailments. . . . For example, I would tell England that she had too many people and she should move out ten million of her population. I would take a look at each country and, of course, when we made them disarm we would have to find new work for the munition workers in each country and that is where this international cartel would come in and your job would be to handle the finances.’”

Only when we begin to strip away these three myths will we be able to see the New Deal and the rise of the imperial presidency as a dark period in American history. In fact during the 1930s, the American economy would have been far better off if there had not been the New Deal.

---

Dr. Burton Folsom is one of the best economic historians in the United States. Readers can now enjoy his regular column in the pages of The Freeman.

A professor of history at Hillsdale College, he received his Ph.D. in history from the University of Pittsburgh. His books include The Myth of the Robber Barons, The Spirit of Freedom: Essays in American History, The Industrial Revolution and Free Trade, and Empire Builders: How Michigan Entrepreneurs Helped Make America.

]]> http://fee.org/nff/three-myths-of-the-great-depression/feed/ 0 http://fee.org/nff/trusting-the-government-a-two-way-street/ http://fee.org/nff/trusting-the-government-a-two-way-street/#comments Fri, 19 Dec 2008 18:45:37 +0000 admin http://fee.org/?p=3040 The following is abridged from a speech delivered at “Evenings at FEE” in July 2005. I am delighted and tremendously honored to speak at the Foundation for Economic Education. I love your magazine, The Freeman: Ideas on Liberty! I have…]]> The following is abridged from a speech delivered at “Evenings at FEE” in July 2005.

I am delighted and tremendously honored to speak at the Foundation for Economic Education. I love your magazine, The Freeman: Ideas on Liberty! I have spent the last three days in meetings at the United Nations. The reason I was there relates to my work as a member of the Board of the National Rifle Association (NRA). Part of the UN’s long-term agenda is to outlaw civilian ownership of firearms in all member countries. This week was one of a series of meetings to move that agenda forward. It is useful to know your enemy, so we can head them off—but believe me, it was pure torture!

The UN touts itself as a great defender of liberty, but in fact UN bureaucrats would not recognize liberty even if they tripped over it. FEE’s Freedom University students, with us tonight, understand and respect freedom more than anybody at the UN. That’s because FEE is truly devoted to teaching the freedom philosophy and enlightening people about the myriad ways our freedoms are being taken away.

It is the loss of freedom in America that I wish to address this evening.

In Defense of Liberty

The Founding Fathers started with an important premise: we, the American people, are responsible citizens and are entitled to information about what our government is doing, since the government has the power of coercion over our lives. It is precisely to secure individual liberty that our Constitution, backed by the Bill of Rights, limits and enumerates the powers of the federal government.

In the last century, however, the government has grown exponentially both in size and power while our constitutional rights keep eroding. The government continues with its time-worn phrase: “Trust us. We are here to protect you.” But in the eyes of the state, trust has simply become a one-way street. We are to trust the government “to do the right thing,” while the government demonstrates a profound lack of trust in us, the people. The state keeps collecting more and more information about us, while allowing less and less information about what it is doing to us. In other words, the age-old battle is being waged between the government’s legitimate authority to defend our nation and its responsibility to protect those God-given rights that are spelled out in the Bill of Rights.

---

“A Bill of Rights is what the people are entitled to against every government on earth. . . and what no just government should refuse, or rest on inferences.”

—THOMAS JEFFERSON

---

The Fourth Amendment in Danger

The Fourth Amendment of our Constitution defines in essence the notion of privacy: “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or Affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”

What does it mean? It is very simple: the government cannot invade your privacy—your person, your home, your car, your business, and your papers—without a good reason. Of course there are going to be circumstances in which government can pierce that sphere of privacy: a probable cause, a reasonable suspicion supported by the evidence of criminal activity in your home, your car, your business, and your papers. But this cannot be done arbitrarily, whenever they want to and for whatever reason.

The USA Patriot Act, passed by the Congress in the aftermath of the tragic 9/11 terrorist attacks, contains provisions in violation of the Fourth Amendment and the limitation on government power it represents. Unfortunately too many of our fellow law-abiding Americans think that it is not a matter of great concern to them. In reality, it should be a matter of great concern because it affects the liberties of all law-abiding citizens.

A provision appears in Section 213 of the Patriot Act, which is officially called “delayed notification.” People call it “sneak and peek” or “black bag” searches. Why? Because “delayed notification” gives the government power to conduct searches without informing you. Federal agents simply tell the judge, “It would jeopardize our case if we notified John Doe about searching his home.” Notice delayed; his constitutional right under the Fourth Amendment taken away.

Section 215 of the Patriot Act allows the government to go to a secret court called the Foreign Intelligence Surveillance Court and say to the judge, “We want to get some records on John Doe.” These may be details of his firearm purchases, medical history, or library and internet records. The judge may ask, “Do you have reason to believe that John Doe has violated any laws?” If no proof can be found, all the government has to say is: “Judge, you may sign this order. Under the Patriot Act we are no longer required to demonstrate usual ‘reasonable cause.’ All we have to show is that the information we want on John Doe is relevant to an ongoing anti-terrorism investigation.” The judge then has to sign the order. End of the matter.

---

“Government is not reason; it is not eloquence; it is force. Like fire, it is a dangerous servant and a fearful master.”

—GEORGE WASHINGTON

---

Those two sections of the Patriot Act just exemplify the problem. Many other provisions are also in clear violation of the Fourth Amendment. What highlights the dangers involved in granting the government such excessive power over privacy of American citizens, in the name of fighting terrorism, is the fact that the government has already used those new powers in all sorts of different cases that have nothing to do with terrorism.

Similar expansion of government power happened before in American history. We saw it during the Civil War with the suspension of the writ of habeas corpus. We saw it in World War I with the unconstitutional deportation of resident aliens and naturalized American citizens. We saw it in World War II with the internment of Japanese Americans and seizure of their property. We saw it in the 1970s, when asset-forfeiture laws were used to arbitrarily confiscate money and property from individuals till the Supreme Court finally interfered. None of those actions made us any safer. Yet in every instance some of our freedoms were taken away and more power was given to the federal government.

---

“I believe there are more instances of the abridgment of the freedom of the people, by gradual and silent encroachments of those in power, than by violent and sudden usurpations.”

—JAMES MADISON

---

Our Founding Fathers crafted the constitutional language of the Fourth Amendment with a clear understanding that in the future there could be serious threats to the safety and security of the nation. After all, the new United States had just won independence in a war with Great Britain, the greatest military power of the time. Despite those great threats that our nation faced at the time, our Founding Fathers believed so strongly in freedom and wanted so dearly for it to succeed! If not for great leaders like George Washington, and the stamina of a small group of freedom-loving people in the late eighteenth century, our new country would have never been born and survived.

Are We Safer?

Now, 218 years later, the federal government justifies the latest expansion of its intrusive powers by the danger America faces from modern terrorism. The threats posed by terrorist thugs are very real, and they can wreak havoc on our society. But ask yourselves this question: does surrendering our private information make us safer?

• Are we safer because the government allows the military to arbitrarily gather unlimited information about each of us?
• Are we safer because of a Secure Flight passenger prescreening program? Do you really feel safer when so many of us cannot get on the plane because of some computer error?
• Are we safer because the Pentagon is in the process of developing massive databases of information on law-abiding citizens in this country? We Americans have always been suspicious of permitting the military to gather information on our own citizens or to be directly involved in domestic law enforcement. Americans have never wanted their country to be like so many others around the world, where the military have too active a hand in domestic affairs.

No, we are not safer. Mixing information in some colossal computer, scanning license plates, and datamining millions of Americans will not help identify terrorists and will not stop acts of terrorism. What will stop terrorism is creating an accurate list of terrorists, suspected terrorists, and their associates. This list should be based on sound intelligence, which seems to be in short supply nowadays. We must then ensure that the proper information gets to policy makers, law enforcement, and those protecting our borders.

Trusting the American People

Trust is a two-way street. Our government should learn to trust us, the American people. We, the People, ought to cherish our Constitution and trust the federal government only with those essential but limited powers that are clearly defined in the Law of the Land. If we are not vigilant, one day we will wake up to see surveillance cameras all around us. Big Brother will be watching!

Those of us who have taken on the mission of trying to stop the growth of government face a daunting task. But it is the vital task none of us can avoid if we want freedom to prevail in America once again.

---

“Freedom is never more than one generation away from extinction. We didn’t pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same.”

—RONALD REAGAN

---

Former Congressman Bob Barr is an outspoken defender of individual liberty and constitutional rights. He was dubbed “Mr. Privacy” by columnist William Safire in recognition of his efforts to protect the civil liberties of all Americans. Appointed by President Reagan to serve as the United States Attorney for the Northern District of Georgia (1986-90), Mr. Barr was elected to the U.S. Congress in 1994. Since leaving the House two years ago, he has enjoyed popularity as a television commentator, writer, and lecturer. He also hosts a nationally syndicated radio show, “Bob Barr’s Laws of the Universe.”

]]> http://fee.org/nff/trusting-the-government-a-two-way-street/feed/ 0 http://fee.org/nff/434/ http://fee.org/nff/434/#comments Mon, 08 Dec 2008 22:25:16 +0000 admin http://fee.org/?p=434 The following is abridged from a speech delivered at “Evenings at FEE” in Irvington-on-Hudson, New York in November, 2003. In the early 1950s, Leonard E. Read, the founder and first president of the Foundation for Economic Education, began publishing a…]]> The following is abridged from a speech delivered at “Evenings at FEE” in Irvington-on-Hudson, New York in November, 2003.

In the early 1950s, Leonard E. Read, the founder and first president of the Foundation for Economic Education, began publishing a bimonthly newsletter with the title “Notes from FEE.” He wanted to share with friends of FEE ideas on the meaning and importance of human freedom.

He considered this to be especially important for Americans because the United States was such a shining example of what a society of free men could achieve. The great American experiment, which began with the Declaration of Independence and the Constitutional order established by the Founding Fathers, had produced a special country the likes of which had never been seen anywhere or at anytime in human history.

America! For more than two hundred years the word has represented hope, opportunity, a second chance, and freedom. In America the accident of a man’s birth did not serve as an inescapable weight that dictated a person’s fate or that of his family.

Once a newcomer stepped on American soil he left the political tyrannies and economic barriers of the “old world” behind. A willingness to work hard and to bear the risks of one’s own decisions, the possession of a spirit of enterprise, and a little bit of luck were the keys to the doors of success in their “new world” home.

Visitors from Europe traveling to America in the 19th century, Frenchmen like Alexis de Tocqueville and Michel Chevalier, marveled at the energy and adaptability of the ordinary American. An American paid his own way, took responsibility for his actions, and showed versatility in the face of change, often switching his occupation, profession, or trade several times during his life, and frequently moving about from one part of the country to another.

What’s more, individual Americans demonstrated a generous spirit of charity and voluntary effort to assist those who had fallen upon hard times, as well as to deal with a wide variety of common community services in their cities, towns, and villages.

Those foreign observers of American life noted that no man bowed to another because of the hereditary accident of birth. Each man viewed himself as good as any other, to be judged on the basis of his talents and abilities as well as his character and conduct as a human being.

Even the scar of slavery that blemished the American landscape through more than half of the 19th century stood out as something inherently inconsistent and untrue to the vision and conception of a society of free men laid down by those Founding Fathers. The logic of liberty meant that slavery would eventually have to end, in one way or another, if the claim of freedom for all was not to remain confronted with a cruel hypocrisy to the ideal.

What a glorious country this America was. Here was a land of free men who were able to pursue their dreams and fulfill their peaceful desires. They were free men who could put their own labor to work, acquire property, accumulate wealth, and fashion their own lives. They associated on the basis of freedom of exchange, and benefited each other by trading their talents through a network of division of labor that was kept in order through the competitive processes of market-guided supply and demand.

In this free marketplace, the creative entrepreneurial spirit was set free. Every American was at liberty to try his hand, if he chose, to start his own business and devise innovative ways to offer new and better products to the market, through which he hoped to earn his living. No man was bond to the soil upon which he was born or tied to an occupation or profession inherited from his ancestors. Every individual had an opportunity to be the master of his own fate, with the freedom to move where inclination led him and choose the work that seemed most profitable and attractive.

The Turn Toward Collectivism

Then something began to happen in America. The socialist and collectivist ideas that were growing in influence in Europe during the last decades of the 19th century began to spread over to the United States. Two generations of young American scholars went off to study in Europe, particularly Germany, in the 1880s, 1890s, and early 1900s. They became imbued with socialist and state paternalistic conceptions, especially the interventionist and welfare statist ideas that were being taught at the universities in Bismarck’s Germany.

These scholars came back to the United States enthusiastic about their newly learned ideas, convinced that the “negative” idea of freedom dominant in America – an idea of freedom that argued that government’s role was only to secure each individual in his life, liberty, and property – needed to be replaced by a more “positive” notion of freedom. Government should not merely protect citizens from violence and fraud. It should guarantee their health care and retirement pensions; it should regulate their industry and trade, including their wages and conditions of work. The government needed to secure the members of society from all the uncertainties of life, “from cradle to grave” – a phrase that was first popularized during this time.

These European-trained students and academics soon filled the teaching positions in the colleges and universities around the country; they occupied a growing number of jobs in the federal and state bureaucracies; they became the fashionable and “progressive” forwardlooking authors of books and magazine articles; they came to dominate the culture of ideas in America.

How did they sway an increasing number of Americans? They asked people to look around them and observe the radical changes in technologies and styles of life. They pointed to the rapid shift from the countryside to growing urban areas. And they asked, how can such a transformed and transforming society remain wedded to the ideas of men who had lived so long ago, in the 18th century? How could a great and growing country be tied down to a Constitution written for a bygone era?

The Constitution, these “progressives” argued, had to reflect the changing times – it had to be a “living” and “evolving” document. Progress, for these proselytizers of Prussian paternalism, required a new political elite who would guide and lead the nation into a more collectivist future.

Results of Collectivism in America

The fruits of their work are, now, after a century, all around us. At the beginning of the 20th century all levels of government in the United States took in taxes an amount less than 10 percent of the people’s wealth and income. Now all levels of government extract over fifty percent of our earnings, in one way or another. One hundred years ago, government hardly regulated and controlled any of the personal and commercial affairs of the American citizenry. Now, government’s hand intrudes into every corner of our private, business, and social affairs. Indeed, it is hard to find one area of our daily lives that does not pass through the interventionist sieve of state management, oversight, restriction, and command.

Perhaps worst of all, too many of our fellow Americans have become accustomed to and, indeed, demanding of government protection or subsidy of their personal and economic affairs. We are no longer free, self-supporting individuals who solely make our ways through the peaceful transactions and exchanges of the marketplace. We have become collective “interest groups” who lobby and pressure those in political office for favors and privileges at the expense of our neighbors. And the political officeholders are only too happy to grant these political gifts to those who supply campaign contributions and votes as the avenue to their own desires for power and control over those whom they claim to serve.

It is sometimes said, “But we are still the freest country in the world. Our wealth and standard of living are the envy of tens of millions all around the globe. We should be proud of what and who we are.”

The Standard for Judging America

Our present greatness in terms of these things, however, is only relative to how much farther other countries have gone down the path of government paternalism and regulation during these past one hundred years. The benchmark of comparison should not be America in relation to other countries in the contemporary world. The standard by which we should judge our freedom should be how much freer the American people were from the stranglehold of government more than one hundred years ago, before those proselytizers of paternalism began to change the political and cultural character of the United States. By this standard, today’s American people are extremely unfree. We have all become wards of the state. And like the convict who has spent so many years in prison that he is afraid of being released and no longer having his jail keepers to tell him what to do and how to live, we are fearful of even the thought of a life without government caring for us, protecting us, subsidizing us, guiding us, and educating us.

Too many in the older generation in America have lost their understanding of what freedom means and why constitutionally limited government is both necessary and desirable. And the vast majority of the young have never been taught in our government-run schools the ideas, ideals, and political institutional foundations upon which this country of ours was created. They have been taught to think that there are no absolute truths or any important insights from long human experience concerning why individual freedom is a valuable and precious thing.

What those earlier German-trained political and cultural relativists set out to do in America at the beginning of the 20 th century has been to a great extent accomplished. We are threatened with becoming a rootless people who have no sense of an invariant nature of man, and who possess no idea of those values and attitudes in the human character so necessary for preserving freedom and prosperity.

The Founding Fathers were not unaware that “times change.” But in the whirlwind of life they saw that reason and experience could and had demonstrated that there were unchanging qualities to the human condition. They understood the various mantles that tyranny could take on – including the cloak of false benevolence. They established a Constitutional order that was meant to guard us from the plunder of violent and greedy men, while leaving each of us that wide latitude of personal and economic freedom in which we could find our own meanings for life, and adapt to new circumstances consistent with our conscience and concerns.

This is what made America great. This is what made a country in which individuals could say without embarrassment or conceit that they were proud to be Americans.

Our Task at FEE

The task for those of us who have not yet lost that true sense of the meaning of freedom is to dedicate ourselves to restoring and refining that noble American ideal of individual liberty. It is the American ideal that inspired and guided Leonard E. Read when he established the Foundation for Economic Education more than 55 years ago, in 1946. It is the purpose that continues to direct what we do at FEE every day. Let us work together to be the stewards of liberty so that freedom may, once again, rekindle its consistent and bright torch in the America of the 21 st century.

In the pursuit of this goal let us use as our motto and inspiration the words of George Washington, words that are inscribed above the fireplace in the library at FEE:

“If to please the people, we offer what we ourselves disapprove, how can we afterward defend our work? Let us raise a standard to which the wise and the honest can repair. The rest is in the hands of God.”

---

 

Dr. Richard Ebeling was named the president of the Foundation for Economic Education in May, 2003. He formerly was the Ludwig von Mises Professor of Economics at Hillsdale College. He is the author of Austrian Economics and the Political Economy of Freedom (Edward Elgar, 2003), and editor of the three-volume Selected Writings of Ludwig von Mises (Liberty Fund). He lectures extensively on a wide variety of free-market themes in the US, Latin America, and Eastern Europe.

]]> http://fee.org/nff/434/feed/ 0