Freeman

BOOK REVIEW

The Commanding Heights: The Battle Between Government and the Marketplace That Is Remaking the World by Daniel Yergin and Joseph Stanislaw

An Informative History of Socialism Marred by Poor Economic Analysis

JANUARY 01, 1999 by DAVID LITTMANN

Filed Under : Inflation, Socialism, Central Planning, Market Failure

Simon and Schuster • 1998 • 352 pages • $26.00

The danger in telling a good story is often the sacrifice of key facts, thereby distorting the reader’s understanding of reality. In The Commanding Heights, authors Daniel Yergin and Joseph Stanislaw describe the epic twentieth-century conflict between socialists and market advocates. This is an extremely worthy story, but the telling, although quite informative, has some serious gaps and weak analysis. We might say that it comes up one sandwich short of a picnic.

The book’s title is lifted from a saying of Lenin’s, that socialists must aim at seizing the “commanding heights” of a nation’s economy if they are to succeed in their plans. Yergin and Stanislaw embark on an ambitious journey to describe the eight-decade-long, worldwide struggle among economists and politicians with conflicting visions about government’s role in the economic and social life of their citizens.

One admirable accomplishment of the book is its tracing of the forces and individuals most centrally involved in the rise and fall of socialist policies around the globe. The authors have painstakingly developed the key names and ideas associated with the drama. Their history of each nation’s sorry experience with socialism is excellent. The anecdotes and damaging quotations from now-discredited proponents of socialism alone make the read worthwhile.

The greatest strength of The Commanding Heights is its comprehensive portrayal of socialism’s ascendency—the road to serfdom, as F. A. Hayek put it. Yergin and Stanislaw reveal an amazingly consistent pattern of political connivance and the distressing ease with which professional politicians and their coterie of “economic advisers” systematically capitalize on fear and gullibility among the masses to replace freedom and property rights with central planning and bureaucracy. The authors illustrate how eagerly totalitarians have—and in the future, will—pounce on every economic crisis as an opportunity to grasp more power.

But there are significant weaknesses in the book stemming from the authors’ deficient background in economics. This deficiency leads them to repeat familiar misconceptions about the free market, such as blaming it for the Great Depression. Readers are bombarded by “market failures” as the reasons for the subsequent rise of the central planners, but if the authors had looked more closely, they would have found that government intervention was responsible for all the economic shocks of the century.

Among the precursors of the crises exploited by the socialists are stifling taxes, trade restrictions, intervention in agricultural markets, counterproductive regulations, and perverse monetary and credit policies. The authors, however, accept the conventional, but unprofessional wisdom propounded by the propaganda organs of socialism that whenever something goes wrong, it’s a market failure for which the visionaries have a remedy. Consequently, the average reader is apt to blithely accept “market failure” rather than government meddling as the beginning of the government’s rise to the commanding heights.

The errors do not end there. Yergin and Stanislaw fail to distinguish between money and credit, and they totally miss the origins of the $200 billion savings and loan disaster. Those and other mistakes undermine the book.

Their understanding of inflation, for example, is weak. Inflation is always and everywhere a monetary phenomenon. Printing money faster than the growth of real output leads to an increase in the overall average price level. Yergin and Stanislaw, however, write as if increases in particular prices—oil, in this case—were the cause of inflation. Worse yet, they fail to examine the terrible policy blunders committed in Washington in an effort to “solve” the so-called energy crisis. Looking down from the commanding heights, our central planners gave us price controls, rationing schemes and, thanks to the Federal Reserve, torrents of new money and true inflation. Many important lessons can be learned from a study of the “energy crisis” of the 1970s, but the reader will have to learn them elsewhere.

The plentiful sins of omission and commission could have been avoided if the authors had talked less with the likes of Felix Rohatyn and had consulted more with, say, Walter Williams. Alas, they didn’t.

Read this book for its generally good history, but beware of its poor economic analysis.

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January 1999

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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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