Freeman

BOOK REVIEW

A Reviewer's Notebook - 1964/10

OCTOBER 01, 1964 by JOHN CHAMBERLAIN

Doctoring the Body Politic

Socialism, as a pure doctrine, is dead. But interventionism, its half-brother, is very much alive. The social warfare in this coun­try has shaken down to a contest between two forces, one of which believes that a business system ought to work according to prin­ciples, and another which thinks of the economic body in terms of the human body, as something to be doped and medicined and patched and plastered to keep it going as illnesses assail it.

The politicians, of course, set themselves up as the doctors in charge of the health of the eco­nomic body. They mean well. Two of them are out with books this season: William Proxmire, the senior Senator from Wisconsin, has written Can Small Business Survive? (Regnery, $3.95), and Hubert Humphrey, the voluble crusader from Minnesota who nursed the Civil Rights bill to success in Congress, has come out with a tract called The Cause Is Mankind (Praeger, $4.95). Both Proxmire and Humphrey have capacious hearts, and many of the pills and poultices which they prescribe are of a nature to give immediate relief to the patient. But the problem of the side effects of the medicines is something that doesn’t particu­larly concern our economic doc­tors. If they can keep the patient going for the present, they are willing to let the future decide whether he will live for one year, or ten, or thirty.

Of the two doctors, Senator Proxmire is the least pretentious. His book is a mixture of shrewd observations and untested conclu­sions. At the beginning of his book he puts his finger on one of the major difficulties which the aspiring small businessman must overcome if he is to live. "Since World War II," says Senator Proxmire, "expansion through retained earnings has become more difficult, especially for small busi­ness. Higher taxes immediately take away a big chunk of the profits, while ever-soaring equip­ment costs demand a higher level of capital expenditure for effi­cient production. Without that efficiency, no businessman can compete for long… At the very time when business capital re­quirements are greatest, there­fore, retained profits are mini­mal."

Tax Relief

Now, if this analysis is cor­rect, as I believe it is, the solution is glaringly obvious: untax the businessman, let him retain more than minimal profits, and then watch his smoke as he plows his own money into new and efficient machines. But tax relief, which Senator Proxmire implicitly sug­gests on page twenty-six, is not really dealt with in Can Small Business Survive? until page 194 is reached. And even here the Sen­ator is grudging. He says, "In setting priorities for federal tax relief, small business should cer­tainly be at the top of the list. However, those who want to change the federal tax laws should be charged with showing that such changes would clearly and positively benefit small business. I would certainly not be willing to trifle with the tax laws unless there is a clear showing of sub­stantial benefits to all within the small business community."

In between the Senator’s re­marks about the difficulty of build­ing up investment funds through retained earnings in a high tax world and the grudging admis­sion that small business should get tax relief, there are pages which assail the banking system for failing to finance small busi­ness growth. But the Senator has just got through saying that busi­ness can’t very well grow if pro­fits are "minimal." So why should the banks finance enterprises that can hardly promise much of a pay-off. The Senator’s logical slip is showing.

Government Lending

Because the banks are reluc­tant to tie up funds "to make maturities of five years and over," Senator Proxmire wants the gov­ernment to do the lending. It does some of this now. Unfortunately, says the Senator, the government is apt to put its money into such things as motels and bowling al­leys, which are things that nor­mally manage to get going without government aid. Having made out a case against the business judg­ment of Small Business Admin­istration lenders, the Senator is­sues a ringing call to put the SBA deeper into the banking business. The money, of course, would have to be guaranteed by the taxpayers of the U. S., which would add to the "higher taxes… (that) take away a big chunk of the profits" of American business.

So Senator Proxmire’s inter­ventionist type of economics cir­cles on itself, like a snake trying to live by eating its own tail.

In between calling for medicine that has bad side effects, the Sen­ator gives the small businessman some good advice. He tells him to take advantage of local develop­ment groups, some of which oper­ate from private funds. He gives them good counsel about sound business training. He tells them how to discover and to attract technical brains. He has some­thing to say about good bookkeep­ing.

Then, circling on himself again, he emerges as an enemy of shop­ping centers that give leases to chain stores. And he champions Federal "quality stabilization," which would force price main­tenance on branded goods. He is against "loss leaders." Yet he praises Henry Ford for lowering the price of the automobile. For the life of me, I can’t see the dif­ference in principle between the economics of the chain store and the discount house and the eco­nomics of the Ford system of mass production. It’s just a mat­ter of cutting a nickel here and a nickel there out of the price in either case.

Humphrey’s Humanitarianism

Senator Humphrey’s lack of logic is even more disconcerting than Senator Proxmire’s. The Senate Majority Whip is for all sorts of heart-warming things that are very much to his credit as a humanitarian. He wants to see Negroes educated to the point where they can command jobs in competition with whites. He wants to train more teachers, build more research centers, provide more hospitals, subsidize more theaters and art foundations, go in for more government lending and conservation. The bill that would be presented in the budget for all this does not seem to bother the Senator at all. For, along with proposing the millennium in "pub­lic sector" spending, the Senator is for tax cuts and for controlling inflation.

Neither Senator Proxmire nor Senator Humphrey is a villain in Holmes Alexander’s The Equiv­ocal Men: Tales of the Establish­ment (Western Islands, $4). Yet they are equivocal in their eco­nomics. If what they advocate should ever possibly work out over the long pull, I would be greatly astonished.

Mr. Alexander’s own equivo­cators are those who let our coun­try down little by little in this business of dealing with the threat of overseas Communism. His fic­tional types include columnists who advocate giving funds to for­eign governments to saddle social­ism on their own people, rich in­dustrialists who try to curry favor with Khrushchev, secretaries of war and state who fail to act in time to prevent a certain wall from being built in a mid-Euro­pean city or who put contested peninsulas outside of our sphere of defense, and men of science who recommend near-traitors to those who are recruiting for government agencies.

Mr. Alexander’s linked cycle of short stories is not precisely a roman a clef. He scrambles his people well. But anyone who has lived and worked in Washington will take great pleasure in ob­serving how Mr. Alexander has selected from reality to confect a most absorbing parable.

 

***

Economic Intelligence

Many accept limited government as an important national goal. But some people do not view the postwar expansion of govern­ment as being inconsistent with this goal. They say that as popu­lation and production increases, it is only natural to expect that government will grow in proportion.

This argument does not fit the facts. The truth is that govern­ment spending—federal, state, and local—has increased much more rapidly than either population or production.

The following table shows (in billions) the increases over the 16-year period (in actual, not constant dollars):

 

 

 

 

Avg.

 

 

 

 

Annual

 

1947

1963

Increase

Increase

Population (millions)

144.7

189.4

30.9%

1.7%

Private national product

205.9

459.9

123.4%

5.2%

Total govt. nondefense expenditures

33.1

109.9

232.0%

8.0%

Federal govt. nondefense

22.5

61.0

171.1%

6.9%

State and local govt.

10.6

48.9

361.3%

10.2%

From the Weekly Bulletin of the Cham­ber of Commerce of the United States 

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October 1964

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Unfortunately, educating people about phenomena that are counterintuitive, not-so-easy to remember, and suggest our individual lack of human control (for starters) can seem like an uphill battle in the war of ideas. So we sally forth into a kind of wilderness, an economic fairyland. We are myth busters in a world where people crave myths more than reality. Why do they so readily embrace untruth? Primarily because the immediate costs of doing so are so low and the psychic benefits are so high.
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